General Motors and Toyota Competing with Quality to Stay on Top

Preface

Quality is something everyone strives for in a consumable good. Quality is especially important when it comes to bigger purchases such as automobiles. The American Automobile industry has suffered a loss in market share to the foreign automotive companies. One of the reasons for the loss in market share is quality management. The quality of an American automobile is just not the same as a foreign name brand like Toyota. This paper will compare and contrast the differences in Quality Management of General Motors the leading American competitor to the leading foreign competitor Toyota. “In 1950, America produced 79.4% of the world’s automobiles. By 1981, its share had slipped below 30%” (Yates 1983). In 2007 the American Automakers held 52.6% of the market share in the United States, which was up from 2006 at 51.5%. As the market shares continue to fluctuate GM is the front-runner of the American automobile industry with 23.8% of the U.S. Market share while Toyota holds 16.2% of the U.S market share. (Autodata corp.)

Part 1: History of General Motors

September 16, 1908 General Motors was formed. At the time GM consisted of Buick, Pontiac, Cadillac and GMC. In 2008 GM consists of Chevrolet, GMC Pontiac, Buick, Cadillac, Hummer, Oldsmobile Saab, and Saturn. By the 1920’s the demand for automobiles grew to unexpected heights. “General Motors set the pace of production, design, and marketing innovation for others to follow” (GM.com). By 1929 General Motors was established in India, Brazil, China, Canada, and Europe. Quickly becoming one of the world’s leaders in automobiles.

In 1942 World War II was upon us and GM converted 100% of its operations to the war effort. GM delivered more than $12 billion worth of materials including airplanes, trucks and tanks. During the 60’s and 70’s the fuel prices started to rise and foreign competition led to the downsizing of the vehicles across all of General Motors lines. People were beginning to want lighter, aerodynamic, and fuel-efficient vehicles. By 1982 GM added Saab and Hummer to the lines and in order to strengthen the reach and variety of vehicles sold worldwide. 1995 was the biggest year for General Motors as sales outside of North America exceeded 3 million units while sales in the United States hit 5 million units. “By the end of the 90’s, the foundation for global growth in the new millennium had been set” (GM.com).

At the turn of the 21st century it was prevalent that the environment needed to be preserved. General Motors began creating vehicles that were more environment friendly. General Motors has innovated itself by creating fuel-efficient vehicles, bio fuels and hybrids. In 2003 General Motors partnered with Shell Hydrogen, a division of Shell Oil to hydrogen fuel cells and fueling infrastructure technology.

Part 2: History of Toyota Motor Co.

The Toyota Motor Company was established in 1937 with the A1 prototype passenger car. Under the reign of Sakichi Toyoda the soon to be largest automobile manufacture was beginning to take shape. In 1953 the company slogan was “Good Thinking, Good Products.” This slogan would play an important role in the growing years of Toyota to come. By 1957 Toyota Motor Sales U.S.A. was established. This gave way to the first export of Japanese passenger cars to the U.S. “In June 1960, Eiji Toyoda, then Executive Vice President of Toyota Motor Co., Ltd. (TMC), laid down guiding principles for quality control in a document named “Requests regarding inspection.” In it he introduced the notion of “building quality into processes,” pointing out that “the idea behind an inspection is to eliminate the need for inspections.” As long as standards in processes could be kept at the highest possible levels, Toyoda thought inspections would, in an ideal world, become unnecessary.”(toyta.co.jp). In 1962 the Corolla was introduced which is still being built today. Also in 1962 Toyota reached the 1 million units produced in Japan mark. By 1969 Toyota had already exported over 1 million units.

In 1970 Toyota was awarded the first Japan Quality Control Medal. As the number of units produced in Japan exceeded 10 million in Japan by 1972. By 1975 the cumulative exports reached 5 million units. Then in 1977 the Toyota Technical Center U.S.A. was established. Shortly after the 5 million mark in 1975 by 1979 Toyota already reached the 10 million export mark. By 1986 Toyota had already reached its 50 millionth vehicle and 20 million exports. As Toyota grew rapidly in the Japanese markets as well as the U.S. markets Toyota decided in 1988 to start production on the Toyota Motor Manufacturing plant in Kentucky. Soon after in 1989 the Lexus dealerships started to arrive in the United States. Lexus is Toyota’s high-end luxury brand of automobiles. Just like Cadillac is to General Motors.

In the mid 90’s the annual overseas out put was exceeding 1 million units. Toyota began to open up manufacturing pants like the one in Kentucky in Indiana, West Virginia, and in the United Kingdom. By the end of the 20th century Toyota was listed on the New York and London Stock Exchanges and exceeding annual overseas sales of 3 million units.

“By 2002 the North American production achieved 10 million units cumulative production” (Toyota.co.jp). By 2005 Toyota was producing vehicles in Russia, China, Brazil, United States of America, United Kingdom, and Mexico. Also in 2005 Toyota launched the Lexus brand in Japan. Along with General Motors Toyota is creating Hybrid vehicles and already have some Hybrids on the road. With sales expected to grow as the fuel prices rise.

Part 3: Quality Comes First

When we buy an automobile we expect it to be reliable and built with quality. J.D. Power and Associates do an Initial Quality Study twice a year for new model automobiles. “The 2007 Initial Quality Study is based on responses from more than 97,000 purchasers and lessees of new 2007 model-year cars and trucks surveyed after 90 days of ownership. The study is based on a 228-question battery designed to provide manufacturers with information to facilitate problem determination and drive product improvement. The Initial Quality Study serves as the industry benchmark for new-vehicle quality and captures problems experienced by owners in two distinct categories – quality of design and quality of production (defects and malfunctions).” (J.D. Power) The data is interpreted by “Problems Per 100 Vehicles.” The industry average for the study is 125 Problems Per 100 Vehicles (PP100). In the most recent survey released in June 2007, 35 automobile manufactures were apart of the study, Lexus, Toyota’s luxury brand was ranked second overall with a 94 PP100. Toyota came in at 7th with a score of 112 PP100 and Scion followed in 11th with a score of 123 PP100. All of the scores were below the industry average of 125 PP100. General Motors had 8 brands of the 35 studied and all were over the industry average. Buick was ranked 14th with a score of 127 PP100, Chevrolet was ranked 15th with a score of 129 PP100. Overall the average score for General Motors was 135 PP100. While Toyota’s overall average was quite lower at 110 PP100. Below is a chart showing the data provided by J.D. Power and Associates.

J.D. Power and Associates 2007 Initial Quality Study

Only Toyota and General Motor’s brands June 6, 2007

Another ranking that is given out by the Initial Quality Study is the Assembly Plant Awards. The assembly plant awards are solely based on the defect counts. The lower the defects the higher the ranking. Platinum is the highest award a plant can receive. “Among other North and South American plants, the General Motors Oshawa 2 plant in Ontario, Canada which produces the Buick LaCrosse and Pontiac Grand Prix, received the Silver Plant Quality Award.” (J.D. Power) In the Asia Pacific region, Toyota’s Kyushu, Japan, plant, which produces the Lexus ES 350, Lexus IS 250 / IS 350, Lexus RX 350, Lexus RX 400h and Toyota Highlander / Highlander Hybrid received the Gold Plant Quality Award. Toyota’s Fujimatsu, Japan, plant, which produces the Toyota Prius, earned the Silver Plant Quality Award.

“Over the past 20 years, the automotive industry has improved in quality at the rate of 6 percent per year on average –a 20-year improvement rate of more than 120 percent” (JD Power). This study has become very helpful for automobile manufactures to retool and improve the automobiles of the future. The study shows that vehicle redesigns and product launches create quality challenges for manufacturers. Vehicle redesign increases problem counts on average by 10 PP100. “Ideally, manufacturers should aim to achieve high initial quality when launching a new model, since this builds strong foundation for future years can become a differentiating factor to the competition” (J.D. Power).

Part 4: General Motors Quality History

In the early years of General Motors after World War I the automobile business slowed and the founder of GM William Durant was forced to resign as president in a severe financial and management crisis. Alfred P. Sloan, Jr. would take the position and head the corporation. Shortly after GM would become the largest producer of cars and trucks in the world. “The new product concept which evolved under Sloan was to produce “a car for every purse and purpose” and continuously improve all GM vehicles” (Smith 1983,15). Sloan’s management style was to maintain balance between individual and group management, preserving the advantages of each. Sloan called it “decentralized operations and responsibilities with coordinated control.” Basically give the employee a clear responsibility and let the employee do it.

While GM was improving its products with many automotive firsts the war was just beginning to start. When World War II started GM halted all automobile manufacturing and turned all of its plants to help the war effort. From 1940 to 1945 GM’s “contribution spanned from the tiniest ball bearing to massive tanks, naval ships, fighter planes, bombers, guns, cannons, and projectiles” (Smith 1983, p16).

Car making resumed after the war. In the fifties the sales of General Motors soared. Then in the sixties the government started regulating the American automobile industry. Then in the seventies the fuel prices began to rise due to the events in the Middle East. “Foreign manufacturers, which had a ready supply of small, fuel-efficient vehicles, gained a strong hold in the U.S. market segment” (Smith 1983, p19)

At some point around 1960, “America began to rush to exploit the quickening demand for consumer goods swept aside pride-of-workmanship in the name of quick profit”(Yates 1983 p232). This would become a snowball effect and leads us to where we are now with the poor quality General Motors vehicles when comparing them to Toyota. “In the rush to meet the demands of the bursting marketplace, quality and quality control were left far behind” (Yates 1983 p233). It was as if every automobile that was manufactured in Detroit had some degenerative disease; as if the molecules of metal began disintegrating the moment the helpless customer rolled his new car onto the street. The situation reached its height in 1978, the last boom year for Detroit. The American automobile manufacturers were pumping out automobiles at a furious rate, with little regard for quality. While pressures from the governement to meet emmision standards, the engineers were focused on the future and not on the automobiles pouring off of the assembly lines. This resulted in some of the worst automobiles in the history of the industry.

General Motors had the line of cars called the X-cars to compete with the foreign front wheel drive market. These cars were recalled no less than four times in 1980 alone. While General Motors was considered the best of the domestics it was still not as good as its foreign counterparts.

Another important aspect when buying a car is you want it to look good for a long time. The nice paint job is important and should last for many years to come. American paintwork looked inferior to Japanese and European cars. The Americans were struggling with color matching between metal and plastic surfaces. Adding to the problem was poor fit body panels and doors, wavy chrome trim, and badly stitched interiors. This led to a massive barrier in the marketplace. Because of the Eviromental Protection Agency and OSHA (Occupational Safety and Health Administration) regulations it made it harder in America to paint the vehicles. They were not allowed to use some of the chemicals, and methods the Japanese were. In Japan they did not have such stringent rules against the environment and occupational safety of their employees. “Nobody realizes how difficult it is to paint a car, or how expensive it is to design and build a modern paint shop that will produce first-class results and still be environmentally clean” (Yates 1983, p235). Because of all of these issues it has resulted in a public perception of domestic car quality as inferior to that of foreign markets.

Part 5: Toyota’s Total Quality Control

In June of 1960 the Vice President of the Toyota Motor Company Eiji Toyoda laid down principles for quality control. He released a document named “Requests Regarding Inspection.” In the document he introduced the concept of “building quality into processes,” pointing out that “the idea behind an inspection is to eliminate the need for inspections” (Toyota.jp.co 2008). Eiji created this because “increased output in response to the incredible surge in demand due to Japan’s rapid motorization at the time saw a huge influx of insufficiently trained new staff at the factories. This was having serious repercussions on quality” (Toyota.jp.co 2008).

By June of 1961 Toyota Motor Company had adopted the system of Total Quality Control to modernize management operations. All of the Toyota Motor Company employees were required to “regard the next processes (on the production line) as their customers and provide them with the required amount and quality of goods and services on a timely basis” (Toyota.jp.co 2008). Toyota also created individual quality control circles to determine the cause of defects to keep them from happening again. In addition quality control teams were formed at all levels to promote company-wide participation.

Another area of the quality aspect that is easy to overlook is the suppliers that supply the automakers with the raw material and parts to make their automobiles. Toyota makes sure they do not buy any materials from suppliers unless they are thoroughly inspected so when they are arrive to the plants they know they are getting a good product. They also hold these suppliers accountable to continue delivering top-notch quality materials. On the other hand General Motors has a warranty reduction department to identify parts or materials that break down in the field causing high warranty costs and help suppliers of those parts reduce breakdowns. However this does work often times it is more costly and too late if you have to complete a warranty job on someone’s vehicle. Toyota makes sure not to have these problems in the first place so when their customer buys their product they know they are getting quality automobile.

Jeffery L. Liker, author of “The Toyota Way” worked for General Motors and other U.S. automobile companies before joining Toyota. When he joined Toyota he mentioned, “In no time at all I noticed a fundamental difference between Toyota and my previous employers.” “I witnessed the transformation of a workforce from one of the worst in the General Motors system to one of the best in any manufacturing facility in the United States. The difference was the “Toyota Way”(Liker 2004 p. xi). “The Toyota Way” is a model that many companies in the United States have adopted as their own. “The Toyota Way” consists of 14 management principles that all work together to create one of the most successful automobile companies in the world. “Toyota’s success derives from the balancing the role of people in an organizational culture that expects and values their continuous improvements, with a technical system focused on high-value-added “flow.”(Liker 2004 p. xv) Below is a picture of what the Toyota Way looks like.

The Toyota Way (Liker 2004 p.6)
Toyota uses a production system called “The Toyota Production System (TPS).” “The Toyota Production system is Toyota’s unique approach to manufacturing” (Liker 2004 p7). It consists of the “lean production” along with the Six Sigma approach. The 14 principles that make up the Toyota Way follow the TPS approach.

Principle 5 is one of the most important principles in terms of quality. Principle 5 states; Building a Culture of Stopping to Fix Problems, to Get Quality Right the First Time. “Russ Scaffede was the vice president of Powertrain for Toyota when it launched the first American powertrain plant in Georgetown, Kentucky. He had worked decades for General Motors and had an excellent reputation for a manufacturing guy” (Liker 2004 p. 128) At General Motors Scaffede learned the golden rule of engine production, do not shut the assembly plant. At General Motors the managers are judged by their output. The more that was outputted the better they were. If you did not output enough you would loose your job. This is where Toyota separates itself from a company like General Motors. In Scaffede’s case the first month with Toyota he did not shut the plant down once for a whole month outputting a lot of engines. Scaffede thought he was doing great when president of the Toyota Motor Company in Kentucky said, “If you are not shutting down the assembly plant, it means you have no problems. All manufacturing plants have problems. Please take out some inventory so the problems surface. You will shut down the assembly plant, but you will also continue to solve your problems and make even better-quality engines more efficiently” (Liker 2004 p. 129). With this said it just shows how much the Toyota Motor Company lived by their “Toyota Way.” They needed to make sure they took the time to get things right first so there will be few mistakes and few imperfection in quality. By not running the plant constantly 100% of the time and taking the time to get things right first they are able to output more inventory over the long run.

“Toyota learned long ago that solving quality problems at the source saves time and money downstream. By continually surfacing problems and fixing them as they occur, you eliminate waste, your productivity soars, and competitors who are running assembly lines flat-out and letting problems accumulate get left in the dust” (Liker 2004 p.130). Toyota prides itself on quality and because of this they have been one of the most successful auto manufactures in the world.

Toyota keeps things simple and use four simple key tools. The first tool is “Go and See.” In other words this is where management will go and look at the problem first hand to see for them selves what is going on. The second is, “Analyze the Situation,” which means to fully understand the problem and complexity and make sure you have the right solution to fix it before moving forward. The third is to, “Use one-piece flow,” which consists of the type of manufacturing. Using a continuous manufacturing where everyone stops in the section when a problem surfaces. The final key tool is “ Ask why? five times. Using this tool when a problem surfaces if you ask why at least five times you will get to the root of the problem. An example would be: Why is there oil on the ground? (one) The car is leaking. Why is the car leaking? (two) A bad seal somewhere. Why is the seal bad? (three) That’s the way the supplier made it. And as you can see you could keep going through the “whys?” and get to the root cause of the problem.

While Toyota continues to improve its quality they are constantly re-innovating and coming up with new types of vehicles to stay competitive with the fuel-efficient market like the Hybrid vehicles. It is obvious that quality has been an essential part in Toyota’s development since the 1960’s. As they continue to dominate the market only time will tell how large they will grow and thrive on their own successes.

Part 6: Conclusion

“In 1979, GM controlled 48% of the domestic car market. In 2007, it’s struggling to hang on to 25% of it” (Lorenzo 2007). They ignored the seriousness of competition from their Japanese competitors for so long that by the time they woke up to the reality of what was happening, it was way too late. Toyota’s products were better, more reliable, and often cheaper than the Detroit automakers. Although the quality gap has grown smaller between the two the fact of the matter is that Toyota can build their vehicles for far less cost than that of General Motors and GM will always be playing catch up in the market.

General Motors needs to learn and adapt some of the Toyota Way principles in order to develop the quality of their cars. There was a time in the 70’s to 80’s that certain government agencies kept GM from using certain chemicals or processes to build their cars. They have since overcome these obstacles and are reinventing the different ways to paint and build the cars abiding to these regulations. As General Motors continues to develop their quality they will rebuild their reputation.

Although General Motors and other American automakers have gotten the stigma that their quality is poor it is obvious that it is improving. In the J.D. Power associates quality ratings the gap between Toyota and General Motors is getting smaller each year. General Motors is improving their quality so maybe one day soon they will be able to stay competitive with Toyota in terms of quality.