Former auto industry exec discusses his new book, Car Guys vs. Bean Counters, and describes what he believes the soul of American business should be.
Former GM exec Bob Lutz
Tavis: Bob Lutz has been a creative force in the auto industry for nearly 50 years, including his tenure as vice chairman of General Motors. He’s also a noted author whose books include the best-selling business book, “Guts.” His latest is called “Car Guys Versus Bean Counters: The Battle for the Soul of American Business.” He joins us tonight from Ann Arbor, Michigan. Bob Lutz, good to have you on this program, sir.
Bob Lutz: Good to be here. Thanks for having me.
Tavis: Let me start by going straight to the subtitle of your text, which is the battle for the soul of American business. How would you define the soul of American business?
Lutz: Well, the soul of American business should be about pleasing customers and doing superior products, but I think for about the last 20 years we’ve been obsessed with business school techniques, analysis, projective analysis, tons of numbers, attainment of short-term profit goals, and we have somehow in many companies forgotten what we’re in business for, which is to provide a superior product or service which will permit us to complete globally, which manifestly we haven’t been doing so well for the last 20 or 30 years.
Tavis: When did a superior product take the back seat to pure profit?
Lutz: I think first of all, superior product is the one really safe way to get superior preferences, as General Motors is currently finding out. But this really started with the rise of prestige of the business schools, and it was in the late ’60s and early ’70s, and a lot of American management became very “scientific” and started saying, well, the product or service, let’s kind of set that aside.
That only has to be good enough to get by with it, and we’ll substitute butter for margarine and we’ll put a little more water in the soup and we’ll get it down to the complaint level. Then when they complain we’ll add a little back.
It all became what I call a cost optimization exercise as opposed to a customer satisfaction exercise, and I have an MBA myself, I’ve probably read hundreds of business school cases, which is a favorite teaching tool of the business schools, and they all revolve around reducing cost. They never talk about making the top line increase through doing a superior product.
Tavis: In this crisis, Bob Lutz, that the auto industry has endured, as I read your text you take on B-schools, business schools, as you’ve done just now, you take on the media, but to my read you aren’t as tough on labor unions, and there are a whole lot of folk who believe that part of the reason that the auto industry got in the mess that it got into was in part because of labor. Your thoughts about that?
Lutz: Well, yes, of course, but unions are a fact of life. Every other country has unions, too. Japan has unions, China is starting to have unions, the German car producers face probably the toughest and most expensive union in the world, called the IG Metall.
I would say the unions are popularly elected; their officials are elected by popular vote, so they have to do what the membership wants them to do, and the membership wants them to ask for more and more and more. And of course over the decades the American automobile companies gave the unions what they wanted until finally it became – it really became unaffordable.
That contract that was done in the ’80s sometime that gave them retiree healthcare, with first-dollar healthcare coverage, no generic drugs, all brand name, that finally wound up being a $7 billion annual check that GM had to write, and yeah, that was one of the things that brought the industry to its knees.
But I don’t blame the unions; I kind of blame the way management dealt with the unions, to a very large extent.
Tavis: You blame management. We’ll come back to that in a second. As I suggested earlier, and I’m okay with this, believe me, but you come after the media pretty hard. Unpack for those watching now the role that the media played in this crisis that the auto industry endured.
Lutz: Well, what I always say to media people is I love you all individually; collectively, I think you did the American automobile industry a great disservice, because for about the last 20 or 30 years it just became fashionable to just throw everything Detroit did, everything Detroit said was junk, not true, bad stuff.
As one journalist told me, he says, “Well, you were right.” The mantra was Detroit sucks because it just does. (Laughter) That was sort of the attitude, and the imports were constantly being praised, being praised for being smarter and being better and their executives were so modest and they didn’t get as much pay as we did.
It was all this, especially the Japanese. They were – Toyota was practically placed up on a 15-foot marble pedestal as the best, wisest, most altruistic car company in the world. Most of that was just a popular fiction.
It’s also true that some of the magazines told me quite frankly if we write something positive about an American car or we say – I’m making this example up – but a Camaro will outperform an equivalent Porsche, they would get hundreds of subscription cancellation letters of people saying, “You guys have sold out to Detroit, you’re not telling it like it is anymore.” So to a certain extent, the media were playing to their audience.
Tavis: So back to these bean counters and your point about management. What did they do wrong, where did they go wrong, why are the bean-counters to blame here?
Lutz: Well, the bean-counters don’t just mean finance people. Bean-counters are everybody in the company who kind of skews common sense and skews the logical thing and is not willing to approach the product or service with a great deal of passion, and instead tries to say, “Let’s be rational here, folks – we’re running a business. Let’s write down the three-year projection, decide where we want to be profit-wise three years from now. What do we want the share price to be?”
So they write down the rewards and then they work backwards and only put as much into the product as they feel they can afford in order to reach that financial goal. And guess what? It’s a numerical exercise because three years later when the cars come out, they don’t sell. It took them 30 years – and by the way, all three companies, General Motors was perhaps the biggest and in some cases you could say the worst at this, but it was 30 years of doing this and it didn’t work, and still they placed their faith in more and more analysis.
Guys like me, who said, “Skip all those numbers, they make no sense, it’s never going to come out that way. The only way that we can make a decent profit around here and gain market share is by benchmarking the competition and doing better products and more beautiful products than the competition is doing.”
I was sort of patted on the head and said, “Yes, yes, Bob, I know that’s all very well, but that’s not the way you run a large company.” say, look at Steve Jobs at Apple. I say that is the way you run a large company.
Tavis: You are an interesting guy for a lot of reasons, but there are two examples I want to cite right now, Bob Lutz. You don’t believe in global warming and yet you’re behind and support the electric car. You’re an auto guy through-and-through for 40-plus years and yet you can empathize and see a rationale for higher gas prices. You’re a walking contradiction sometimes, aren’t you?
Lutz: Well, no, I see it as purely logical. The reason I don’t believe in anthropogenic global warming is if you look at the predictions from 1996, the International Panel in Climate Change, you look at the prediction from 2001, you look – none of it’s happened.
I do very much believe that the country has to wean itself off of foreign oil. Now, the reason that I like – I always say if I were emperor of the United States, which is about the only way you could get this done, I would ordain a .25 cent a gallon increase per year in the price of gasoline, because in the U.S. at $3.50 a gallon we’re still only paying half per gallon what the rest of the world pays.
With the federal emphasis on mandated fuel economy, they’re talking about 56 miles per gallon now by 2025; the only way you’re really going to get that is if you make people want more fuel-efficient automobiles.
So if you have a progressively increasing price of gasoline, when people change cars they’re going to think about it and say, “Wait a minute – $3.50 this year, $3.75 next year, $4 the year after that. I’d better buy something more fuel efficient and with a smaller engine.”
So you actually use the fuel price, a predictable slow rise in the fuel price, you actually use that as a market mechanism to get people to want to buy these smaller, more expensive, more fuel-efficient vehicles, because right now at $3.50 a gallon they’re still buying full-size SUVs with V8 engines and will continue to do so.
Tavis: We know the crisis that the industry has endured, Bob. Your sense of whether or not the industry as a whole is on the right track. Moving now in the right direction, yes or no?
Lutz: Yes, absolutely. I’m super-optimistic about the American car industry.
Tavis: The new book by Bob Lutz is called “Car Guys Versus Bean Counters: The Battle for the Soul of American Business.” Agree or disagree with his beliefs, there is no one who knows the business better than Bob Lutz. Bob, good to have you on the program. Thanks for your time, sir.
Lutz: Great to be here, thanks very much.
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