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Quality: Job 1?

In a world where companies of all shapes and sizes are cutting costs, the one thing General Motors and Ford can’t afford to do is cut corners. But how do they reverse the impact of trends that have already led to the elimination of tens of thousands of jobs and billions of dollars in sales?

In a world where companies of all shapes and sizes are cutting costs, the one thing General Motors and Ford can’t afford to do is cut corners. But how do they reverse the course of something that has already led to the elimination of tens of thousands of jobs and billions of dollars in sales?

Both Ford and GM, as part of massive restructuring efforts, have either eliminated jobs or offered buyout packages for most of their skilled and experienced workforce. To date, GM has cut 35,000 and Ford has cut 38,000, with more reductions likely on the horizon.

With so many experienced employees leaving the company, Ford and GM need to fill in the gaps, and that usually means temporary workers. However, if the automakers choose to go that route they may be sacrificing quality at a time they can least afford it.

Graham Foster, author of The Power of Positive Profits and an authority on profit calculations, notes the difference between perceived quality and product quality. Product quality, he says, comes from the factory, while perceived quality comes from the minds of the consumers. That perceived quality is something Toyota has - and something Ford and GM desperately need.

“Customers buy value, which stems from benefits, which stems from the features,” Foster says in his book.

Foster says Ford and GM need to stop competing with each other on price. (He describes the companies as having “price incontinence,” being overly eager to discount prices in an attempt to hurt each other.) Ford and GM also need to market to the entire American market, instead of focusing on niche groups, if they want to be as profitable as Toyota.

Meanwhile, in November Toyota’s sales surpassed those of Ford for just the second time ever. Toyota sold 196,695 vehicles, a 15.9 percent increase from 2005, while Ford sold 182,259 vehicles, down 10 percent from the previous year. Ford lowered its fourth quarter production target from 635,000 to 620,000 vehicles and expects to produce 750,000 vehicles in the first quarter 2007. For the first quarter 2006, it produced 876,000.

On Thursday came word that Ford may lose its position as the No. 2 automaker in the U.S. - to Toyota.

What’s the secret to Toyota’s success in the U.S.? Cup holders. It may not seem like much, but Toyota had surveyed consumers and found that cup holders were a high priority. Foster suggests Ford and GM listen to their customers more. Toyota uses consumer feedback for R&D, while Ford and GM tend to listen to their engineers.

As for hiring temporary workers to fill the void from the layoffs and buyouts, Susan Bates, President and CEO of Bates Communications, says companies should have a communications plan in place when they look to hire temporary workers, who need to be trained quickly and get themselves acclimated to the environment. Therefore, companies need to have a communications plan in place at all levels of management in order to facilitate their adjustment.

Marcy Evans, Labor Affairs Public Affairs Manager at Ford, said that it is too early to tell when and to what extent the company will be using temporary employees. The employees that have accepted the buyouts won’t begin to leave the company until January 2007 and will continue to phase out until September. The company did say that it will use temporary employees as necessary during the transition.

Dan Flores, GM spokesman for manufacturing and labor relations, said that GM had made an agreement with the union to hire temporary workers as a “short term bridge” while the company transitions.

Since adapting to a new business culture is a common concern when dealing with temporary workers, Joyce Gioia-Herman, President and CEO of the Herman Group, a group of management consultants and business futurists, suggests having retired employees serve as mentors for the temporary workers. It can be a much-needed paycheck for the experienced workers, and the temporary workers learn from those that have “been there, done that.”

Bill Adams, Ph.D., of labor management consultants Adams, Nash, Haskell & Sheridan, notes that temporary workers often lack the same allegiance to the company as the regular salaried employees do. of course, many temporary workers are also eager to learn and are hoping to turn their temporary spot into a permanent one, and Gioia-Herman also notes that, provided quality doesn’t slip, it can make economic sense as the company doesn’t have to pay for expensive health care.

But does it make good business sense?

“Planes don’t crash because of passengers, they crash because of pilots,” Foster says. He feels Ford and GM are making a mistake by cutting their experienced workforce and instead should be cutting their CEOs and other high management positions.

Foster proposes a math equation for Ford and GM called the “Golden 1 Percent.” In the equation, Foster suggests the companies decrease costs by 1 percent, increase sales by 1 percent and increase price by 1 percent. If a company can manage to do all three, it can increase profits by up to 25 percent. Right now, they need to focus more on profits than on market share.

“Would you rather be a small company with profit," he asks, "or a big company with no profit?"

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