Toyota's & GM's Texas Plants

Wednesday's Wall Street Journal featured an article comparing the Texas production plants of GM and Toyota. The overall conclusion was that, although GM's facility is its most "efficient" one, it is still running behind Toyota's newer one.

I have a couple of observations.

The first one involves barriers to entry. If you don't already see auto production and marketing as a low barrier-to-entry business, and, thus, a business tending toward commoditization, this piece ought to be your wake-up call.

It reminds me of a business in which I was engaged to troubleshoot at Chase Manhattan Bank years ago. The master trust and custody business was primarily an IT activity. It involved electronic record-keeping of pension funds and the associated assets, as well as handling the interfaces for trustees (the companies with the pension plans) with their designated asset managers (the money management funds actually managing the pension assets). What we found back in the 1980s was that any bank could, if it so chose, invest sufficiently to develop a newer, more feature-laden system, and begin to take share from existing providers with older, more antiquated capabilities. At the time, Bankers Trust was doing just that, and taking share from the weaker players in the marketplace.

This awareness informed us, the corporate planning strategic troubleshooters for the bank, that the pension trust and custody business was going to have some natural limits to ROI, due to the need for ongoing investment. Thus, any value-adding edge we hoped to create and sustain was going to have to be from growth. Margins were always going to be under pressure due to significant ongoing systems developments and upgrades.

The WSJ piece on the auto plants reminded me of this. If all it took to best GM's best plant was a slightly more forward-looking perspective by Toyota, then GM investors crowing about this week's temporary stock price reprieve should take a really good look at this story about the Texas facilities.

Legacy issues are fact. I've written about this in connection with technology companies last fall. Now, we see it in something as mundane as auto production.

A related topic mentioned in the article is how the writers chose to treat the "productivity" of the two plants. For my views, see this post, and this one as well.

In one paragraph, they discuss the labor hours per vehicle at the GM plant. Later, they note that, when actual labor rates, meaning unionized wages and substantial GM overhead, are applied, Toyota's newer plant wins, hands down.

My question is, why even bother with hours/vehicle? That's "efficiency," not "productivity." Productivity implies value, and even adding labor costs doesn't totally reflect the "productivity" in terms of value-added to the vehicle, and its salability. For arguments' sake, let's agree that the GM vehicles in question are very salable, for now.

My overall impression is that the article provides a rather useful anecdote as to just how much continuing trouble GM has on its hands. Like it or not, being the one-time share leader in a business that benefits from at least one entrant's continuing drive for improvements- in product, production processes, etc- can cause existing market leaders to simply crumple from inertia.

So, for what it's worth.....that GM stock price rise this week? Well, I don't hold the stock to begin with. If I did, after reading this WSJ piece, I'd be thinking profit taking. There are plenty of better opportunities for less-risky investment gains than GM right now.

But maybe that's just me....