GM's long overconfidence game

nummi_plant.gi.top.jpg By Paul Sullivan, contributor


FORTUNE -- In 1982, General Motors closed its manufacturing plant in Fremont, Calif. The location, far from Detroit auto suppliers, was considered among the worst-performing assembly lines in the company's system. Roger Smith had become GM's chairman the year before Fremont was closed, and he had begun to think of ways to reorganize the car company. He knew there was a problem; he just wasn't sure what it was, exactly, or how to fix it.

Then along came Toyota (TM) looking to strike up a joint venture with an American car company as a way to expand into the U.S. market. GM offered them Fremont, and at the time, it seemed Toyota had been stuck with a lemon. In 1984, Fremont was reopened as New United Motor Manufacturing Inc., or NUMMI. Toyota had retooled the space, but as part of the agreement, it had rehired many of the same 5,000 employees who as members of the United Auto Workers had made it an unruly and inefficient place. While GM provided the plant and a dysfunctional workforce, Toyota agreed to teach GM executives the Toyota Production System, its management technique that had gained popularity through the 1970s.

clutch.03.jpg

On the surface, it looked as though Toyota was giving away the two most important things it had as a company to the world's biggest automaker: TPS and compact-car know-how. It seemed liked a decidedly uneven deal, tilted in GM's favor. It looked even worse when you judged Toyota against its Japanese competitors, who had opened standalone plants. Their competitors' plants could also start from scratch without an entrenched UAW way of doing things.

Toyota was aware of all of this, but as a cautious company, it preferred signing on with a partner to going it alone in a market that it did not fully understand. In December 1984, the first Chevrolet Nova rolled off the assembly line. It was an exact copy of the Toyota Corolla, a light and basic box with wheels. That spring, cars made at NUMMI went on sale. The Nova would eventually be marketed under the tagline "Imported from America."

But GM, while still the world's biggest carmaker, had actually not gotten as much out of the deal. For one, it had not learned to market a small car. The Nova was a flop compared to the Corolla, and this made no sense to them. Before the Nova was discontinued in 1988, the two cars were the same. They were made at exactly the same plant, by exactly the same workers. One had a Toyota nameplate, the other said Chevy. Yet consumers treated them differently. There was still the perception that Toyota made a quality compact car and GM did not. For once, there was absolutely no basis for that opinion.

Failings with the NUMMI joint venture were not the reason GM ended up in bankruptcy. But NUMMI was one of the many small and large mistakes executives made at the automaker over decades. The root problem it illustrated was a persistent overconfidence, a belief despite evidence to the contrary that GM was the best carmaker in the world and would always remain so. This shows what happens when executives stop believing failure is a possibility and cease making the difficult decisions a company needs to prosper. Overconfidence in the day-to-day operation of a business leads to choking in the clutch. GM, at the end of the day, became a frog in a boiling pot of water: It did not realize it was getting cooked until it was too late.

Rick Wagoner, the company's last prebankruptcy chief executive, had resisted the Chapter 11 filing until he was forced out by the U.S. government as part of its increased bailout. He will be forever linked to the collapse of the company, but this is not entirely fair. While he made some mistakes-defending the Hummer brand, failing to sell underperforming brands sooner, starving Chevy of new models-he was just the last overconfident man in a long line of overconfident GM men stretching back beyond Roger Smith.

At NUMMI, and Toyota in general, the Toyota Production System was designed to prevent the overconfidence that comes from an ingrained way of doing things. What drove the company was the desire to make the cars they produced better, even when they were already good. And this meant competition within the company itself. There is always something to improve and improvement itself, not a fixed goal, becomes your job. There is no time to sit back and be complacent.

Excerpted from Clutch. Published by Portfolio. Copyright Paul Sullivan, 2010.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Find Your Next Car
Company Price Change % Change
Bank of America Corp... 16.79 0.22 1.33%
Microsoft Corp 46.70 -0.30 -0.65%
Cisco Systems Inc 25.16 -0.02 -0.08%
Intel Corp 34.62 -0.40 -1.14%
Regions Financial Co... 10.35 0.07 0.68%
Data as of Sep 12
Index Last Change % Change
Dow 16,987.51 -61.49 -0.36%
Nasdaq 4,567.60 -24.21 -0.53%
S&P 500 1,985.54 -11.91 -0.60%
Treasuries 2.61 0.08 3.28%
Data as of 5:42am ET

Sections

Uber isn't going head-to-head with FexEx, but it is claiming a piece of the delivery market. More

It's game time for the Fed this week, and investors are trying to read its playbook on interest rate hikes. More

Atlanta has the country's highest level of income inequality, but civic entrepreneurs can close the gap. Here's how. More

An extended time off from work can give you renewed energy for the job you have or give you time to figure out what you really want to do. Here are 8 lessons learned. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.