June 5, 2008

Transcript of interview with Gary Cowger and Ron Harbour, discussing results from 2008 Harbour Report on productivity.

Tom:        Welcome to GM Manufacturing’s pod cast about the annual Harbour Report on productivity.  I’m Tom Wickham, Manager of Communications for General Motors.  With me today in the OnStar Studios are Gary Cowger, Group Vice President of Global Manufacturing and Labor Relations, and Ron Harbour, President of Harbour Consulting, which is based in Michigan.  Thanks, gentlemen, for taking time out of your busy schedules so we can talk about the Harbour Report.  So why don’t we get started.  Ron, please give us an overview of the latest Harbour Report, providing your key takeaways from the results.

Ron:          What’s interesting is that this year we continue to see improvement among all companies despite the fact that there have been dramatic changes in the environment in which they’re operating in, volume losses, pretty significantly, and particularly in segments like big truck vehicles and SUVs and so on and so forth.  So, in GMs respect the fact that there’s continued improvement there and consistent improvement I think speaks a lot towards what GM has done in terms of implementation in GMS and the continued focus on that and maturation of that process.

Tom:        Gary, what’s your take on the results and what’s happened in the last year?

Gary:        Well, you know, I agree with Ron.  I think when you look at the volume losses, particularly in the domestic manufacturers and all of them making productivity improvements I think that’s a positive thing for the domestic auto industry.  For GM in particular to have taken the volume that we did out and had the launches last year and still show a positive productivity improvement I think speaks very strongly for GMS and the whole North American team.  And I think it also reinforces a consistency of what we’ve been able to do over the last few years.  I think, Ron, if I’m not mistaken, that we are the only manufacturer that continues to show year over year improvements since you’ve been doing this study.

Ron:          Yes, every year for most of twelve – fifteen years now.

Tom:        That’s quite an impressive performance when you look at it and you go back in time and how dramatic the change has been.

Gary:        Well and that’s what we see in the plants is that you try to understand when you visit the plants whether there’s going to be sustainability.  And what we’re seeing from what GMS has done is that there is substance to that that allows improvement to continue no matter what the environment.  There have been plenty of companies in the report that had dramatic improvements in one year and then they go back the next year because it’s really not a sustainable improvement.  It may just be from dramatic outsourcing or doing this or that.  Those aren’t sustainable improvements for a plant.  And I think what GM has done has been pretty consistent in that number, that consistent number bears that out.

Tom:        If we could for a moment here let’s talk about the fundamentals of closing that gap.  And, Ron, can your zero in on, you know, maybe two or three of those points that have been strong for GM?

Ron:          Well, there are two things that have occurred.  GM has dramatically tackled the component of labor in building a vehicle.  You know, coming up with vehicles that are easy to build, improving processes and allowing workers to be more productive.  And that’s a half of it.  And then with last year’s labor agreement dramatically attacked the cost for each unit of labor hours.  So when you put that together what we should see in the next three or four years is a dramatic reduction in the total labor cost to build a vehicle because of those two now playing together.  The reason that’s important, and because most buyers don’t care less about productivity, but the reason that’s important is now that’s dollars that we couldn’t charge the customer for when we were inefficient.  But you can take those and put them back into the product.  When you look at some of the products that GM has come out with it’s had to invest in some new really nice interiors and things like that.  But GM hadn’t had the money to do that in the past and now by freeing up some of that cash that ability is there to do it and take the successes of some vehicles like the Malibu, like the Escalade, like the CTS and spread that across the full breath of product and have a huge chance of gaining back a lot of that market share.

Tom:        Gary, obviously very important point made there about cost reduction, but we’re adding a lot of value into our products, as Ron was saying, better interiors when you look at the new CTS.  I mean you must really be proud of the fact that we’ve been able to see sustainable improvement over the years, but we have products that far exceed the expectations of people who used to buy the products and we’re trying to woo back.

Gary:        Yeah, as you know, particularly the focus on interiors has been dramatic within General Motors over the last five years, and you’re just now starting to see some of the results of that hitting the marketplace like the new CTS.  That speaks not only well of, I think, the design and the assembleability of it, but it speaks well of their product engineering group because that’s really, it’s the quality of materials, it’s the quality of the execution, the design, you know, it’s the jewel-like appearance, it’s the bright chromes, it’s all of that that goes together that gives this, the customer what they want to see when they get in the interior of the car.  And at the same time have continued to improve the assembleability of it and keeping the hours per car down.  I think the other point that Ron made was absolutely right.  When you look at assembly hours per car, the pack is getting pretty tight now; everybody is running about the same.  So now you’ve got to get at the waste, the other waste in it and I think this new agreement that we got with the UAW, and my hats off to them for that, is to really get at that and start to get at total cost per car because at the end of the day that’s what’s important and that’s what the customer cares about.

Ron:          The other phenomenon I think we’ve seen in the numbers is that the mix of vehicles that Japanese producers make is now more similar to GM.  So they’ve gotten into pick-up trucks and large SUVs.

Gary:        V8s.

Ron:          Yeah, V8 engines.  Because some of their advantage before was the fact that it was more small to midsize cars and four and six cylinder engines and that kind of thing.  And now that that mix is closer that’s closed some of that gap, too; in fact, we saw some of the Japanese go backwards this year.  Because they’ve also been hit in those larger vehicles and loss of volume.  So, it’s an open game now.  So, as Gary said, this is less of a differentiator any more and it’s now all those other areas that you’ve got to continue take cost out to make sure that from now on it’s just who designs the best looking vehicle, the best performing vehicle, and if you do that because the vehicle’s Gary mentioned people are willing to pay for that, they will.  And they’ve been doing that with a lot of the premium brands for a long time.

Tom:        Let’s expand our horizons a little bit: Global GM.  Ron, you’ve traveled around the world and I know we focus a lot on North America, but you have visited many plants around the world not just for GM but for other companies, tell us a little bit about your travels, how many plants did you visit the last year, sites, and what did you see?

Ron:          Almost forty sites and about sixty-some plants around the world.  It’s funs; it’s a privilege for us and we’re tickled that they let us in.  But it gives us a real good window as to what’s going on.  But I think the thing, and I’ll admittedly say that I’ve been very critical of GM in the past on this one and that I could go to a plant in Europe and it wouldn’t look anything, I wouldn’t even think it was the same company as one in the U.S., even from Canada to the U.S.  And I think what GM has done is committed itself to that common process.  You know, a car’s a car and a truck’s a truck in terms of how you make and process it, and for 100 years GM has been around but they didn’t operate like one company.  The difference in the last few years is that now you are.  There is a huge opportunity and we barely scratched the surface of what you could shake out in developing common platforms and common processes to go with it in those plants.  The first thing that we saw in that transition was really the soft side of it and that is GM developing GMS, your version of Toyota Production Systems, or a lean system at which you could operate, and then consistently applying it around the world.  So now we see the same ways to measure performance, the same approach to improvement.  And that’s huge because the sharing there of learnings is infinite.  So that’s a huge thing that we see and it’s not what we’re seeing in every company around the world.  So that will really pay off at GM, we think.

Tom:        Well, Gary, as it stands Global Manufacturing Systems, GMS, is, you know, by its nature driving out waste, driving commonality, standardized work, and when you go into plants around the world it’s very similar.  You could walk in even if you don’t speak the language and know what’s going on.  How important is that?  I mean how does that help the consumers in emerging markets like China and India in the end game?

Gary:        Well it helps consumers because they get better products right off the bat.  You don’t have to go through the learning curve as much as you would have to if there were no common process or system or launch.  But to go to back a little bit to what Ron was saying, you know, we’ve had a global focus for many years but we ran the Company regionally.  And when we reorganized in 2005 and basically, you know, Bob Lutz took over product development so we have these products, or global architectures, and I took over global manufacturing operations.  You saw the acceleration of a lot of the things that we had put into place, but when you have a solid line organization now that is being driven with a global focus, I mean I think, and Ron told me this year, it’s just dramatic the improvements in how rapid you’re starting to see those improvements in these plants around the world.  And this next year, into this year and beginning next year, you’ll really start to see the rollout of these new global architectures.  And so then I think, you know, you will really start to see the power of GMS flexibility and being able to get right product in the right market at the right time much faster than we ever had before simply because we were very regional and country focused before and now we’ve got the capability to do this on a global level.  The other thing that makes it so much better is I can move a plant manager now out of any plant in the U.S. to China or to India and they immediately are up to speed on how that plant is operating because you have the GMS visual control systems, you have all the things that you can immediately detect on, you know, how is the operation going there.  Before it took you a long time just to figure out what the processes were at that plant.  So, dramatic changes happening very rapidly and this global launch process is really showing up, as Ron said, in the quality, the productivity and all the other measures we’ve been looking at.

Tom:        Based on that, I think it’s, you know, I think it’s a good opportunity wrap up our discussion and, Ron, really quick, you know, based on the results, what are maybe the two or three takeaways we should have from what we saw in ’07 and what the opportunities are going forward?

Ron:          The environment in the industry has never been this tough.  Never.  And the worst in my lifetime than I ever remember it.  It’s a dramatic shift in the kind of products people are buying, what they can afford to buy, what they can afford to fill up with gas, and it’s a challenge for every company out there.  What GM has done and the things we’ve talked about in the last few minutes are significant, but they have to continue and continue at an accelerated pace because those wastes that existed when it was a regionally run business or lack of commonality of systems and all that, those wastes are just not tolerable any more.  So every improvement that can be made there needs to be continued and continued at very rapid speeds so that GM can be a company that can survive in this environment and prosper.  You know for years, for example, GM didn’t make money on small vehicles and got away with it because it could make money on larger and more luxurious vehicles.  That’s not the environment any more.  We’ve got to make money on everything.  And so all that we’ve talked about is critically important and it’s got to go to even another level for GM to be the leader it’s been for 100 years.

Tom:        Thank you Ron and Gary.  Closing thoughts?

Gary:        Yeah.  I would say I absolutely agree and I think that getting the basis in now globally, or flexibility, inner ability will be even more important because we’re going to see a major change in this industry due to sustainability, to fuel costs, to energy in general, and it’s an exciting time.  But you’re going to see a basic reinvention of propulsion systems and fuels and those kinds of things.  And so you’re going to have to buy necessity, as Ron said, be flexible and be able to change quickly with high quality and effective cost to meet these challenges because we’ll be seeing big changes in this industry over the next ten years.

Tom:        Well gentlemen, thank you for your time.  It was a pleasure talking with you, and from General Motors, please feel free to visit gmmanufacturing.info for more information about the Harbour Report.  This is Tom Wickham, GM Communications.  Thank you and have a nice day.