GM and Ford Should Have Learned Lessons from Lada and Russia's Central Planning
February 25, 2008

By Richard Feast

LONDON — Ford’s sale of Jaguar and Land Rover, to be finalized within days, and General Motors’ continued stumbling in search of a role for its Saab subsidiary, which shows off new concepts at next week's Geneva Motor Show, remind me of something I saw during a tour of the shabby, sprawling AvtoVAZ factory in the Soviet Union in the early 1980s.

The events are unrelated except for the way in which they highlight the laughable results of central planning. For the Kremlin then, read Dearborn and Detroit today.

The Soviet city of Togliatti was (and apparently still is) a ghastly place. The giant car factory there had been laid out by Fiat at the end of the 1960s to produce 750,000 Fiat-based Ladas each year for the poor Soviet souls who saved enough money and who climbed far enough up the political ladder to qualify for private car ownership.

Togliatti was an astonishing piece of vertical integration of the type that characterized the early days of the automobile. Coal, iron ore, chemicals and sand went in one end and finished cars came out the other.

And not just cars.

In an office at the end of the production line, the western visitors were proudly introduced to a further product of the great Togliatti complex. It was a display of women’s purses, which, it transpired, were made from the cutoffs of the seat covers that went into those three-quarters of a million Ladas.

There they were, in nice, shiny vinyl in tasty shades of brown and black prior to shipping to those stern, state-controlled shops that were then the only connection Soviet citizens had with consumerism.

Privately, we wondered whether the purses were to carry the tools an owner required to fix her Lada when it broke down, which was frequently. No, someone in central planning had identified the waste associated with Lada seat fabrication. Of course, comrades, you must produce purses with the leftovers!

You couldn’t make up that sort of thing. Today we can only wonder why the regime did not naturally implode earlier than it did.

The incident comes back to me every time I hear the reasons (excuses, really) GM and Ford give for some of their more eccentric product-planning decisions concerning Saab and Jaguar.

They may make perfect sense at the GM and Ford central committees, but they make no sense to consumers. Just like those purses.

Asset Destruction

Saab was one of the quirkiest automakers in the world before it fell into the GM maw. The corporation’s central committee decided Saabs must share engineering architectures with Opels and Chevrolets, and even drivetrains with Fiats. Saab’s brand integrity was further damaged when buyers in the United States were expected to believe slightly modified Subaru Imprezas and Chevrolet TrailBlazers were Saabs.

The refusal of buyers to consider Saab as an alternative to the mighty German brands that dominate the premium-car sector left the company with continuing overcapacity at its Swedish factory. Central committee knew how to solve that problem — and to give a boost to Cadillac’s feeble product line-up in Europe.

GM decided it would make industrial sense to have Cadillacs for buyers in Europe made by Saab in Sweden. The result was the 9-3-based Cadillac BLS, which went on sale in Europe in spring last year.

European car buyers in their millions yawned. At total sales of 2,300 in the nine months to September, Cadillac remains totally insignificant in the region. Mercedes-Benz sold approximately the same number of cars every day in Europe over the same period.

Over at party headquarters in Dearborn, Ford gambled that Jaguars made from the Blue Oval parts bin would also woo customers from the German marques. The results were even more disastrous.

Ford had overcapacity in Europe a few years ago. It did not need its factory at Halewood, England, but rather than face the political and social fall-out from closing the place, it handed the problem to Jaguar.

Jaguar, however, already had two factories capable of producing more cars than it needed. It did not need a third. The dilemma was exacerbated by the model Halewood was required to make: the small X-type. Few outside Ford were surprised when the X-type bombed. How could consumers have faith in a Jaguar with Mondeo front-drives and run-of-the-mill four-cylinder engines?

Separately, Ford vainly squandered hangar-loads of money on a Jaguar Formula 1 effort. It served only to remind people around the world every other week how inferior the marque was compared with its rivals.

Did no one at party headquarters think the investment involved — plenty, whatever it was — might have been better spent on products to stop the Jaguar sales slide? GM’s and Ford’s actions were those of corporations that think of cars as commodities, the automotive equivalents of candy or carrots. It is what happens when central planners are out of touch with public opinion.

Sales Tell the Tale

GM and Ford product planning was all to do with economies of scale. But that was only half the answer to the problem. The decisions were right industrially, but, as the sales numbers demonstrated over the years, they were dead wrong when it came to consumer tastes.

Car buyers were underwhelmed by what GM and Ford had to offer at Saab and Jaguar. They became exercises in brand destruction.

Saab’s annual sales are still at the same level as when GM took control in 1990. Ford bought Jaguar the previous year. But the grand vision to quadruple Jaguar sales was such a failure Ford is now bailing out.

By contrast, BMW and Mercedes-Benz more than doubled their sales over the same period. So did Volkswagen’s Audi division. And Toyota created Lexus from nothing.

Against a background of growing global demand for cars — especially luxury cars — Saab and Jaguar therefore went backward. There are some lessons here.

One wonders whether GM and Ford have yet learned anything from the enduring success of BMW and Mercedes. The German firms are excellent at engineering, but they are arguably even better at branding and marketing.

Every product decision they make is shaped by a thorough understanding of their histories and the long-term visions for them. Each company’s bedrock is its heritage, design purity and engineering content.

This sort of achievement required vast investments. BMW and Mercedes — and Audi and Lexus — are where they are today because of enormous and consistent spending on products, technology and manufacturing.

GM and Ford must have thought they could join them when they splashed out billions on their European trophy brands. Whatever they then invested in them was not enough.

This combination of compromise and cost-paring suggests levels of arrogance and misjudgment akin to those of Soviet planners who thought purses made by a car company would be good enough for its citizens.

About the author

Richard Feast is an automotive journalist who writes occasional commentary for AutoObserver based on his more than 30 years covering the auto industry in the U.S. and Europe. He is the author of Kidnap of the Flying Lady (MBI, 2003), an investigation into how Vickers sold Rolls-Royce and Bentley to BMW and Volkswagen respectively, and The DNA of Bentley (MBI, 2004), a history of the Bentley marque

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