Car Guys vs. Bean Counters - Bob Lutz [68]
There were no takers.
And here’s where a point needs to be made: as senior officers of a large company, our fiduciary duty was to the shareholders of GM stock, as represented by the board. Imagine the leader of a publicly held company going before the board to say, “I’d like to propose a half-billion-dollar hybrid program. Engineering cost will be another $300 million on top of the capital. We think we can sell twenty-five to fifty thousand per year, depending on what fuel prices do. The cost per vehicle will be about $24,000, but we need to sell them for $22,000, so we’ll have a contribution loss of $2,000 per unit. Figuring in depreciation and amortization and depending on sales volume, we’ll lose between $200 million and $600 million per year. Are there any questions, or do I hear a motion for approval?”
That “motion for approval” would have been highly unlikely in the best of times. And in a period of unsatisfactory profitability or poor “quality of earnings” because so much of the profit came from GMAC, it would have caused the wise heads of the board to shake in profound disbelief. Neither the board nor the management, in our system of governance, is empowered to spend the shareholders’ substance on what they know in advance to be a loss-making project.
So, how did Toyota, then, get it done and successfully launch the now-famous Prius? It’s simple: Toyota still bears all the earmarks of a privately owned company.The Toyoda family still runs it, selects the top leaders, and anoints one of its own as the CEO of the corporation.
“I think we should create a hybrid car,” the founding family and principal shareholder says. “It will cost us money, but so what? We need to demonstrate our ability to master advanced, fuelsaving technology. What if it loses $300 million per year? Isn’t that worth it in terms of good publicity? Compared to the billions we pay globally for conventional advertising, it’s a drop in the bucket, and it’s way more effective.” End of discussion. The founder and principal shareholder has been heard from, and everyone turns to act. There is decidedly something to be said for the swifter, more authoritarian corporate governance resulting from someone’s name being on the building!
And so, we watched as Toyota launched the Prius in the United States to huge acclaim from the nation’s media.The future of the automobile is here, thanks to the brilliant engineers at Toyota! While America’s “dinosaur Big Three” continued to foist oversized SUVs and pickups on the hapless American public (and, at $1.50/gallon at the time, roughly one-quarter of what the rest of the industrial world was paying for motor fuel, that “hapless” public was buying every big V8 truck we could produce, while small, fuel-efficient vehicles were left to decompose slowly on dealer lots), the wise, omniscient Toyota company, ever attuned to the needs of society rather than financial gain, was creating the vehicles that would save us from both the oppression of foreign oil and the inevitable CO2-caused planetary meltdown.
Talk about cloaking themselves in virtue. We stood by, nearly speechless with envy over the countless billions Toyota reaped in terms of corporate reputation for the measly three hundred million the initial Prius may have lost them. (Those figures are my conjecture, based on what our loss would have been. It might have been more, might have been less. But we do know it cost them money.)
But for every savior (Prius), there must also be an Antichrist, and the mainstream media found it in the Hummer H2, GM’s smaller, “civilianized” version of the legendary military vehicle. Heavy, rugged beyond any known requirement, master of