Every manufacturing company in the world has had engineering and production problems. Every single one. Here’s a typical example of what NOT to do when there’s a problem. If Ford owned up to the problem early they could have saved them BILLIONS. But instead management buried their heads in the sand and just prayed it would go away. I’ve worked for these kind of companies. It never worked out. They can get away with it in the short term…but it really effects their bottom line long term.
I fear we are suffering from a huge deficit of competent management. I think GM may be heading down the same path. I watched an interview with Mary Barra this morning and from her perky canned answers I just got the impression that all will not be well in ten years.
I think it may be difficult to entice innovative engineers into management positions. These innovative people want to create things rather than have the burden of managing resources and people.
I understand this as a retired professor. My colleagues wanted me to be the chair of my department. I liked working with students too much to spend my time in meetings. My salary as a department chair would have been higher, but high pay for me does not compensate for job satisfaction.
Too often, the less competent become managers in many fields.
I’m an engineer…but now an engineering manager/architect. 5 years ago I was VP of engineering. But hated it. I asked the CEO to get a VP of engineering bump me down to software engineering manager/architect. This way I stay technical, but have managerial control and direction of products. I could easily retire now, but I love my job.
I don’t think the article quite explores the problem sufficiently. They’re putting a lot of the blame for failure on the dry clutch design as though dry clutch is fundamentally impossible to make work. But Hyundai uses a dry clutch DCT as well, and while there are documented issues, unless there’s a big coverup, they aren’t having problems anywhere close to the degree that Ford is.
That’s not to say that dry is as good as wet - it seems it’s not. But for this many problems to happen on a specific transmission and not on others indicates further design problems than simply using a dry clutch design.
All that aside, I’m still of the school of thought (despite my wife having one) that DCTs are best left to high-end performance cars, because you can make them much more robust (and therefore expensive) without impacting sales. And honestly, unless you’re genuinely interested in lightning-fast gear shifts, I fail to see why you’d want a DCT in any car. Even the best DCT isn’t as universally smooth as a normal automatic. Makes sense in a Veyron, but not so much an A6.
I think the problem with head in the sand management can be traced to the
slot machine stock market. Corporations are constantly chasing the next quarter’s profits. Ford made better quarterly profits by not redesigning that transmission, so that’s what they did. A redesign might have saved the company future money, but in the here-and-now, the guy making the right call might get fired because the impression is that the stockholders only care about the present, not the future. The stock market has in many ways become little more than legalized gambling.
It’s been a long time since people routinely invested in company stock because they believed in the company and thought it could do well for them over the next few decades. Now people invest in a company because they saw some “finance” show with a weird loud guy screaming and hitting buzzers and they think the stock will go up in the next couple of days. Or hours.
Positioning the company for long term health matters not at all to these people, because they’re gonna be long gone before the consequences of what made them money today come to pass. The mystery is why corporate boards cater to this crap. It’s the kind of thinking that killed Chrysler and GM.
@MikeInNH. I am glad you love your job. To me, as long as I earn a decent living, job satisfaction is of utmost importance to me.
One reason why I declined to be Department Chair is the top down approach. I would have had to take half-baked demands from the administration above me and force them on my Department. I wanted to be able to take innovative ideas from my colleagues and work to implement these ideas.
They are saying the dry-clutch is a problem, but that wasn’t the main point. The main point was Ford’s management not addressing engineering concerns. Bad designs and bad manufacturing has crept into every company in the world. It’s how you handle them is the true test of a good company. Burying head in sand and hope the problem goes away or just leave it for the next group of managers is NOT the way to handle it.
Yup…that’s basically what it is. y brother-in-law retired early from a Chryco plant managers job because he was sick of that mentality from upper management.
Actually the problem is that they are NOT chasing the next quarters profits. You’re shocked, but here’s the reason that they are not.
Disclaimer here because Ford is not as affected by this as publicly traded companies, but they still suffer from the effects because most of the family shareholders are now far removed from understanding the basics that the founder knew.
Most publicly traded companies stocks are now owned by mutual funds instead of stockholders. Mutual funds are valued by the worth of the stock in their portfolios, not by the profits of the companies whose stock they own. In fact, stock dividends are a PITA for them as they have to incorporate the profits into the portfolio in some way, usually by buying more stocks.
So the focus of the Board of Directors for most companies is increasing the value of the stock, not increasing profits. They value short term improvements which often come at the expense of long term profitability.
For a company, the sales figures have a greater affect on the value of the stock than profitability. The short sighted board members are more interested in getting new high volume models to market and increasing those sales than any future losses in profits due to design errors.
Partially right. Companies are very very much interested in Next quarters profits because profits have a direct effect on their stock. If a company shows a good quarterly profit statement…stock prices will rise. They show 2-3 good quarters in a row, then stocks rise more.Mutual funds invest in profitable companies or companies they see will be profitable in the future. Quarterly profits the most used metric to determine that.
Board of directors don’t determine stock value. Company’s health determines stock value. And quarterly profits is what many use to determine a company’s health.
Says who? Ever hear the term EBITA? This is what investors are looking for. And it’s directly related to profit.
Mutual Funds invest in companies the will increase the value of their portfolios. Most people investing in Mutual Funds do that through their IRA of 401k. They do not collect dividends, the dividends are collected by the mutual fund and the mutual fund has to incorporate them into the portfolio somehow. So there is a big disconnect there between the actual investors and the profits of the company. Retirees are mostly concerned with how much are my funds worth when I retire.
True, management decisions do affect the stock value though and the Board influences those management decisions. A classic example, Sears Roebuck and Co. Some time in the mid 90’s, the board was reviewing the profitability of the various divisions of the company. They discovered that the greatest ROI came from the Sears Credit card division and the least came from the catalog division.
Now this was before mutual funds became the major investors and profitability did have the biggest impact on stock value. Long story short, they didn’t see the internet coming or what a guy named Jeff saw in it, so they got rid of their catalog division and replaced it with the Discovery Card division. It boosted their stock value at the time, but I could see the hand writing on the wall then and thought that that was near one of the dumbest business decisions of the century. I think I’d rank it as the third dumbest.
Ford did the same thing 30 years ago with the TFI modules. Engineers told management the modules would be prone to heat failure and management said full speed ahead anyway. A few deaths and thousands of complaints along with a lawsuit finally ended the friction and the module except for the remaining TFIs still on the road.
Most mutual funds do NOT do long term investments. They switch their stock purchases all the time depending on the profitability of the companies. If you own any mutual funds then maybe you should track them. I’ll bet my 401k mutual funds have bought and sold at least 200 different stocks this past year.
That makes my point. Mutual funds are in for the short term increase in the stock value, aka capital gain.
EBITA sounds like something for people who buy stocks for themselves, not those of us who buy mutual funds through our IRA or 401k.
So now you are saying that Mutual funds look at next quarters profits?
No. It’s used heavily by mutual fund companies to determine what to buy. You have a low EBITA then mutual funds won’t invest. High EBITA means a company is profitable and has good cash flow. Why do you think that a mutual fund would have a different buying strategy then an individual investor. In fact many investors actually follow the advice of mutual funds.
And let’s not forget the Pinto. “Hey guys, this design will kill people.” “… Well will it cost less to settle the lawsuits than to redesign it? Full speed ahead!”
Mike you are putting a lot of emphasis on one term of many similar terms that are just variations of each other with minor differences. None of these are considered part of GAAP (generally accepted accounting principles).
Back in the day when Mutual Funds were just getting started, the main indicator used by investors was the P/E ratio. That went by the wayside when tech stocks came on to the scene as the early tech stocks rose rapidly based on their future potential rather than their dividends. Most of these tech stocks did not pay any dividends for may years and a lost went out of business without ever paying a singe dividend. In the 70’s and before, a stock would have to have a P/E ration of between 10 and 20 to attract any investors.
After the tech boom, P/E rations of over 100 were common so other tools came into being for the analysts to use. I suspect that is when EBITA and its variations came about. BTW, analysts do not make the buying decisions, they influence them though.
No they are looking at next quarters capital gain. Mutual funds have a different buying strategy than individual investors because the mutual fund customer has a different goal from the individual investor.
There are now two different types of individual investors, long term investors and day traders. The day traders are much like the mutual funds in that they are concentrating on capital gains over corporate profits, but they don’t hold onto stocks long enough to vote at the board meetings so their influence is marginal on management decisions.
Long term investors can be divided into two groups also, those who are investing for retirement looking for long term capital gains and those who invest for income, the only investors primarily interested in the dividends. BTW, profits do not always translate into dividends. I used to own a stock in a company that made profits but never paid a dividend. They were cash heavy when they went under but somehow I didn’t see a penny of that.
You’re talking about Generally Accepted Accounting Principles and you don’t know what EBITA is? Are you kidding? It’s a very very basic term which anyone who is interested in investing or accounting knows.
No I’m not kidding. You remind me of a guy I used to work with. He was new to supervision and just got his MBA from UT (University of Tennessee). He used a lot of acronyms and no one wanted to ask him what they stood for because they thought maybe everyone else knew (they didn’t). I figured out what most of them were and for the most part, they were only used in academia, and mostly by one professor at UT who made them up.
I looked up EBITA on several web sites and it was grouped in with a bunch of similar acronyms, of which that is not even the most commonly used by analysts. None of the dozen dictionaries or the several online encyclopedia’s could even supply the history but it appears the earliest versions of those acronyms come from around the tech boom of the 80’s when the P/E ratio fell out of favor.
As I found out, it is not a generally accepted term so my ignorance of it is understandable. BTW, I got out of the investment game about 10 years ago. Getting too old for that stuff (or words to that effect).
Also note Mike that in my posts when I use an acronym that is not ingrained in the common lexicon, I put the meaning in (parentheses) so everyone knows what I’m talking about. Now Mike, I generally respect you for we do agree on so much and you do present good arguments even when you are wrong, but I have to tell you, when I see someone using a lot of acronyms, I think of that co-worker and the phrase "if you can’t dazzle them with your brilliance, baffle them with your BS (and I’m not spelling out that acronym but I think every one knows what it means).
I’ll have to admit that I have no individual stocks, they are all in mutual funds. And all I look at is the net gain or loss for that the particular fund. I do have a Morningstar account so I could reasonably easily see what companies are in the mix but I just haven’t bothered for years. I hope I’m not part of the problem but regardless, it should be expected that managers be concerned with the long term health of a company. One thing though is stock options can put a little more emphasis on stock prices by managers. Still doesn’t excuse lousy management.
For Motor Company is a publicly traded company. It trades on the NYSE with the ID “F”.