THE MEMO: How Lutz Responds to Design

by Robert A. Lutz

Strongly-Held Beliefs

1. The best corporate culture is the one that produces, over time, the best results for shareholders.

Happy, contented employees, and an environment where nobody argues or disagrees, and everyone compromises because the other person has goals, too, is usually not the culture that produces great shareholder value. A performance-driven culture is often a difficult place to work, and it certainly isn't "democratic." Democracy and excessive consensus building slow the process and result in lowest-common-denominator decisions. As Larry Bossidy, former CEO of Allied Signal, so aptly said: "Tension and conflict are necessary ingredients of a successful organization."

2. Product portfolio creation is partly disciplined planning, but partly spontaneous, inspired all-new thinking.

A good planning process can be an excellent baseline tool, a means of generating solid data. But it cannot robotically create a good future portfolio. It will generate bunts, singles, walks, and the occasional double. But triples and homeruns come from people who say, "Hey, I've got an idea!! Listen to this!" Steven Spielberg does not research in moviegoer needs segments. Needs-segment analysis can find a "small monovan" niche. It can't find a PT Cruiser, or a new BMW Mini, or an H2!

3. There are no significant unfilled "Consumer Needs" in the U.S. car and truck market (except in the commercial arena).

What there are are "consumer turn-ons" that research alone won't find.

4. The VLEs (vehicle line executives) must be the tough gatekeepers on program cost, content, and investment levels.

After (and maybe before) contract, requests for "priceable" content (it never works out that way, anyway) or "volume-improving" content can no longer be honored without offset. The VLE needs a program contingency, to be reserved for last–minute fixes or enhancements, (and maybe I need one, too). But the VLEs must evolve into often-unpopular "benevolent dictators" when it comes to protecting their cost position. It must be inviolable. Programs that miss their cost targets cannot be tolerated.

5. Much of today's content is useless in terms of triggering purchase decisions.

Most customers want a vehicle of new, fresh exciting appearance, with a rich, value-transmitting interior. They want a great powertrain, superb dynamics, and, obviously, safety and quality. But the thought that huge advances in voice-recognition, or screen-technology, or multi-function displays or ever-trickier consoles, or embroidered floormats, etc., etc. will somehow override other deficiencies (or, worse yet, "averageness") is wrong. What focus groups say they would "really like in their next car" is not reliable, because they are, in the research, not really paying for it. ("Talking car" and all-digital instrument panels received high "want" ratings in their day.) The vehicles that are succeeding today (Honda, Toyota, Audi, VW) are not highly-contented, or if they are, they charge for the option packs. A "base" Camry is really base!

6. Design's Role Needs to be Greater.

As one of you said to me the other day, Design is being "corporate-criteria-ed" to death. By the time the myriad research-driven "best-in-class" package, the carryover architecture, the manufacturing wants, the non-stone chip rocker placement, the carryover sunroof module, and on and on, are loaded in, and the whole thing is given to Design with the words, "Here, wrap this for us," the ship sailing toward that dreaded destination, "Lackluster," has already left the dock.

7. Complexity-reduction is a noble goal, but it is not an overriding corporate goal.

Standardizing options for the sake of simplifying the BOM, engineering and releasing effort, pricing, dealer stocks, etc. is very worthwhile. But it can be counterproductive if it reduces vehicle margins, i.e., the net revenue loss is greater than the demonstrated savings in the enabling disciplines.

A good rule of thumb is that, in the case of an option with a significant cost, where the freestanding "take" is less than 70-75%, the incorporation as standard will cost money. If "priced for," then a large proportion of customers are being asked to pay for something they don't really want. If it's "eaten" and not priced, we are reducing margins without enhancing value to those who don't care for the option.

My experience is that options running at 25-40% should remain options (perhaps grouped into packages), options running at over 75% should be incorporated as standard. The area between 40-75% requires judgment in each individual case, and a good dialog between affected parties.

8. We all need to question things that inhibit our drive for exceptional, "turn-on" products.

Edicts and criteria do some good; they create consistency and order, and they help someone achieve a goal that he or she feels is important. But many of our criteria are internally-focused and prevent us from doing high-appeal, exciting, dramatically-new products. A salesman cannot say to the customer, "It takes a bit of getting used to, I admit, but did you know that it satisfies 100% of GM's internal criteria?"

We don't want anarchy, but we do need more of a "Who says?" attitude. The focus has to be on the customer.

9. It's better to have Manufacturing lose ground in the Harbour Report, building high net-margin vehicles with many more hours, than being best in the world building low-hour vehicles that we make a loss on.

10. We need to recognize that everything is a trade-off, that we can't maximize the performance of any one function to the detriment of overall profit maximization. The same goes for every discipline: A gorgeous vehicle that disappoints in quality will fail. A car incorporating every conceivable new safety technology makes no contribution to safety if it becomes unaffordable to the customer or we can't afford to build it. A vehicle with a single-minded focus on "absence of things-gone-wrong" will fail miserably if it is dull, unexciting, a dog to drive, and ugly. Even if it's the best ever found by J. D. Power!

11. Remember the Bob Lutz motto: "Often wrong, but seldom in doubt."

None of us is infallible, and we all make errors. Remember baseball, where a batting average of 400 is unheard of! But pushing and arguing for what you believe to be the right course (while recognizing you just might be wrong, therefore, still willing to listen) is the key to moving forward. Errors of commission are less damaging to us than errors of omission. In our business, taking no risk is to accept the certainty of long-term failure. (Even Aztek, in this sense, is noble!)