Growth through shrinkage

The idea in business is always bigger is better. The bigger the company, the larger the profits. That seems to be the mantra for companies that want to keep growing.
Obviously, you can’t keep growing a company, and its profits, by staying the same or shrinking. Not so fast, there is one company that thinks it can do just that: Ford Motor Co.
By all accounts, even after unveiling a $12.7 billion loss in 2006, Ford’s new Chief Executive and President Alan Mulally remains confident the company’s plan to reduce capacity and plow cash into building new models will rebuild the company and return it to profitability. Those plans will about with the help of $25 billion in newly obtained credit that mortgaged the company’s future.
The plan is to become more profitable by 2009 by reducing the workforce by 33%. Ford will cut 44,000 workers and close 16 plants. Mulally said if there are fewer people, there is a greater chance to increase profitability even if market share drops.
As long as Mulally is at the helm, it seems like he will remain committed to his plan. “It is very analogous to flying because you’ve got to know where you’re going and you’ve got to know where you are so you can take corrective action to get back on that plan,” he said.
Ford’s not alone in trying to get themselves out of the economic quagmire called the North American auto industry. GM and DaimlerChrysler have to get their financial and business planning acts together to get them through their various dramas.
Can a business grow by shrinking?
Talk to me.

Federal subsidies the easy way out

The Big Three automakers asked the federal government to spend roughly $500 million over five years to subsidize the development of advanced batteries.
One question still out there is why do they need subsidies for something they already should have been working on for years? Are they playing off the U.S.’s fears the Big Three are losing out to foreign competition?
In a follow-up to a November meeting between President Bush and the chief executives from GM, Ford Motor Co., and DaimlerChrysler AG’s Chrysler Group, officials last month submitted a white paper to a White House technology adviser saying the U.S. is trailing Japan in development of batteries for fuel-efficient automobiles and could suffer economically if the government doesn’t help accelerate domestic research efforts.
The automakers are worried they could be locked out of a key component for future vehicles if Japan maintains its lead in developing high-powered, lightweight batteries needed for gasoline-electric hybrids and pure electric vehicles.
Chrysler, Ford, and GM haven’t always been able to get the technical help they would like from Japanese suppliers that have been developing the lithium-ion batteries automakers think will be light enough and inexpensive enough for next-generation vehicles. That is because in 2005, Toyota obtained a majority stake in battery maker, Panasonic EV Energy Co., which was widely seen as a way to tighten the automaker’s control over the supply of batteries for its Prius hybrid. The move effectively gave Toyota power over whom Panasonic EV does business with.
Does that mean the U.S. government has to automatically step in and help the automakers? Or should the automakers become even more proactive and partner to come up with a consistent, realistic idea for a long lasting battery system? Surely, the solution is “complicated,” but maybe it doesn’t have to be. The three chiefs should sit down and simply say, “let’s get together and develop new technology.”
Talk to me.