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Auto Chiefs Must Lay out Clear and Attainable Goals, Says MIT Expert

December 4, 2008
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CAMBRIDGE, MA - An MIT Sloan School of Management labor-management relations expert has a clear message for chastened automobile executives as they try to salvage their efforts to win support in Washington this week: Set “aggressive and achievable” targets to produce energy-efficient vehicles and lay out cost-saving plans that go well beyond further cuts and wages and benefits.

“The industry, together with the United Auto Workers union, must come back with a comprehensive plan, but unless that plan has the buy-in of both the companies and the union, it won’t even get to first base,” said MIT Sloan Professor of Management Thomas Kochan, who helped the MIT-based International Motor Vehicle Program (IMVP) develop a set of recommendations recently sent to Congress, industry and union officials, and policy makers. “While more wage and benefits concessions may be needed, there is simply not a lot of room for further cuts. And such costs are no longer the major problem in the competitiveness of the auto industry. Its biggest problem is to regain the confidence of customers that it can reconfigure its operations to produce vehicles that meet safety, quality and environmental objectives.”

The likely alternative to an influx of financial assistance is bankruptcy by General Motors and possibly other auto makers, which will trigger economic dominoes on top of an already weak economy, Kochan said. “A Chapter 11 bankruptcy filing is likely to be a one-way street to Chapter 7 liquidation because people won’t buy cars without knowing they have warranty protection, service, parts and resale value.”

Among other things, the MIT professor said, car makers seeking financial aid must show clear plans to make vehicles with fuel efficiency that exceeds current requirements. “The automobile industry has now lost its opportunity to resist on this issue,” said Kochan. IMVP also called on the industry to establish “clear milestones for working with suppliers, the union, dealers, and other stakeholders to accelerate the pace of improvements in quality, productivity, responsiveness to customers, and other appropriate performance metrics.”

Kochan and the MIT team called for an oversight commission with the power to accept, reject, or request changes in such industry plans. “There needs to be very strong oversight to hold all parties accountable for meeting defined objectives within defined timetables,” said Kochan. “This commission should have people who really understand the industry in depth, including labor-management relations.”

Kochan, who said the failure of top industry and union executives to present “a clear plan for restructuring” in their previous congressional appearance, has made their challenge greater. “They must now work even harder to regain the confidence of congress, the incoming Obama administration, and the public that they are going to be aggressive in reshaping what they make and how they make it,” he said.

The International Motor Vehicle Program is an international network of professors and graduate students who do collaborative research aimed at understanding the strategic and competitive challenges facing the global automotive industry.

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