GM preps for new hires after buyouts
This is a particularly sad story. We often debate the proper role of layoffs and headcount reductions in the Lean community. It's “conventional wisdom” perhaps in the Lean movement that we should not let efficiency improvements that result from Lean methods lead to layoffs. To do so would undercut the employee participation that is required for Lean (and an organization) to be successful in the long run.
Many consider it to be a different story if the business is shrinking because of a declining market or declining market share – case in point, General Motors. At a high level, GM's leadership has a responsibility to prevent decline — through product design, marketing, and general management of the whole enterprise. Toyota claims to have not laid off employees in 50 years. This is partly due to continually being in a growth mode rather than constantly shrinking.
This most recent article about GM paints a different picture. GM is not just shrinking the workforce. They are throwing out older, more expensive workers to be replaced by newer, less expensive ones. This is not “Lean.” This is not in keeping with the “respect for people” principle of the Toyota Production System.
Some 19,000 GM hourly employees are leaving as part of the labor deal GM negotiated with the United Auto Workers last year that allows the company to replace departing workers with lower-paid new hires. Most are slated to leave July 1.
That's 19,000 individuals with skills, knowledge, and experience. If GM views them merely as a back and a set of hands, then shame on GM. They might defend the decision by saying, “Someone paid $14 can just as easily turn a wrench as somebody making twice as much.” What about the accumulated experience and problem solving abilities that should be there in the older employees? I guess that never was valued much??
Don't they realize the impact this mass exodus could have on quality? Oh wait, they do:
The biggest challenge for GM may be accomplishing the massive undertaking without compromising the quality of its cars and trucks. Having begun to win new respectability on the quality front, the automaker can't afford costly and reputation-marring mistakes on the factory floor, which is a risk when there is significant turnover.
“We are very intensely focused on making sure our quality isn't compromised,” said Joe Mazzeo, GM's executive director of manufacturing quality. “Our customers don't know this is going on, and they don't care.”
As with many business decisions, such as outsourcing or offshoring, the “savings” or “benefit” from such a move is easy to calculate. It's easy to calculate the savings from paying workers $14/hour instead of $28/hour, even considering the buyouts and “go away” payments to departing workers. But the COSTS are much less easily quantified. What is the cost of poor quality? What is the cost of poor morale, of either having to work alongside a new junior employee who makes an embarrassing low wage or the low morale of a new employee who resents the older employees who make twice as much for the same job?
How does GM plan to maintain quality? Sure, the new employees will be trained, they won't just be thrown into jobs.
Also, in an unusual step, GM will carry out quality checks of every vehicle headed off the factory floor during the initial transition. Typically, vehicles are picked at random for the checks.
The people at GM must have listened to Dr. Deming a little bit. They MUST know that you can't “inspect quality in” to a product. The need to increase inspection adds cost and must be an acknowledgment that they KNOW quality will suffer. They won't be able to catch all of the defects. The customer will notice. GM says their customers don't know this is going on. Um, maybe try to avoid being quoted in a newspaper article about how this is happening. Readers of this blog know it is happening. Tell your friends.
I doubt we'll see loads of books and Harvard Business School publications about the “General Motors Method” of throwing out expensive employees and replacing them with cheaper ones. Or maybe it's already called the “Circuit City Method.” Ford has been doing the same thing, as have other auto suppliers. It's the standard playbook anymore, unless you're Toyota or a truly Lean company.
Step 1: Fire expensive employees. Step 2: Hire cheaper ones. Step 3: Profit. Oh wait, both companies are still struggling.
Can the GM leaders be thrown out and replaced with newer, cheaper executives?
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On the subject of, “Will they ever learn,” I noticed last week that Chrysler has told suppliers that they must cut costs by 25% in the next three years. With something like 70% of a vehicle outsourced, suppliers are expected to produce most of that in price cuts. Look for more bankruptcies. Yet it seems like suppliers – lower tiers, especially – ignore the benefit of trying to qualify as part of the Toyota or Honda supply chains. Then they’d get help to allow them to keep some of the savings they produce with better operations.
One of the things about Toyota’s “no layoff” policy is that they have kept staffing levels low and used temporary staff to cope with fluctuations in demand. When demand drops, let the excess go and when it picks up, hire again, its much easier to maintain a no layoff policy when you run this way.
Good points, both.
To Andrew, you’re right — and the temporary worker solution isn’t without its problems and tensions. There are problems, even in Kentucky, where temps are bitter about not being made full time (feeling misled that they could become full time).
I’d guess that’s still the better approach compared to the alternative of hiring too many full timers and then feeling pressured to let some go.
And GM’s business and market share have been in complete free fall, so that’s a totally different story.
Maybe it’s too late now, but imagine if GM leadership had fully engaged in getting worker cooperation and participation to help right the ship in the 80’s or even the 90’s.
The problem with choosing to criticize organizations that are letting go of full time staff is that they may well be inherently overstaffed relative to Toyota. So lets take GM for example, if they don’t let people go they are doomed to financial failure, if they do they risk all the quality issues you have outlined.
Lets look at any of the NHS organizations that have laid people off. Its been done, by and large, where possible simply through natural attrition of not recruiting in to roles from which people have retired or left.
Others though simply do not have that luxury. Given the financial position of GM what do you think would be a alternative course of action that was practical and reasonable given their financial situation.
Note I am not being a GM apologist but they do seem to be stuck between a rock and hard place. Don’t let people go and they fold and people will criticize the management. Let people go and people will criticize the management. Seems like a no one to me. Although one is more likely to secure the future of the company.
Andrew – you have a point given that GM’s market share and production are shrinking. Better to save some jobs than lose them all. Attrition and even buyouts aren’t as bad as layoffs.
But what really bothers me is GM getting rid of expensive employees and hiring cheaper ones in their place.
Not all 19,000 are being replaced, but many are — at the cheaper rate.
Two points for discussion:
1 – Toyota isn’t the only company, Lean or not, that utilizes Temp labor in this manner. At least they are upfront about the situation. Many organizations beyond automotive do the same (I’ve worked for such companies in Electronics, Filtration and Hospitality industries.)
2 – GM’s poor management of and respect for its people over the last 40 years is as much a part of the problem as any economic downturn or labor contract. The GM overstaffing hasn’t come about simply in the last two to five years.
Absolutely but at the end of the day if you are a) overstaffed relative to Toyota and downsize you will be called out on being lean or b) overstaffed and don’t downsize and go out of business be told you’d have survived if you had been Lean.
The issue here is this idea of a No Layoff policy being core to the values of Lean. If my core establishment is the absolute minimum and I use Temps to flex up to meet demand its easy. If however I am grossly overstaffed due to incompetence and these staff are grossly overpaid (mechanics at Northwest making 100k on straight working weeks) then am I really making a bad decision when I want to a) reduce my labor expenditure and b) get staffing levels closer to those of Toyota?
The problem here is that these guy’s, the new managers are truly damned if they do and damned if they don’t. They have legacy staff making huge money, they are over staffed and they are dealing with decades of insufficient progress and change.
So they try to change and reduce their costs to ensure the future of the business and get crucified by the same people that would make the same comments if they did not do this and folded.
There may be a silver lining here. Automotive News points out in a story GM union local strives to pull parts jobs in-house
that “Under the historic UAW-GM national contract negotiated last fall, the UAW can bring back, or in-source, at least 3,000 jobs previously performed by outside suppliers.” […]
“Dunn says Orion, which produces the Chevrolet Malibu and Pontiac G6 sedans, is in line to bring 108 so-called sequencing jobs back inside the plant by year end.” […]
“The sequencing jobs would be atop 1,100 jobs that Orion will add for a third shift in September. GM also is adding a shift at its car-building Lordstown, Ohio, plant.”
People complain (and buy foreign cars) because they perceive the UAW employees as being overpaid. But when the collective bargaining is implemented, they complain again about cruelty. (It’s never easy when people’s jobs are affected.)
There’s also an article in today’s Wall Street Journal GM’s Shares Could Pay Off
When Its Cost Load Lightens ;GM’s shares might triple (but if the financial writer knew that with certainty, they wouldn’t need to be a writer).
High wages and high seniority don’t necessarily assure good quality, but that’s another topic.
There are two things going on here. One, not all jobs will be replaced. There will be an overall reduction in force. Secondly, the newer employees will go into work that is non-mainline assembly. Toyota has done this with the San Antonio plant. The mainline employees are Toyota and the other workers are non-Toyota and paid at a lower rate. With lower wages on the Sub assembly and sequencing jobs it should be pratical to bring back some of the work that had been outsourced.