American Financial Business philosophy outdated

What is the difference between GM and Ford on the one side, and Honda on the other? The difference is in the basic philosophy of the company. Ford and GM have the basic philosophy that they are companies which are in business to make money. In order to make money, they have traditionally made and sold cars, but the reason they do so is to make money.

This philosophy is not wrong. But it is one that goes back to the beginnings of the western industrial revolution and Adam Smith's 1776 book "Wealth of Nations." In the automotive industry it was the basis of Ford's automotive industrial line from over a century ago. Think about what this philosophy tells a company to do. It is purely a money decision to make a product that has lower cost than that of the competitors. Any other goal is secondary to this cost-revenue focus, and whenever the company gets into trouble the first move is always to cut costs. This has been the key to success for American car companies for over a century since Ford created the automotive assembly line.

As this interview demonstrates, Honda has a very different and much more modern philosophy. Low-cost production is a given. The philosophy focuses on qualities of the automobile and how it is used that are greatly different from simply producing it cheaply.

This interview is from Newsweek.

NEWSWEEK's Keith Naughton sat down with Baker [Charlie Baker, Honda's U.S. chief engineer] to discuss what drives the automaker to go for the green:

Naughton: Honda worried about gas mileage when gas mileage wasn't cool. Why?
Baker: Everyone at Honda views being in a company as being far more than just turning a profit. It's not that we're poor businessmen, but I think everybody at Honda is fired by the dream of creating great products that are the most efficient in their class.

How difficult was it to keep that principle in the '90s when the SUV boom was in full swing and gas prices were at record lows?
Well, it certainly caused us pain. For a long time our president was strongly against getting into the truck market because he could not see how it was consistent with Honda values. But after a long time of wrestling with it, we said, "There are other people who are developing these trucks with horrendous fuel economy and we can do better."

How did your rivals react when the MDX [Honda full-size luxury four-wheel drive] debuted in 2000?
We were criticized for being late to the party. People repeatedly told us we were going to fail.

How difficult was it to engineer the MDX to meet Honda's stringent mileage standards?
I'll never forget it. I was a rookie leading this MDX team. We'd done the research and we had an efficient package. But when we pitched our business plan to the board of directors, Mr. [Koichi] Amemiya, who was in charge of North America, his No. 1 comment was: "It should be more green." I made the mistake of saying, "But sir, nobody cares about the green issues." And he just smiled and said "I know."

Does your research now show that people care about gas mileage?
If you are talking about large SUVs, yes, they are giving some lip service to fuel economy. But that is sort of a "here today, gone tomorrow"-type phenomenon. The point is not that customers demand it or don't demand it, because that's absolutely not the viewpoint of Honda. When you are a philosophy-driven company, you don't ask the customer if they agree with your philosophy.

Would Honda ever build a full-size pickup truck?
We studied traditional pickup trucks till we were blue in the face. And we said, "Why would we be the sixth manufacturer to do the same concept of a pickup as Ford, GM and Chrysler? Let's think about it in a different way. Let's make a Honda pickup. Let's surprise people with things like a trunk in the bed and great fuel economy. Let's create a pickup the customer can't even imagine." And we think that's what we've done with the Ridgeline.

Honda starts with the last century of mass producing automobiles at low unit cost, then applies their unique philosophy to those automobiles. Their philosophy is a complex combination of knowledge of how people use cars and competitive marketing factors. It permeates their company.

The other thing is, there is no simple one-number goal [The bottom line - net profit per share] that drives decisions in the company like so many American companies have. Net profit per share is instead one parameter within which the decisions in the company are made.

America has become an extremely wealthy nation using simple financial business models to guide large companies. Now the rest of the world has caught up, and to remain competitive in the new global economy, American companies are going to have to become more like Honda or be left in the dust.

[Thanks to Bill in Portland at Daily Kos for directing me to this Newsweek article.]