THE DREADED ASSUMPTION DISEASE.

By Peter M. DeLorenzo

Detroit. It’s no secret that the one constant in the automobile business is change. This endeavor is a churning, burning, seething cauldron of unpredictability, and it can decimate the carefully nuanced plans of manufacturers, suppliers and dealers in an instant. I have often referred to this phenomenon as the “swirling maelstrom,” which some people have taken umbrage with, which, at best, is naive. It’s as if some out there have fanciful notions about this business, somehow equating it to skipping through a park in the sunshine, complete with a “What, me worry?” attitude, steadfastly oblivious to the sobering realities that can upend it in a day.

But right now, this business finds itself well and truly in the midst of that “swirling maelstrom.” Even as record sales numbers pour in from last month, the reality for the auto manufacturers is getting uglier by the day. The chip shortage is real, and it’s likely that it will continue to plague this business well into next year, if not longer.

That means that these eye-popping sales – and profit – numbers will be it for the year. From here on out it is going to be constrained manufacturing for some of the industry’s most profitable models and extremely low dealer inventories to boot, which translates into a giant bowl of Not Good. (Yes, the dealers are happy with the big grosses they’re enjoying right now, but the euphoria is chastened by the real possibility that they won’t get enough vehicles to sell to keep their lights on. The second half of this year is shaping up to be devastating.)

The “chip thing” is not only wreaking havoc on the manufacturers’ near-term planning, but it is also forcing them to reconsider and evaluate everything they’ve come to understand as being “gospel” in this business for decades. That means that the now obligatory “just in time” manufacturing concept has been turned on its ear. Auto companies cannot afford disruptions in their assembly processes, and this chip shortage has exposed a glaring weakness in the concept, as in, what if “just in time” just isn’t there? Make no mistake, this situation is killing these companies, and all of the glowing projections for product hits and profitability made at the beginning of the year have given way to constant “woe is us” hand-wringing, the likes of which hasn’t been seen since the Great Recession. 

Right now, top operatives at these companies are insisting that they will never be caught out by something like this again. That’s laughably naïve, because altering the system so that shortages don’t occur in the future will require a fundamental shift in the way these car companies approach the way they go about manufacturing vehicles. Redirecting decades of rote processes and beliefs will not happen with a finger snap, and turning these companies away from the past to a new direction will be akin to trying to turn the Titanic away from that giant iceberg. 

Some companies are making giant strides in addressing what’s going on right now, but still, this transformation is going to take time and boatloads of cash. There may be some short-term victories, but this is a long-term challenge that is going to play out in years, not months, which is a sobering reality, to be sure. After all, what good is it to have product “hits” if you can’t build ‘em and you can’t sell ‘em? And what good is it if this situation lingers on, which is exactly what it looks like for at least two manufacturers in particular.

What’s going on right now is a very tough lesson for some of these car company executives. And it’s easy to figure out the ones I’m talking about too, those newly minted members of the “Masters of the Universe” club whose judgment is clouded by ego and the cloak of invincibility assigned to them by the surrounding minions whose sole job is to polish those egos with alacrity, if not downright glee.  

Among other transgressions, these executives are caught in the throes of the dreaded – and always debilitating – Assumption Disease. It is marked by an unfailing belief in their own press clippings – there’s that giant ego thing again – and inevitably masked by a faux humility and syrupy persona crafted by the dutiful PR minions assigned to polish and project that “aw shucks, I’m just a normal guy looking out for our employees and stakeholders” (or something like that) image. And all of this contributes to clouding their thinking, which then propels them to assume that all of their plans are perfectly logical and fail safe, to assume that their product decisions are infallible, to assume that market conditions will be stable and to assume that their brilliance will be there in living color for all to see. But to assume that this business is any way, shape, or form predictable is a fool’s errand that inevitably leads to disastrous consequences. Because this business can go from “happy days are here again!” to, “uh-oh, I think we might be screwed” in less than a quarter, which when it comes to making cars and trucks, is as close to a blink of an eye as you can get.

The automobile business never suffers fools gladly, or otherwise. And what’s going on right now is a test of resilience, foresight, guts and persistence. Lead operatives who have a real understanding of what’s going on will succeed. That doesn’t mean it will be smooth or easy, but those who have a grasp of what’s happening will prevail. The rest? They’re doomed to wallow in ego and woulda-coulda-shouldas, right before they succumb to that dreaded Assumption Disease. 

And that’s the High-Electron Truth for this week.