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Howes: VW shouldn’t feel entitled in taking auto crown

Daniel Howes
The Detroit News

Barring a last-minute surge by General Motors Co., Volkswagen AG will claim the global sales leadership long coveted by the German automaker.

Toyota Motor Corp. confirmed Monday that it sold 10.175 million vehicles worldwide, not enough to top 10.3 million sold by VW. Germany’s largest automaker should know enough by now to temper its aspirations, given its ignominious chapter in the industry’s record of hubris run amok.

Recent history shows the quest to become No. 1 is a recurring industry malady that knows no national boundaries — and it increasingly culminates in crisis. Look no further than the “global big three” of GM, VW and Toyota continually jockeying for leadership.

Each has paid dearly for a peculiar kind of greed that doesn’t necessarily translate into industry-leading profits and top-performing share prices. It produces corporate calamity that proves very embarrassing and very expensive.

VW’s deepening “dieselgate” scandal is rooted in its bid to persuade American consumers that “Clean diesel” is not an oxymoron. But it turned out to be just that, thanks to the discovery of duplicitous scheming by VW engineers.

The German automaker’s arrogance will cost the automaker a $15 billion settlement with U.S. regulators; is forging a cottage industry for plaintiffs lawyers; soured relations with customers and dealers; and will do untold damage to its reputation, if not its humility.

Only VW’s commanding presence in the fast-growing Chinese market helped the Masters of Wolfsburg maintain global sales momentum in 2016, even as the pace flagged in Germany and most of North America. In the critical United States? VW brand sales slipped 7.3 percent last year, according to Autodata Corp.

VW shares lost 42.5 percent of their value between mid-April 2015 and Monday’s close. Market capitalization shrank dramatically. Questions deepened over governance and government influence in oversight of management. Criminal investigations intensified, recently targeting even disgraced former CEO Martin Winterkorn.

Those are steep prices to pay for bragging rights and the automotive equivalent of world domination. Is it really worth it? The last two players to hold the ephemeral honor would say no because in today’s global industry of autos and mobility, profitability, quality and innovation trump sales volume.

“At Toyota, we are not focused on chasing volume,” the Japanese automaker said, predictably, in a statement. “Our goal is to be No. 1 with consumers by engineering and producing ever-better cars.”

The Japanese juggernaut learned that lesson the hard way. Toyota’s push for sales leadership in the late 2000s birthed a global recall scandal in 2010, revealed its Balkanized management structure and exposed the big lie that decision-making was made regionally.

Mostly, it wasn’t. And the push to become globally dominant, more easily attained as American rivals like GM and Ford Motor Co. stumbled under the weight of punishing debt and health care costs for employees and retirees, exacted a high price.

Quality suffered. Recalls mounted. A regional operating unit could go months, even years, without knowing another region was wrestling with a quality problem of global proportions — a communication breakdown that would tarnish Toyota’s sterling quality reputation among consumers, analysts and the news media.

The response, under Toyota scion Akio Toyoda, is a streamlined management structure; the appointment of foreign-born members to its board of directors, including former GM executive Mark Hogan; greater autonomy for regional leadership; and a deliberate effort to imbue new models with more emotional appeal.

GM learned that lesson, too, if grudgingly. Still, its engrained obsession with world sales leadership largely blinded successive occupants of its pre-bankruptcy C-suite to the financial implications of their decisions.

Debt swelled. Manufacturing efficiency lagged industry standards. Labor contracts grew more and more expensive and less and less defensible. Management moved personnel problems instead of solving them. And profitability largely took a holiday, except in the best of times.

But, hey, GM was still No. 1 in the United States and around the world — until it filed Chapter 11 with the help of U.S. taxpayers, a fitting commentary on the perils of misplaced priorities. Ask CEO Mary Barra to name her top objective and I can almost guarantee it won’t be to sell the most cars and trucks in the world.

It will be to lead the industry in profitability. To surprise and delight customers. To demonstrate that GM can build value for investors by being innovative and responsible. To show employees and retirees that today’s leaders won’t make the same mistakes, won’t grow as complacent, as their predecessors almost always did.

Being No. 1 has its privileges, but a guarantee of continued success isn’t one of them. Just ask GM and Toyota.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.