Learning From McDonald's Turnaround

I found Holman W. Jenkins Jr.'s op-ed in today's Wall Street Journal to be quite fascinating. General Motors, he wrote, can look to the turnaround success of McDonalds as inspiration for its bid to revamp the company's vision, cost structure and incentives. Think McDonald's menu and GM's lineup of vehicles don't have a connection? Jenkins offers some similarities.

Look past the headlines, however, and the Big Three have just engineered a sweeping overhaul of internal incentives. Out goes the UAW's ability to dictate headcount, wages and benefits. Out, therefore, goes the financial imperative that for decades kept the Big Three churning out unprofitable cars to cover a 'fixed' labor bill. Let's admit the truth: Detroit designed many of its cars to be sold at a loss.

The change is already visible. GM is now free to protect the desirability and profitability of its hot-selling new Buick Enclave by not overproducing them. Chrysler is free to protect the image of its future designs by pulling the plug on poorly performing existing models rather than keeping its factories humming and dumping the output on rental fleets and unhappy dealers.

Not all McDonald's franchisees were up to spiffing up their stores. Likewise, the Big Three have design, engineering and marketing departments that are used to pushing out low-cost fodder for volume sales. They'll need a new mindset to go with the new economics: Aiming for designs that stand a real chance of becoming winners in their categories.

There's another similarity. McDonald's bears a special curse as the most visible of the fast-feeders. Hence its moves to festoon its menu with salads and 'healthier' foods even though these account for less than 10% of sales. ...

Yet the healthier fare also helps bring the moms back and encourages better feelings about the chain even among customers who order the same old delicious Big Mac and fries.

Auto makers face their own curse. They're Congress's main target for empty gestures on global warming, hence the billions the auto makers are spending to develop hybrids, diesels and electric vehicles in hopes of preserving their regulatory freedom to sell the large, powerful pickups, SUVs and crossovers that Americans actually want.

They also hope a green halo will help solve a tough marketing problem they face: A sizeable contingent of U.S. car buyers simply won't consider a U.S.-branded car, believing them to be inferior and déclassé."