American Auto Adventure: Will NUMMI Survive?

Car buffs still celebrating the purchase of GM’s Saturn brand by the Penske Automotive Group appear to be ignoring the perilous circumstances of a similar GM initiative from the Reagan era, the NUMMI joint venture with Toyota. Although the United Auto Workers staged a rally last week to save NUMMI, it appears that the end may be near for an historical American success story.

NUMMI and Saturn, of course, were both conceived by GM in the 1980s to produce inexpensive, fuel efficient automobiles that could compete with small Japanese imports like the Toyota Corolla and Honda Civic. But unlike the Saturn approach, which featured GM’s unilateral development of state-of-the-art production, distribution, and service functions, NUMMI was a joint venture by GM and Toyota to collaborate as production partners while competing for sales and distribution opportunities.

That’s not an easy strategy to pull off, but the partnership managed to survive for 25 years, until GM’s recent descent into bankruptcy forced it to pull out of the venture. Toyota, now with full ownership of the NUMMI facility, is deciding whether to pull the plug on the project.

Getting to Know Geo

Although the Saturn Corporation was announced in 1983 and officially launched in 1985, the first Saturn automobiles were not driven off the Tennessee assembly line and into dealership showrooms until 1990. In other words, it took seven full years for GM to finance the venture, build the factory complex, and create a national dealership network from scratch without any support from other automobile companies.

There was no guarantee that the Saturn project would actually succeed, so GM wisely decided to hedge its bet and launched another initiative during the 1980s for the small car market. GM had closed its Fremont, California manufacturing plant during the vicious economic recession of the early 1980s, but it remained liable for various employee severance obligations. Meanwhile, Toyota was searching for an opportunity to establish its first manufacturing facility in the United States, a strategy that would help it avoid American import restrictions and tariffs.

The solution? GM and Toyota agreed to create a joint venture called New United Motor Manufacturing, Inc. (NUMMI), which reopened the Fremont factory and began producing high-end Toyota Corollas with an American work force and Japanese managers. But only half of the automobiles that rolled off the assembly line was shipped to Toyota dealerships; the half was sent to Chevrolet dealerships instead.

What were these new Chevrolet automobiles called? Chevrolet Corollas? No, that would have been awkward to explain to the American public! Instead, GM initially resuscitated its discontinued Chevrolet Nova brand for these automobiles, but later opted to create a new boutique brand called the Geo.

GM then decided to market Geo automobiles within segregated zones of Chevrolet showrooms, and created a new nameplate – the Prizm – for its Corollas. And what was Geo’s advertising tag line? ‘Get to Know Geo‘ … an entirely new brand for an innovative and unique production strategy.

The Fate of Joint Ventures

Like the arguments that sprung up between Felix Unger and Oscar Madison of Neil Simon’s classic play The Odd Couple, the culture clashes between Japanese managers and American blue collar workers yielded a mother lode of entertaining news stories. In fact, movie director Ron Howard made the comedy film Gung Ho on this very plot premise in 1986; its tag line breathlessly promised “When East meets West, the laughs shift into high gear!

But NUMMI’s initial performance was no laughing matter. Toyota succeeded in establishing a manufacturing presence in the United States, and GM managed to get the Prizm into Chevrolet dealership showrooms a full year before Saturns began rolling off production lines.

Thus was launched the concept of coopetition, which are frenemy relationships that are applied to the corporate sector. Business strategists define co-opetition as cooperation between competitors, albeit within strictly defined and narrowly focused fields. Enterprise risk managers define it as a risk response strategy of risk sharing, designed to allow each party to share the burdens and responsibilities of any losses with others in the event of failure.

Attorneys, of course, simply view such ventures as strategic partnerships, although such partnerships are not often successful in highly competitive global industries. Apparently, the competitive instincts of the partners are extremely difficult to control when rivals are required to cooperate under such circumstances, and thus most such ventures fall apart in relatively short periods of time.

What the Future Holds

And yet NUMMI survived for 25 long years, and might still be going strong had it not been dissolved by the disintegrating GM. Toyota, now long established in the American manufacturing market with numerous non-unionized facilities, no longer has much need for an aging and unionized automobile plant.

As a living example of longstanding co-opetition, though, the Fremont factory is an icon of cross-cultural, transglobal business integration. Although its time may have come and gone, many would nevertheless mourn its passing.