Google Glass – The Launch of a New Product

Discussion Questions:

  1. This post has two articles that describe the launch of the new “Google Glass” product.  Read the articles carefully and describe what Google has done so far to develop this product and understand the market for it.

  2. The second article says that an independent company estimates that it only costs Google $152.47 in parts and manufacturing for each pair of glasses.  Google argues that this cost is low relative to the real cost of producing the product.  What do you think about the attractiveness of the product from a profitability view?  What if the real cost were 2X, 3X or even 4X the cost estimated by the independent company?

  3. Google indicates that they will sell the product for “as long as we have it on hand.”  What should their long term strategy be for producing this product in the future.  Develop a plan for how Google should proceed with this product.

WSJ – May 13, 2014, 8:10 PM ET

Google Glass Is on Sale for Anyone in the U.S. (Again)

ByNathan Olivarez-Giles

Google Glass prescription frames

Associated Press

Google Glass can now be purchased by anyone in the U.S. willing to fork out $1,500. But it’s not clear for exactly how long.

The company has had a restricted beta test of the device, as well as an open one-day Glass sale last month. On Tuesday, Google said it will sell the device more broadly, but only while supplies last.

“We learned a lot when we opened our site a few weeks ago,” Google said in a post to the Glass page on Google+. “So we’ve decided to move to a more open beta.”

Glass isn’t yet a fully finished consumer product. Google is only offering an early version targeted at beta testers called Explorers.

The company said it’s still working to improve Glass on both the hardware and software fronts, “but starting today anyone in the U.S. can buy the Glass Explorer Edition, as long as we have it on hand.”

It’s not clear how many of those units Google has made already, how quickly they might run out or whether it would make more in response to demand. But anyone who likes being an early adopter, and missed out on the one-day offer, has another chance.

Then again, Glass fanciers could also wait until after it leaves the current developmental stage, which may is likely to include consumer versions incorporated into frames sold by the likes of Oakley and Ray-Ban.

Google Glass Materials Cost $152, IHS Says

Firm Says Materials Are a Small Slice of Glass’s Price—but Much of Cost Can Come From Engineering and Development

By Ben Fox Rubin

WSJ – Updated May 13, 2014 12:06 p.m. ET

Dutch Prince Pieter Christiaan wears Google Glass during a walking tour in the Netherlands on April 26. European Pressphoto Agency

IHS Inc. this week came out with a new product teardown of Google Glass, saying the digital headset’s hardware and manufacturing expenses total about $152.47—a small slice of the product’s $1,500 price tag.

Still, IHS notes that these teardown estimates can be misleading, since the majority of the costs associated with many electronic devices—particularly Glass—can come from nonmaterial expenses, such as engineering costs, software development and tooling costs.

“When you buy Google Glass for $1,500, you are getting far, far more than just $152.47 in parts and manufacturing,” said Andrew Rassweiler, an IHS senior director.

Google disagreed with IHS’s take on the cost.

“While we appreciate another attempt to estimate the cost of Glass, this latest one from IHS, like’s, is wildly off,” a Google spokesman said. “Glass costs significantly more to produce.”

In late April, TechInsights’s placed its cost estimate for Glass at an even lower $79.78.

For its part, Google in April also called’s estimate “absolutely wrong.” A Google representative wasn’t immediately available Tuesday for comment on IHS’s estimate.

Google hopes to cut the cost of Glass, especially when the device is released for sale to the general public. Higher production volumes will likely help reduce component costs.

Glass has only been made available once to the entire American public—on April 15 of this year at the full price of $1,500. The product is otherwise available on an invitational basis.

IHS and both mentioned that Texas Instruments Inc. components are a major part of the Glass design. IHS said the semiconductor supplier contributed the apps processor, power management IC, audio codec, battery fuel gauge and regulator ICs, accounting for an estimated $37.90 worth of components identified so far in the product.

Write to Ben Fox Rubin at

Posted in Forecasting, Global Sourcing, Product Design, Sales and Operations Planning, Supply Chain Strategy | Tagged | Leave a comment

Navy Awards Two Shipbuilding Contracts for New Submarines

Discussion Questions:

  1. Read the following article carefully.  What are the details of the contracts that that the Navy struck with General Dynamics and Huntington Ingalls?
  2. Would not it have been better if the Navy had only awarded one contract?  What are the trade-offs associated with one versus two submarine suppliers?

Navy Shipbuilders Share $17.6 Billion Submarine Order

General Dynamics Gets Award to Build Next 10 Virginia-Class Subs, Continuing Partnership With Huntington Ingalls

WSJ – April 29, 2014 12:48 a.m. ET

The U.S. Navy’s two largest shipbuilders will share a record $17.6 billion order for 10 nuclear submarines, expanding what is viewed by military analysts as one of the Pentagon’s most successful weapons-buying programs.

General Dynamics Corp. received the contract award Monday to build the next 10 Virginia-class attack submarines, continuing the work-sharing partnership with Huntington Ingalls Industries Inc. that gives the companies a roughly equal share in program profits.

The award underscores the relative resilience of Navy spending in the face of Pentagon budget pressures, continuing the surge in order activity that lifted General Dynamics’ backlog by $10 billion to $56 billion at the end of the March quarter, its highest level in three years.

General Dynamics also builds guided-missile destroyers, auxiliary ships and commercial vessels. Its marine division has the highest margins of its three military units, with a rise to 10.4% in the first quarter trailing only the 19% at its Gulfstream Aerospace corporate-jet business that drove a 3% rise in quarterly profit and higher full-year guidance.

The latest deal covers the building of two submarines a year, with the block buy expanded to 10 ships from the eight ordered in the previous batch of boats which first entered service in 2004.

General Dynamics, the lead contractor, and Huntington Ingalls each produce parts of the boats in their own yards and alternate completing work on nuclear reactors and final assembly, an arrangement developed in the 1990s to preserve the industrial base for submarine construction.

The multi-boat, multiyear awards are designed to lower production costs, with Virginia-class boats currently costing about $2.8 billion each, according to a recent report from the Congressional Research Service. That is close to the Navy’s long-term price target.

The two contractors had established a reputation for building the Virginia-class subs, which are armed with Tomahawk cruise missiles and torpedoes, on budget and ahead of schedule. They have delivered 10, with eight under construction.

The track record suffered a blow earlier this month when the Navy revealed that the commissioning of the North Dakota would be delayed because of design issues and problems with parts from an outside supplier.

General Dynamics, which is delivering the boat, said last week that the problems wouldn’t affect its margins on the contract, the first to be delivered from the third batch of vessels.

The company said it would start building the first boat of the new order on May 1, with the 10th vessel due to be delivered in 2023.

General Dynamics shares closed down 1.5% at $107.49 Monday, rising to $107.90 in after-hours trade. It is the best-performing defense prime contractor this year, up 12.4%, closely followed by Huntington’s 10.1% gain.

Write to Doug Cameron at

Posted in Cost, learning curve, Manufacturing, Purchasing, Supply Chain Risk, Supply Chain Strategy | Leave a comment

Toyota Consolidating Operations in Texas

Discussion Questions:

  1. Carefully read the following article.  What Toyota positions are being moved to Texas?  Why is Toyota making this change?
  2. What are the incentives that Texas is offering Toyota?  How significant are these to Toyota’s decision?
  3. What are the major risks to Toyota associated with this decision?

Texas to Pay $10,000 for Each Toyota Job

State Incentive Helps Land Car Maker’s North American Headquarters

WSJ – Updated April 28, 2014 6:37 p.m. ET

A Golden State goodbye. Toyota will move California staff to Texas. Associated Press

Toyota Motor Corp. is starting a multiyear overhaul of its North American operations, consolidating several units at new headquarters in Plano, Texas, that will house 4,000 employees now spread across separate marketing, manufacturing and finance locations.

The moves disclosed on Monday will be the most significant changes in decades to the way the world’s largest auto maker does business in its single biggest market. The decision also has political and economic repercussions for the states of California, which will lose as many as 3,000 jobs, and Texas, which will gain roughly 4,000 jobs.

Jim Lentz, chief executive of Toyota’s North American operations, said the decision to consolidate in the Dallas suburb stemmed from conversations he had with Toyota CEO Akio Toyoda about a year ago, soon after Mr. Lentz got his current job.

Toyota’s current sales and marketing unit headquarters in Torrance, Calif., was too far from the auto maker’s factories in Kentucky, Indiana, Mississippi and Texas and from its engineering center in Ann Arbor, Mich., Mr. Lentz said. Erlanger, Ky., where Toyota’s North American manufacturing operations are now based, was too small, he said.

Toyota narrowed its preferred locations to Denver, Atlanta and Charlotte, N.C., before choosing the Dallas-Plano area, a person familiar with the matter said. Real-estate firm Jones Lang LaSalle handled the search.

“We weren’t pursued by Texas,” Mr. Lentz said. “It isn’t a Texas versus California discussion.”

California’s business climate and costs of living have become sensitive topics in the state, especially in light of Texas Gov. Rick Perry’s efforts to woo employers from the Golden State with promises of lighter regulation and lower taxes.

Texas offered Toyota $40 million to move, part of a Texas Enterprise Fund incentive program run out of the governor’s office. At $10,000 a job, it was one of the largest incentives handed out in the decade-old program and cost more per job created than any other large award. Last year, Texas spent about $6,800 to lure each of 1,700 Chevron Corp. positions to Houston and $5,800 for each of 3,600 Apple Inc. jobs shifted to Austin.

“It is the biggest win we’ve had in a decade,” Mr. Perry said in an interview. “Ten years of tax, regulatory, legal and educational policies have now put Texas at the top of the heap.”

California Gov. Jerry Brown didn’t address the Toyota decision specifically but took note of criticism directed at the state. “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it” in the state, he said at an event in Lancaster, Calif., with Chinese electric-vehicle maker BYD Co.

In response to Toyota’s relocation, the state’s economic development office said “dozens of businesses big and small,” including auto makers, have expanded in the state.

The reorganization is part of a larger effort by Toyota to cut costs and run its North American business as a cohesive operation. Until last year, its manufacturing, sales and marketing, and research and engineering were distinct units with their own headquarters and top executives.

Toyota’s U.S. sales unit has been based in Southern California since 1957. The auto maker has expanded its operations in the area to include product planning, vehicle design, consumer finance and logistics. The auto maker also has a small manufacturing operation in Long Beach, Calif. Toyota’s design studio and several other small functions will remain in California, keeping its total workforce at 2,300.

“I don’t think it is a big secret that outside of the IT and entertainment industry, that California is too much of an overregulated, high-cost place of doing business,” said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor. “But it’s not just about insulting California. [Toyota] had too many different organizations operating at the same time not operating as the same entity.”

Executives will start moving from Toyota’s sales center in Torrance and its manufacturing offices in Erlanger as soon as July to leased properties in the Dallas suburb while a facility is constructed. The bulk of the transfers won’t take place until the new headquarters is finished around the end of 2016 or early 2017. Toyota said its financial services operations will move to Plano in 2017.

In all, about 3,000 workers from California and 1,000 from Kentucky will transfer to Texas. Some 250 purchasing employees will be shifted to Michigan from Kentucky. Employees from the company’s corporate office in New York also will move to Texas.

A challenge for Toyota will be avoiding a brain drain. Nissan retained just 32% of its workforce when it relocated from the Los Angeles area to Franklin, Tenn., outside Nashville. Many more employees returned to California after a few years, said Larry Dominique, who was Nissan’s chief of U.S. product planning at the time and now is president of Automotive Lease Guide.

“When you lose centuries of institutional knowledge, that can have a negative impact on the overall brand,” he said. “The positive side is that you can shave off the old [and] bring in new talent and thinking.”

Toyota’s Mr. Lentz said the company is determined to retain current employees. The company is offering company-paid trips to Texas or Michigan, and relocation packages to anyone who wants to move.

—Russell Gold
and Alejandro Lazo
contributed to this article.

Write to Mike Ramsey at and Joseph B. White at

Posted in Location, Manufacturing, Supply Chain Strategy | Tagged | Leave a comment

The IKEA “Do-It-Yourself” Energy Plan

Discussion Questions:

  1. How does IKEAs renewable energy plan work?
  2. Compare it to the Wal-Mart approach.
  3. Find other examples of what major companies are doing to become “energy neutral.”

IKEA Assembles a Sustainability Program

Swedish Retailer Plans First Wind-Energy Investment in U.S.

By Andria Cheng

April 15, 2014 11:25 p.m. ET

Many retailers are expanding their use of renewable energy, but IKEA is taking a do-it-yourself approach.

Last week, the Swedish furniture and home-furnishings retailer told a congressional task force on climate change that it is making its first wind-energy investment in the U.S. The company said it is buying a 98-megawatt wind farm in Hoopeston, Ill., about 110 miles south of Chicago.

The Illinois wind farm, slated to include 49 wind turbines and be wholly owned by IKEA, is expected to be fully operational by the first half of 2015.

The wind farm isn’t intended to supply energy to any of IKEA’s 38 stores in North America. Rather, it is part of IKEA’s goal of becoming energy neutral—that is, not using any more energy than it’s able to produce.

The company will sell the generated energy back to the power grid, said IKEA’s chief financial officer for U.S. operations, Rob Olson, who is also acting president of the U.S. unit.

The Illinois wind field will supply energy equivalent to 1.3 times IKEA’s total U.S. electricity and other energy use, according to the company. Put another way, it will generate enough for the average energy needs of 34,000 American households annually, according to the company. It will catapult IKEA’s renewable-energy production to two-thirds of global energy consumption, from 37% currently, Mr. Olson said in an interview.

The project will be larger than wind farms IKEA has built in eight other countries, including Canada and Germany.

IKEA plans to delegate management to wind and solar developer Apex Clean Energy.

The retailer, which earlier this year characterized itself as the No. 2 private commercial owner/user of solar power in the U.S. (Wal-Mart, meanwhile, is said to be the No. 1 solar-power buyer), has committed itself to becoming energy-neutral by 2020, and the Illinois wind farm is the biggest energy project it has announced so far.

While declining to specify how much the project will cost, Mr. Olson said that wind-farm expenditures are included in the $2 billion the company has earmarked for energy projects between 2009 and 2015.

IKEA, whose sales have jumped more than 30% to nearly $40 billion over the past five years, also produces renewable energy with the 550,000 solar panels it owns globally. The company also produces geothermal energy.

The retailer has “mapped out and produced” a favorable return on investment, Mr. Olson said, adding that IKEA will continue to scout for wind-farm investment opportunities globally. “We don’t look at it as a short-term investment. The potential with wind energy is huge. We want to make sure we are doing our part to take care of the environment and to be energy independent. But it also makes economic sense,” he said.

Andrew Winston, founder of sustainability consultancy Winston Eco-Strategies, said IKEA is one of the few companies that invests in its own energy projects.

Wal-Mart has said it wants to derive 100% of its energy from renewable sources and drive annual production or purchase of 7 million megawatt-hours of renewable energy globally by 2020. That company, with about $480 billion in sales, said 24% of its total electricity supply comes from renewable sources, including 8% from company-driven projects. Wal-Mart said it primarily uses power-purchase agreements to buy renewable energy from developers. The company uses wind energy in markets including Mexico and Texas but doesn’t own any wind farms.

By contrast, IKEA owns 100% of the solar panels, geothermal-energy facilities and wind farms it uses.

Write to Andria Cheng at

Posted in Sustainability | Tagged | Leave a comment

Smartphones–Modular vs Integrated Design

Discussion Questions:

  1. The following two articles are related to smartphone design.  The first article describes Google’s idea for a modular design where the user can customize the phone to their exact requirements. The second article is about the cost to build the Samsung S5 phone, which is a conventional integrated design.  Read and outline the key points from each article.
  2. From a manufacturing cost standpoint, what do you think would be less expensive to build, the modular phone or the integrated phone?
  3. Do you think people would be willing to pay more for the modular phone since it may more closely match their need?
  4. What do you think the future holds, will phones be modular or integrated?

Google Unveils Project Ara, a ‘Modular’ Smartphone

Users Could Customize Their Devices With Hardware Modules Built by Outside Developers

By  Alistair Barr

April 15, 2014 6:36 p.m. ET

Google’s Project Ara phone would have modules, like cameras or lighters, that could be slotted into a metal frame and held in place by magnets. Google

Google Inc. is planning a “modular” smartphone that consumers can configure with different features, executives said on Tuesday.

Google envisions hardware modules, such as a camera or blood-sugar monitor, that would be available in an “app store,” like its own Google Play store for software applications.

The modules would fit into a metal “endoskeleton” designed for the phone, which Google calls Project Ara. Flat rectangular “modules” can be slotted into this frame, where they will be held in place by magnets, designers said.

“The existing way of making smartphones is mature. But there are new ways of making phones,” said Kaigham Gabriel, deputy director of Google’s Advanced Technology and Projects Group, which developed the concept for the phone. Mr. Gabriel spoke in an interview at the first Project Ara developer conference Tuesday.

Each module would perform a particular task. One may be a battery for the phone, while another may house a wireless antenna, or a camera. Google controls the design of the endoskeleton, while outside developers will design the modules.

Google is hoping to harness the creativity of thousands of developers to build a large ecosystem of hardware modules. Google plans to start with an entry-level phone with basic functions that would cost roughly $50 to make.

Google didn’t say how much it plans to charge for the phone.

Google also is planning an online marketplace where consumers buy additional modules, depending on what they want their phone to do.

“We want it to be like an app store,” Mr. Gabriel said. “You may want a blood-sugar monitor and a cigarette lighter on your phone. Why should you not have that?”

Software-based app stores, such as Apple Inc.’s App Store and Google Play, are rich profit sources because they typically take about 30% of the money spent on apps.

Rajeev Chand, head of research at Rutberg & Co., an investment bank focused on the wireless and digital-media industries, said Project Ara could let smartphone users upgrade their gadgets more cheaply and more often, rather than replacing the entire device every 18 months, as many do now.

For Project Ara to succeed, large hardware makers need to embrace the platform and make their own modules, while wireless network carriers also need to get on board, Mr. Chand added.

There’s also the question of whether many consumers will want to spend time customizing their phones with complex new components, Mr. Chand said.

“There may not be a consumer market for this,” he added.

The phone’s creators are working on an app to help users select modules.

They also are considering using eye tracking and heart-rate sensors to check if users are overwhelmed by the choices, said Paul Eremenko, the head of Project Ara. If stress levels rise, the configurator app will whittle down the choices to a more manageable selection, he explained.

“The smartphone ecosystem is in early stages of its development, like the car in the early 1900s when you could have any color you wanted as long as it was black,” Mr. Eremenko explained. “Today, about 25% of the value of automobiles


This is how much Samsung’s Galaxy S5 costs to build

CNBC – Ansuya Harjani | @Ansuya_H

A customer looks at the new Samsung Electronics Co. Galaxy S5 smartphone on display at a Best Buy Co. store in San Francisco, California, U.S..

David Paul Morris | Bloomberg | Getty Images

A customer looks at the new Samsung Electronics Co. Galaxy S5 smartphone on display at a Best Buy Co. store in San Francisco, California, U.S..

Samsung Electronics is spending more to build its new flagship Galaxy S5 than the previous model despite a slowdown in the high-end smartphone market.

The 32-Gigabyte Galaxy S5, which is water resistant and features a heart-rate monitor and fingerprint scanner, costs an “astronomical” $256.52 to build, according to teardown analysis by IHS. The model, which was launched on Friday, is selling for around $650 off-contract in the U.S.

Read More Can Samsung’s Galaxy S5 take on the next iPhone?

This is well above $236 required to build its predecessor and $207 for the iPhone 5S. It contrasts even more starkly with smartphones at the lower end of the cost spectrum, such as the ZTE U793, which has a materials bill of less than $35, according to the market research firm.

“Samsung is throwing more components into the device – they know that the high-end is going to be very competitive and they want to differentiate themselves. That in effect is their strategy,” Wayne Lam, senior analyst, wireless communications at HIS told CNBC.

“They are really competing both against Apple and their Android ecosystem – so there is more competitive impetus to innovate by adding more features,” he added.

Wayne Lam, Senior Analyst, Wireless Communications at IHS, explains why he thinks the new model is a “significant release” for the electronics giant.

Samsung’s market share dropped to 29.5 percent in the fourth quarter of 2013, from 31.1 percent a year earlier, mainly due to a saturated high-end smartphone market in developed regions, according to research firm Gartner. During this quarter, Chinese manufacturers including Huawei and Leonvo picked up market share, as they acquire technical and design expertise to add to their low production costs.

Meanwhile, Samsung said last week that is was on track to post a second straight quarter of declines in profits because slowing growth in smartphone sales is weighing on earnings. The South Korean tech giant estimated that its January-March operating profit fell by 4.3 percent to 8.4 trillion won ($7.96 billion).

“It remains critical for Samsung to continue to build on its technology leadership at the high end,” Gartner said in a recent report.

Smart move?

Discussing the impact of the higher costs on Samsung’s bottom line, Lam said the percentage loss in gross margin isn’t much relative to the revenue they capture. Margins in the premium segment are “tremendously” high, he noted.

It remains unclear whether Samsung’s investment will pay off, however.

“Smartphone makers are getting into an arms war they are innovating so quickly that we may have more technology than markets are asking for,” Lam said.

Tom Kang, research director at Counterpoint shares a similar view. While Samsung has invested heavily in components to make the device stand out, he said the upgrades are not immediately “obvious” to consumers looking at the phone on store shelves.

“There are only a handful of feature of components that consumers appreciate – some of them may work, some may not. At the end of the day, consumers may appreciate a lower price tag more,” he said.

The device’s fingerprint scanner has come under a lot of scrutiny in the past day after researchers at Germany’s Security Research Labs found there was a loophole in the sensor that could leave a user’s phone vulnerable to hackers.

Posted in Cost, Manufacturing, Product Design | Tagged | Leave a comment

GM Recall–A Repeat of the Toyota Experience?

Discussion Questions:

  1. It’s interesting how history sometime repeats.  Read this article about the new GM Recall of over 1,000,000 vehicles.  Also, do some research to learn more about the cause and scope of this recall.  Document your research in a concise statement that summarizes what this is about.
  2. Compare this to the recent Toyota recalls.  There are a few articles on this blog related to Toyota.  Augment this information with your own research.  In a concise statement, compare the two recalls.
  3. Why is GM being so aggressive in getting customers to respond to the recall?  What are the risks that GM is facing with remediation associated with this recall?
  4. Are there any potential future benefits for GM?

GM, Dealers Aim to Blunt Impact of Recall

Customers to See Loaner Cars, Extended Service Hours and Sales Discounts

By Christina Rogers

WSJ, Updated March 28, 2014 10:56 p.m. ET

Toby Beck continues to drive his 2006 Cobalt, but says he will “think twice” about buying another car from GM. Jeff Lautenberger for The Wall Street Journal

General Motors Co. and its dealers are gearing up to blunt the impact of a global recall that now covers 2.6 million cars with defective ignition switches.

GM’s recall of certain Chevrolet Cobalts, Saturn Ions and other compact vehicles will bring to dealer showrooms and service bays owners of cars ripe not just for repairs, but for replacement. Many of the vehicles affected by the recall have traveled more than 100,000 miles, GM estimates.

Karen Radley, owner of Radley Chevrolet in Fredericksburg, Va., said records show there are nearly 1,200 people in her area driving cars covered by the recall. “This is an opportunity to reach out to every owner on the list,” she said.

“We’ve got wonderful new product and we don’t want this recall to be a black eye,” she said. The dealership has had only a handful of owners, less than 10, request a rental car as an alternative, mostly because their children drive the recalled car.

Several dealers said GM has gone beyond what it typically does during a recall to head off customer gripes. The Detroit-based auto maker has provided rental cars to concerned owners to drive until their cars is fixed, and in some cases, has offered to have recalled cars picked up and towed to a dealership for the repair. For customers who don’t have full-coverage insurance, a necessity for renting a car, GM has offered to pay for that, too, dealers said.

“They’ve put more tools in our toolbox to handle these customers than ever before,” said Chris Graff, general manager at Hank Graff Chevrolet in Davison, Mich.


New Chevrolets are lined up at a dealership in Wheat Ridge, Colo., last month. GM is offering customers rental cars for customers awaiting replacement ignition switches. Reuters

Owners’ view of the service and incentives could bear on GM results this year. Toyota Motor Corp.’s U.S. market share fell after its big recall in 2009-2010. For now, Toby Beck, a 21-year-old college student from Allentown, Penn., is continuing to drive his 2006 Cobalt, having turned down a rental.

But he remains cautious. Mr. Beck said his Cobalt has stalled on him before while driving, shutting off after hitting a bump in the road. “I have pretty quick reflexes to turn it back on,” he said.

“I’m just hoping the steering won’t lock up with the car being off. The roads are pretty bad here.”

But he will “think twice” about buying another car from GM even with a trade-in incentive on his car, he said. “I don’t really know how I can trust them,” he said.

Some dealers have extended their hours to handle customer calls on the recall and schedule repairs, while others have used the outreach as a chance to talk up GM’s latest offerings.

GM has said it doesn’t want dealers to exploit the situation. At the same time, the auto maker is offering a $500 cash allowance to drop the price of a new vehicle for owners of recalled vehicles who want to dump the old car.

GM recently expanded the offer so owners could get the same rebate on a used, or “certified preowned,” GM vehicle, as well as a discounted finance rate. Usually such deals are for new cars only, dealers said.

“We’re going to do everything we can to fix it or get them into a new car,” said Brian Hamilton, a GM dealer in Kearney, Neb.

“We’ll give them the numbers on a new car. With interest rates so low and the incentives so big, a lot of times we can set them up with a new car and keep their payments the same.”

Mr. Graff said GM could do more, questioning why the money spent on rental cars couldn’t be applied to a larger rebate on a replacement vehicle. Some customers will be in rental cars for between 30 days and 45 days, he estimates.

“I’d rather see those dollars in the hands of the customer than a rental agency,” Mr. Graff said.

A GM spokesman said the company doesn’t plan to increase the rebate.

Dealers said the recall and related investigations have cast a pall over GM’s recent quality and design improvements.

Last year, GM’s Chevrolet and GMC brands finished among the top five brands in J.D. Power & Associates’ new-car quality survey.

“I’m frustrated by it because we have a lot of positives going for us,” said John Medved, owner of Colorado-based Medved Autoplex. “You’re talking about an entity and an era that is gone and we’re still living with it.”

Mr. Medved said while the recall is unfortunate, he is willing to “take a little less on the deal and give more on the trade-in” to get owners of recalled cars into a newer vehicle.

Dealers said there have been some mixed signals and confusion in GM’s communications to dealers. Some want GM to instruct dealers to hold on to used cars affected by the recall until they are repaired.

AutoNation Inc., for instance, has stopped sales of the less than 100 cars it owns because they are part of the recall, a company spokesman said. Other dealers also have stopped selling the affected cars.

But as of Wednesday,, an online auto marketplace, showed thousands of affected Saturn Ions and Chevrolet Cobalts listed for sale across the U.S.

A GM spokesman said GM’s franchise agreement with dealers requires them to check new and used vehicles for recalls and repair them before they are sold.

The auto maker late Friday said it was recalling 172,000 Chevrolet Cruze compact cars covering the 2013 and 2014 model years. The recall is focused on Cruzes equipped with 1.4-liter turbo gasoline engines. The company found that in some cases the right front axle of the vehicles can fracture and separate during normal driving. The auto maker is unaware of any injuries or crashes related to the issue.

The auto maker also recalled 490,200 of its pickup trucks and sport-utility vehicles for a possible oil cooler line leak that could result in a fire. The recall covers 2014 Chevrolet Silverado and GMC Sierra pickup trucks along with the 2015 Chevrolet Suburban, Tahoe and GM Yukon.

All customers will receive notifications from GM which will also repair the vehicles free of charge.

Write to Christina Rogers at

Posted in Quality Management | Tagged , | Leave a comment

Should Company Employees Be Personally Responsible For Product Defects

Discussion Questions:

  1. The U.S. Justice Department may pursue individuals within a company arguing that the individuals who make decisions within a company should be held accountable.  Carefully read the article and list the main points.

  2. Make a list of product related decisions that employees make that may lead to serious product liability issues.  Do this within the context of a specific company or industry.

  3. Do you think that employees should be held personally responsible for the decisions they make for their employer?

  4. How should you personally manage this type of risk?

Judge Wants Toyota Probe to Include Employees

Judge Approves $1.2 Billion Penalty for Misleading Consumers on Safety Problems

Christopher M. Matthews

Updated March 20, 2014 4:06 p.m. ET

Now that the Justice Department has extracted a $1.2 billion penalty from Toyota Motor Corp. for misleading consumers about safety problems in its cars, a federal judge wants prosecutors to go after the employees who were responsible.

U.S. District Judge William H. Pauley approved the auto maker’s settlement with prosecutors on Thursday, saying it “painted a reprehensible picture of corporate misconduct.” But he added that ultimately individuals are responsible for corporate misconduct and urged the Manhattan U.S. attorney’s office, which conducted the investigation into Toyota, to continue its probe.

“I sincerely hope that this is not the end but rather the beginning to seek to hold those individuals responsible for making these decisions accountable,” Judge Pauley said during a hearing in Manhattan federal court.

A Toyota spokeswoman declined to comment.

A spokesman for the Justice Department declined to comment on Thursday. When asked if prosecutors would pursue individuals during a news conference Wednesday, Manhattan U.S. Attorney Preet Bharara said he wasn’t “foreclosing anything” but believed the settlement is the “final resolution” of the case.

“[T]he rules of evidence sometimes do not allow you to use certain kinds of evidence and certain documents against individuals, although they might be admissible against the company itself,” said Mr. Bharara. “And so although there is an admission that there were individuals who engaged in conduct which provides for a basis to bring a case against the company, they are not charged here.”

The comments add to a growing chorus from judges who have criticized prosecutors for settling claims of wrongdoing with companies while not bringing charges against executives or others who actually made the decisions.

Under the terms of the agreement, Toyota admitted that it misled U.S. consumers by concealing information and making deceptive statements about two safety issues affecting its vehicles, each of which resulted in unintended acceleration.

Christopher P. Reynolds, Toyota Motor North America’s top lawyer, admitted Thursday that Toyota had misled consumers, but the company pleaded not guilty to wire fraud, a common part of such settlements.

The $1.2 billion penalty is the largest to date against an auto maker and ends a four-year criminal probe into Toyota’s handling of safety issues that a government regulator in 2010 found had caused at least five deaths.

“This is unfortunately a case that demonstrates that corporate fraud can kill,” Judge Pauley said on Thursday.

The settlement comes as the government is ramping up a similar investigation into General Motors Co. handling of a faulty ignition switch that affected more than 1.6 million vehicles and has been linked to a dozen deaths. GM has acknowledged that it knew about the defect for years before it conducted a full recall.

Write to Christopher M. Matthews at

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