In this installment of 10 Questions for . . . , Senior Editor Daniel DiClerico speaks with Andrea Gabor, the Bloomberg Chair at Baruch College/CUNY whose most recent book is The Capitalist Philosophers: The Geniuses of Modern Business—Their Lives, Times, and Ideas. Here, Gabor shares the findings of her investigation into the appliance industry, including why she thinks U.S. manufacturers are at risk of being overtaken by foreign competition and what you should think about before buying major appliances.
 
You've spent much of your career covering the car industry. Why the interest in appliances?
It all goes back to my book The Man Who Discovered Quality (1990). It was the story of W. Edwards Deming, a statistician from Wyoming who ended up teaching the Japanese auto industry about quality management. Since then, quality has been something of an obsession with me. Two years ago I bought a $2,000 lemon of a range. I had so much trouble getting it repaired to my satisfaction—even the repair parts failed. That got me wondering about the once reliable American appliance and whether the American appliance industry was going the way of the American auto industry.

What have you learned so far in your investigation?
There are some remarkable parallels, especially when you think about what U.S. manufacturers could have learned from the auto experience of the 1980s. The Japanese started to beat the U.S. because of their commitment to quality. As with the auto industry, the main competitors to the U.S. appliance industry are largely Asian, and Korean in particular. These manufacturers have an incredibly strong quality ethic, which they learned from the Japanese. If you look at the big Korean companies like LG and Samsung, they live and breathe the Toyota quality playbook.

Is it even possible to have a domestic-versus-foreign discussion in this era of globalization?
We do live in a global world, and everyone does some amount of outsourcing. But the issue is not whether you do all your production under one roof in one country. The issue is what kind of relationship you have with your suppliers—and how much control you have over the production process. At one extreme you have the Toyota model, whereby the plant and the suppliers are usually in close proximity, like what you see in Toyota City. Both LG and Samsung have similar manufacturing centers in Korea. At the opposite end of the spectrum is a company like Apple, which has basically become a marketing and design company with virtually no in-house manufacturing. In my opinion, U.S. appliance makers need to be more like Toyota and less like Apple. Its iPods are designed to be replaced regularly; a range or refrigerator should last for years.

What do warranties tell you about this change in direction?
Warranties are in decline throughout the appliance industry. On smoothtop ranges, for example, they're down from five years to one year. The other interesting thing is that if you look at the accrual rates, which Warranty Week assembles, the average rate for U.S. home appliances is roughly 3 percent. Toyota and Honda, by comparison, have accrual rates of 1.3 percent. I realize that's comparing apples and oranges, but it begs the question of why the accrual rates would be half as much for what's essentially a much less complicated product. I would argue that it comes down to the lessons of quality that many of the major U.S. appliance manufacturers are learning the hard way.

How do values differ with American appliance manufacturers?
U.S. manufacturers don't seem to have the same quality-based philosophy. Their focus too often is on cutting costs. They want sales and they want profits and they see cost-cutting as the fastest way to get there. But what the experience of the 1980s Japanese automakers should teach them is that keeping quality up is the best way to keep costs down. I'd also argue that the U.S. manufacturers focus on slick design and features—the appliance world's equivalent of car fins—in lieu of quality.

But isn't innovation a requirement of growth? Can all of us still be cooking with grandma's old range.
You definitely need innovation. But real innovation and quality are linked. The Japanese understand this better than anyone. Their idea is that a culture of mindfulness and continuous improvement can lead to giant leaps. It wasn't that the Japanese undercut the price of the American auto or that they paid their workers less. Toyota beat the U.S. by making a better-looking, more-reliable car for a better price. They also pushed fuel efficiency and hybrid research when U.S. automakers said there wasn't a market for it. That's true innovation.