The following is a term paper prepared by Nathan Shay, son of Joseph Shay and grandson of Harry Shay, in the Spring of 2002. In May 2003, Nathan will be granted a Bachelor degree in Business Administration at Notre Dame University. This text will be updated on request from the author and all copyrights remain solely his.
Thank you Nathan for your generous contribution to our collective knowledge about the great undertaking your grandfather and father embarked upon.
History of Shay Motors
By Nathan Shay
There seems to be an entrepreneurial spirit in almost anyone, and given enough time and frustration, this spirit seems to come out. This spirit may not necessarily give rise to the formation of a new multi-million dollar corporation, or the development of some new earth shattering idea or product. However it will become apparent anytime so much frustration builds that it inspires one to think, "I could do it better or build it better." This entrepreneurial spirit not only inspires creative thinking and originality, but also the savvy and nerve to actually believe that one can create that which one dreams. Such inspiration allowed one man, with the help of some friends and family, to embark on a journey that would allow him to bear the fruit of the idea that his way was the better way.
In just a few short years a 30 plus year veteran of the auto industry would see his tinkering evolve from an idea on a blueprint, to a materialized dream that would allow him to leave his mark on the auto industry. Also, in just these few short years, Shay™ wealth and reputation would suffer, resulting in bankruptcy and the shattering of a dream.
THE BEGINNING OF AN ENTREPRENEUR
For a man about to make his mark on the auto industry, it seems appropriate that his beginnings should take place in none other than the motor city. Harry Joseph Shay saw first light on June 1, 1925 in Henry Ford Hospital in the heart of the Motor City, Detroit Michigan. Only blocks from the hospital glared the neon lights of General Motors™ world headquarters, just one of the big three auto makers that would eventually request Harry Shay™ services.
Mr. Shay, along with his two older sisters, May and Jean, grew up in very humble surroundings. The strong hand of his mother, Amie, guided him, as his father™ presence was absent from infancy. This fact was not dwelled upon in the Shay household though; in fact Mr. Shay prided himself on accomplishing goals without the help of a father figure. This independent childhood may have been the foundation of his entrepreneurial spirit as young Harry was forced to figure things out for himself from birth.
His grade school and secondary education came from the local Detroit public schools and by the age of 16, Mr. Shay graduated from high school and prepared himself for higher education at Wayne State University in downtown Detroit in the fall of 1941. To help defer the cost of his education, he took a job as a newspaper reporter with the Detroit News. This was enjoyable work and Harry toyed with the idea of pursuing a journalism degree from Wayne State. However, journalism lacked the satisfaction that Harry got from figuring things out for himself. He enjoyed tinkering with mechanical toys, taking them apart and putting them back together. Harry not only enjoyed discovering how things worked but also, making improvements to gadgets so that they would be better. He would tinker with radios to improve reception so that he could listen to distant broadcasts. He also had a passion for cars.
After a year at Wayne State, Mr. Shay deferred his education to enlist in the U.S. military. However, he was honorably discharged very quickly due to allergies to the wool uniforms and lead. Bullets used at that time were made of lead and Mr. Shay was told that there was too much of a risk that he could die from a mere flesh wound because of lead poisoning that would occur from an allergic reaction. Before being discharged, Mr. Shay was able to make a substantial accomplishment in his life though. On a bus ride to Omaha, Nebraska he met a young lady by the name of Vonda Sanders. It must have been one heck of a bus ride because the two decided to get married immediately after getting off of the bus. He was 18 and she was 16, respectively. This marriage would last until their passage and result in the birth of two children, Harry Joseph, Jr. and Barbara Lee. Harry, Jr. would later become one of the top executives at Shay Motors. After being discharged from his military service and with new obligations, he knew he had to go back and get his college diploma.
In the early 20th century, the automobile provided one of the largest sources of entertainment for tinkerers. For those that enjoyed taking things apart and putting them back together, there were few other gizmos that were affordable, yet complex enough to be challenging. Mr. Shay new the automobile could help fill the desire to be exploratory, and at the same time provide the chance to contribute his ideas of improvements. With his mind made up on pursuing an engineering degree, Mr. Shay transferred from Wayne State to the University of Michigan in Ann Arbor. Upon graduating in May of 1945, with his degree in hand, Harry Shay was now qualified to make his mark upon the automobile industry.
Soon after graduating from the University of Michigan, he obtained employment from General Motors and was assigned to a team that faced the challenge of designing some of the first air-conditioning units used in GM vehicles. Mr. Shay enjoyed this work but left after about ten years because he was afforded more opportunities to work directly with the cosmetic design of vehicles at the Chrysler Corporation. After spending some time working for Chrysler, Mr. Shay decided he needed an escape from the growing metropolis of Detroit and decided to test the waters of Rockford, Illinois. The move to Rockford around 1966 afforded him one of his earliest chances to work in a small, entrepreneurial driven company called Atwood Manufacturing. His job for the next couple years involved little more than fiddling with a few parts, trying to get them to fall in place correctly. The payoff of making these parts fit together was the modern automobile door handle and lock system. Up until this point, cars were fit with entry systems that required one to press in a button on a protruding handle in order to open the door. These handles often rusted to the point of falling off and did not flush well with the seams of the vehicles exterior. However, with the new design, handles could be made flush and locking systems more theft resistant. The patent to this design is not in Mr. Shays name though because of his contractual obligation to Atwood
Manufacturing. Eventually the Motor City would come knocking again and the Shay household packed up to head back to Detroit. This time it would be Ford Motors requesting Mr. Shays services and here he would work until the start up of Shay Motors.
As an entrepreneurial driven company, Shay Motors strove to exceed customer value expectations because the product is often a direct reflection of the entrepreneur. Harry Shay did not stand for shoddy craftsmanship and he expected that his products would mirror this belief. However, Mr. Shay could not build and deliver every car himself, but instead required the cooperative coalition that would become Shay Motors. The extensive experience earned from working for the big three auto producers provided Mr. Shay with the ability to integrate a 1929 Model T fiberglass body with a 1980 Ford Pinto engine and chassis. However, these large corporations focused on dealers as their customers so he had limited exposure to dealing with final consumers and gaining the type of managerial experience necessary to be the controlling head of a turbulent and fast paced startup company. While these lack experiences did not stop Mr. Shay from answering the call to entrepreneurship, they may have been just a sample of the type of factors that inhibited the flow of the value chain system at Shay Motors. Utilizing his thirty years of auto experience and intuition, Harry Shay created the greatest amount of customer value he knew possible. This quest for creating customer value can be analyzed using the value chain.
VALUE CHAIN ANALYSIS
The value chain is a "systematic way of examining all the organization™s functional activities and how well they create customer value" (Coulter, 131). As a fast paced startup company, the pressure to perform and establish ones self in the market often handicaps the ability to critically analyze ones strengths and weaknesses. This document hopes to provide a historical perspective as to how Shay Motors might have used the value chain to provide for a longer lifespan.
"The concept of the value chain was developed by Mike Porter as a tool for identifying the ways to create more customer value" (Coulter, 131). The value chain is a macro concept used to analyze a company using micro components. These micro components consist of primary and support activities.
"The primary activities are those that actually create customer value and include the organizational routines and processes involved with bringing resources into the business (inbound logistics), processing these resources into the organizations goods and services (operations), physically distributing them to customers (outbound logistics), marketing the goods and services to customers (marketing and sales), and servicing customers (customer service)" (Coulter, 132).
Performance of primary activities wouldnt be possible without support activities. Support activities include
procurement, technological development, human resources management, and firm infrastructure.
The value chain will be used to guide the historical report of Shay Motors and then will be revisited to analyze and maybe offer a few suggestions of how the company might have survived longer.
SHAY MOTORS CORPORATION: A HISTORICAL LOOK
During an interview with the Battle Creek Inquirer on October 1st, 1979, Harry Shay recalls that in 1972 "â€¦while gazing out my office window of the Highland Park plant where Henry Ford first used the assembly line, I decided to start my own company. I thought about starting with a car that everybody wants, make it in fiberglass, and look for buildings such as this (the Battle Creek, Fort Custer location) so that I would not need so much in startup cost."
Over the six years between 1972 and 1978, Mr. Shay developed his first replica and studied when would be a good time to enter the market. He received some help from fellow engineers at Ford Motors. His coworkers would "moonlight" for Shay, meaning they worked for Ford during the day, and Shay at night. In February of 1978, he formed The Model A and Model T Motor Car Reproduction Corporation. On October 30, the company began taking orders and seven months later sold out the predetermined number of 10,000 roadsters that were to be built. By limiting the number of cars built to 10,000 per model, The Model A and T company was able to by pass certain legal constraints and regulations, making it much cheaper and easier to enter the market.
Marketing and Sales:
Financing the company was a major concern from the start as the automobile industry comes with many fixed cost. Ideas for gaining capital such as charging dealers franchise fees were quick in bearing fruit and the pressure soon turned from capital needs, to the satisfying the return on investments demanded by investors and fulfilling the orders placed by customers. To help establish itself as a legitimate business, the company leased a suite in the prestigious office space of the Renaissance Center in downtown Detroit, and from this office marketed to its first customers, Ford dealerships. Through an electronic interview with former Shay Motors executive Harry "Joe" Shay Jr., the role of the dealers in providing capital is explained as follows.
"When the market was first developed there were approximately 5000 to 6000 dealers. It was our hope that each dealer would purchase one or two vehicles as an attraction to draw customers into their showrooms. Much to our surprise the dealers began to advertise and we sold out of the vehicle within seven months. Many dealers had sold 25, 50, 100 or more before we even produced the first car. We soon realized we would have to develop a different marketing approach. However with 10,000 cars sold and the dealers sending in a $500 per car deposit, we quickly had $5,000,000.00 in the bank earning inflated interest of $500,000 to $1 million a year. When the dealers realized there was a much larger demand than what the government would allow us to provide, there became a lot of pressure by the dealers for protected territory.
The next car that we announced was the 1955 Thunderbird. These required a $1,000 deposit per vehicle. This
immediately generated another $10 million dollars with no promise of when the car would even be built. There was still a demand by the dealer for protection of a geographic market area, and that's when we thought of trying to develop a sophisticated market territory. However, I came up with the idea that the government has already developed that area for us with congressional districts and so that's how we determined our market area. We sold 435 congressional districts at $10,000.00 per district this generated $4,350,000. These franchise rights had to be repurchased after five years. We undervalued the price of the franchise too, as we had request for over 2000 franchise. However we were in business for less than six months and had accumulated almost $20,000,000.00 of other people's money and CDs were then earning 15 to 20 percent, which generated an income of three to four million dollars without even producing one car.
So basically all that the dealer had to do was take the order, forward it to us, accept delivery of the vehicle, and prep it for the customer. When a dealer became a franchisee the only commitment he was given by the company was he would have first right within a certain geographic area to sell approximately 24 cars for every franchise they owned. If he did not pre- sell the vehicles within a certain time frame the company would retain the right to sell those 24 vehicles to whomever it wished."
When Joe Shay was asked what type of advertising dealers did to gain such an outstanding response from consumers, he simply replied, "not much." The product was unique enough that there was a demand for the product, even before the existence of the company. He explained further that, "dealers basically advertised for the Shay Roadster the same way they already advertised for existing Ford products. The dealers had an incentive to advertise for our product especially since current Ford lines were not selling especially well."
Aside from marketing to dealers, further marketing was done through some quite unique channels. Instead of directly paying for advertising, Shay Motors sought alternative methods. Massive press releases were issued and newspapers were quick to print articles relating to the development of the company, as there appeared to be a large public interest in the story. Harry Shay Sr. appeared on the cover of such newspapers as the Detroit News, Detroit Free Press, and the Los Angeles Times. He also appeared, along with a few of his cars, on news programs such as Good Morning American and NBC Nightly News. Local talk shows were also a popular media source. Shay Roadsters appeared as prizes and giveaways on such programs as The Price is Right and the Miss Universe Pageant. With the help of dealers and these alternative methods, the company was able to spread its name while using almost none of its own capital. No advertising allowance or any other economic aid came directly from Ford Motor Company either. In fact, Shay Motors was providing economic aid to Ford in the form of $15,000,000 invested in Ford commercial paper.
Marketing and raising capital went hand in hand during the early stages of Shay Motors. The focus of Shays
marketing was to dealers in order to raise capital and the dealers in turn helped spread the word to final consumers, the general public. In just under seven months with nothing more than office space and several million dollars in venture capital, Shay Motors realized they needed to produce a physical product, and do it fast.
The majority of the Model A Roadster was built and assembled internally. However, a few of the parts had to be
contracted for outside the company, the major pieces being the fiberglass bodies and engines. The fiberglass bodies were produced in the Holland, Michigan plant under the company name Repliglass. This company was technically a separate entity from Shay Motors because it was owned by Harry "Joe" Shay, Jr and not Harry Shay, Sr. For all intents and purposes this plant was merely an extension of Shay Motors as all its business came from supplying the later company with fiberglass Model A molds. The Holland location satisfied several purposes that outweighed the inconvenience of having to ship the bodies 80 miles to the assembly line in Battle Creek. according to Joe Shay, the Holland location was preferable because, "there was an available, experienced work force there. Slickcraft Boat Company had just closed down their plant because of the impending recession, which made available hundreds of skilled fiberglass workers. Workers with this skill to make the body parts were only available in areas where boat or recreation vehicle companies existed, such as in
Holland and Elkhart, Indiana."
Engines were also contracted for outside the company. While it seems logical that Shay Model Aâ€™s would carry Ford Motors, it did not seem so at the time of the companyâ€™s foundation. To keep cost down, Shay wanted to find the cheapest supplier, so they asked for bids from several companies including General Motors, Chrysler Corporation, and of course Ford Motors. Chrysler was given very serious consideration because of the new engines they developed for their new line of "K-Class" economy cars. However, Chrysler could not meet the new demand by Shay and keep up with supplying its own needs so the economy engines of the Ford Pinto won the bid and only in retrospect did it seem like the logical choice.
According to Joe Shay, "All they (Ford) did was sell us engines and suspension parts. It is important to understand that it was not what Ford did for us that mattered; its what they didn't do to us. At anytime they had the power to close us down. All they had to do was simply stop selling us engines. However, their main obstacle in doing so would be the damage to their corporate image as they would be looked at as bullies and possibly in violation of antitrust laws."
Aside from these large parts, the rest of the vehicle was produced and assembled internally at the Battle Creek location. Items such as the vintage looking grille, headlamps, horns, and step plates were hand tooled. When Joe Shay was asked how company equipment compared to the big three producers equipment, he replied, "The small tools were comparable, everything else was outdated compared to industry standards." Large machines used for the handling of the heavy parts such as engines and the fiberglass bodies were very much out of date but more affordable for the relatively small auto producer. Generic parts such as wires, nuts, bolts, and such were contracted through the same suppliers used by Ford, GM, and Chrysler.
After meeting the proper parts requirements, Shay Motors turned its focus on company operations, particularly the flow of parts through the Battle Creek, Elm Street plant. At this location, parts came in one side of the factory and Model As and 55 Thunderbirds came out of the other side. Shay did not model their assembly line after a particular company such as Ford or GM. Instead it was designed internally but they did however use a few pointers from the assembly set-up used in the recreation vehicle industry. Joe Shay said the reasoning behind this was that, "Ford and GM were experienced in mass producing vehicles that were not necessarily very specialized to a particular customer. RVs on the other hand were very much built to a customers specifications and their assembly set-ups reflected this. Shay Motors was also dealing with a very customized vehicle so using the RV set-up seemed more logical."
The theme of contracting for help outside the company comes back in the outbound logistics of the company. Establishing a proper carrier for shipping the finished vehicles from the Battle Creek plant to dealers around the nation was not an easy task at first. Shay owned a few small trucks and trailers that could handle small local deliveries but lacked the means necessary to provide service nationwide. Since Ford Motors would limit their involvement to providing engines and parts only, regular Ford vehicle carriers could not be used. Instead Shay once again turned to the recreational vehicle industry for guidance. Companies such as Morgan Drive Away Transportation Incorporated, of Fort Wayne and Elkhart, Indiana had long been providing service for RV manufactures. However, shipping cars required different trailers than those used for shipping RVs but Morgan was able to adapt and fulfill Shays needs. Sometimes carriers mishandling resulted in some damage to the vehicles to the point of requiring repairs.
Customer service was somewhat ambiguous at Shay Motors. Sometimes it was unclear whether Shay was supposed to provide for repairs or whether it was the dealers responsibility. Shays came with a 12-month warranty, all of which was supposed to be handled by the dealer. Circumstances such as damage incurred during shipping left many unanswered questions.
There were so many unanswered questions that just about anybody associated with Shay Motors was left scratching their head wondering what was happening as Shay Motors made its progressive slide towards bankruptcy. The first signs came from two dealers that sued the replica producers for breach of contract on September 15, 1980. Bill Currie Ford of Tampa, Florida sued for $70,000 including damages, lost sales and goodwill, parts and repairs, and finally deposits. Troy Ford Motors Incorporated sued on the same basis for $30,569. The major complaints stemmed from the eighteen month wait since sending money for the deposits. Customers began canceling their orders and the dealers in turn sought reimbursement for their deposits.
The biggest suit to come though was from Illinois attorney general Tyrone Fahner on November 14, 1981. He accused the company of "ripping off" dealers by taking their deposits and not tendering a physical product. The suit also claimed that the vehicles were not roadworthy, that the company raised prices on the vehicles further, and that Shay was not accepting cancellation of orders due to these price hikes (BCI Nov 14, 1981). Shay Motors responded with a $50 million lawsuit against the attorney general for libel and slander. Shay responded with a counter suit because it felt it was not "ripping off" its customers. Rather, it took the deposits and stood with full promise to fulfill orders; it was simply running far behind schedule. The remarks about the vehicles not being road worthy were ungrounded as this was never factually proven. The price hike accusation was also false as Shay did not raise prices since the fall of 1980 and Mr. Shay published in writing that orders were cancelable if the consumers chose so. Several orders were in fact cancelled to the tune of approximately 1,400, which further enhanced capital problems.
On April 1, 1982 Shay Motors placed itself at the mercy of the court as it filed Chapter 11 for reorganization in U.S.
Bankruptcy Court, Grand Rapids, Michigan. Under Chapter 11, a company does not liquidate its assets, but instead seeks protection from its creditors. Shay listed its outstanding debt as $3,946,767 to dealers, $1,301,591 to trade
manufacturers, $277,906 in federal and state taxes, $2,615,425 in secured debts, $2,435,951 to First Wisconsin Financial Corporation, and $10,422 in priority wages. The company had approximately seven million dollars in assets. Shay immediately terminated the fiberglass production at the Holland plant. Mr. Shay said the filing would also protect the company by consolidating all outstanding lawsuits, which he had lost count of, into one lawsuit. At this point, Mr. Shay was still interested in producing the vehicles and fulfilling the orders even if he wasn't running or owning the company. He said, "the best thing will be whatever can be done fastest to resume production, â€¦whether it be loans, buy-outs, or equity agreements" (BCI April 1, 1982).
The hope for reorganization was soon lost as the company filed Chapter 7 for liquidation on July 8, 1982. It would take a about a year for Shay to find a buyer for its company rights and equipment. On April 12, 1983 Paul G. Housey, the president of Camelot Motors Incorporated, was given the green light by the bankruptcy courts to purchase Shay Motors for $2.45 million. Camelot produced the replicas for a short period before going out of business.
GLASSIC MOTORS: AN EARLY ENTRANT
A dream followed by bankruptcy seemed the common trend for those involved in trying to mass reproduce the Model A roadsters. Shay Motors was not the first to propose the idea of mass-producing a replica vehicle. Glassic Motor Car Company, Incorporated of West Palm Beach, Florida conceived this idea as early as September of 1966. It remained in business through 1980 but was not a direct competitor with Shay Motors. Upon interviewing with a former Shay Motors executive, Harry Shay Jr. confessed he had no knowledge of the existence of the Glassic Company.
Glassic was found by a father and son partnership that used their namesake for the company title. Original production was based purely on request of individual customers. There was no marketing other than word of mouth. Customer service was provided solely by the father and son partnership. Inbound logistics were also quite simple as Glassic used International Harvesters Scout chassis and four cylinder engines. These were ordered directly from International Harvester. Operations took place in the Glassic family garage. During these early production stages, each Glassic was hand assembled. No particular Model T styles were used as a mold; rather several styles were pieced together (aol website).
In 1972, the Glassics sold out and the company was renamed Replicars in 1975. The new owners switched from the old four cylinder engines to new Ford Mustang 302 cubic inch V-8 motors and dropped the Scout chassis to implement new specialty frames.
Production for the new Glassics took place in a huge warehouse in which only a fourth of the space was put to use. Production halted in 1981 and bankruptcy soon followed. (aol website)
While both reproduction companies used fiberglass bodies on modern chassis, Glassics can be distinguished from Shays on several levels. Shay replicas were molded around a 1929 roadster, which resulted in a more detailed and scaled resemblance to the original. Glassic's use of several styles resulted in some noticeable cosmetic discrepancies between the original Ford Roadsters and the Shays. Glassic used modern fourteen and fifteen-inch wheels and wheel covers in comparison to Shayâ€™s specially made spoke wheels that came from the mold of original 1929 roadster wheels. Glassics also used much longer doors compared to the Shay, furthering its resemblance to the original roadsters as well.
THE VALUE-CHAIN REVISITED: AN ALTERNATIVE LOOK AT SHAY
There were several factors that parlayed into the bankruptcy of Shay Motors, some of which were due to internal
components within the companys control and some of which were external or macro components and out of the
companys control. One of the first roadblocks for Shay Motors involved the purchase of its Battle Creek production facilities. The company contracted with the citys development board, Battle Creek Unlimited (BCU), for plant space at 200 Elm Street for $50,000 which was supposed to be available by July 1, 1979. However, it could not move in because the current occupants, Aero-Mobile Inc. were unable to move to their new location until nearly two months after the July 1, 1979 contracted date. The failure of Aeros ability to move on time is just one of the many external components that factored into the bankruptcy of Shay. However, Shay was sometimes able to respond internally to compensate for these external impacts.
Shay was able to exercise a clause in its contract with the city that allowed for the company to occupy alternative space in the Fort Custer Industrial Park rent free, except for utilities. This space was to remain available for Shay up to three years, even after Shay was able to occupy the Elm Street location (Battle Creek Inq July 12, 1982).
From the start, inbound logistics, which include organizational routines and processes involved with bringing resources into business, and operations, which include processing these resources in the goods, were hampered due to the inability to obtain proper plant space. Shay Motors not only lost time in the delay of obtaining operating space, but also in having to shift these operations from one location to the other once the Elm Street plant became available. The company had to set up productions lines twice and this type of inefficiency would go on to haunt Shay many times in the future.
Further problems with inbound logistics extended to parts vendors. Before the creation of Repliglass, Shay contracted for the fiberglass bodies from three separate vendors, one of the largest being Viking Boat Company, a division of Coachman, an RV specialty company. The problem with contracting through companies like Viking was that they already had a core business and saw working with Shay as a simple way to diversify and create bonus revenues during a rough economic period. When it came down to crunch time and Viking had to decide on filling orders for their core business, Coachman, or Shay Motors, Viking pushed Shay to the end of the list and filled Shay orders when it could. This type of relationship was typical with the fiberglass vendors and that is why Shay had to create a their own fiberglass company whose core business would be producing Model A and Thunderbird molds.
According to Harry Shay in an interview with the Battle Creek Inquirer on July 12, 1982, "Inflation probably did the
company the most damage. By the time production was under way it was necessary to raise prices, which caused a lot of order cancellations." During the course of Shay Motors existence, inflation was climbing exponentially and interest rates were climbing just as high and fast. While Shay Motors once benefited from 17-20 percent interest rates while raising capital, it was now suffering from these effects from interest while trying to secure loans. Furtherer, loans were harder to secure such as the $3.5 million line of credit that was reduced to $2.5 million dollars in early 1981 because creditors were aware of the high risk of default that comes with such high interest rates. Once again the company was forced to respond to the macro economic environment using micro strategies.
In September of 1980 the company announced plans for raising its prices on all models, in part due to such gross inflation rates. The standard model went from $6,995 to $9,995, the super deluxe model from $9,900 to $11,900 (BCI, Sept 16, 1980).
The macro forces plagued Shay as Ford Motors was hit with several lawsuits pertaining to its Pinto model due to their tendency to blow up and catch fire when involved in an accident. These vehicles were composed of the same engine and drivetrain used in Shay Model As and Thunderbirds. Due to these lawsuits, Ford phased out Pinto production as it switched to its new economy model, the Fairmont. This meant a change for Shay as well because Ford stopped supplying Pinto engines and would only supply the new Fairmont engines. Some engineering changes had to be made to make the Shays compatible with this new engine.
Ford was not the only vendor to provide less than quality parts. About 550 defective wheels, costing some $60,000 were returned to a supplier due to their tendency for the spokes to creak because of shoddy engineering. Shay followed through on customer service though and replaced all customer tires that had this defect.
Inflation and Ford cannot take all the blame for price hikes as Shay Motors created several blunders for themselves. According to a Battle Creek Inquirer July 12, 1982 interview with Michel Van Warmer, former Shay sales manager until February of 1980, "No time study was done to indicate how long it would take to produce each vehicle and there was no bill of materials that would be needed for each carâ€™s production." Problems with establishing an assembly line furthered the need of raising prices. "From the beginning Harry Shay had determined to start production using the team concept. He thought it would result in better quality." Each team was to consist of six persons and each team would see the car built from start to finish. A brass plate would be mounted on each vehicle indicating which team built the car. This was an attempt to establish pride in craftsmanship and was quite successful at establishing pride. This concept stretched production time and the assembly line was not established until the spring of 1980. A huge obstacle for the teams was that each
laborer had to be very skilled and basically capable of building a whole car by themselves. Demand for a physical product was simply too heavy to waste time using hand assembly. Shay needed products more than pride. The pressure to get cars out the door continued to plague quality as production moved to the assembly line.
Management was another problem facing Shay Motors. Harry Shay was an entrepreneur and he let it be known that it was his company. There were certain decisions that he wanted complete control over and others he didn't mind being delegated. Van Warmer further comments that, "Emphasis was on getting cars out. They seemed to have good people in quality control, but they had no authority to do anything about it. I'm not going to say all the cars were junk, its just that there were times when you wanted to spend more time on a car and it just wasn't there" (BCI July 12, 1982).
Communication between workers and management was also lacking as pointed out by problems faced by laborers on the assembly line. Workers complained about the quality of some of the parts they worked with. Jamel Azeem, a former welder, told the Inquirer, "People complained but we never got it fixed." He also blamed poor quality on the pressure to move cars out quickly and on the rapid turnover in management. His overall confidence in the product remained high though, as he is quoted saying, "Overall, I felt we were producing a pretty good product, especially when given enough time to do so."
Even Harry Shay was willing to admit that management plagued the company. "In a way its my own fault. There were a lot of things I would have done differently." Mr. Shay says he gave people a lot of opportunities in production and management and to handle many responsibilities, some of which may have been overwhelming. Mr. Shay enjoyed promoting people through the company to raise employee morale and the people would also be familiar with the company's operations. However, many of those promoted plainly lacked the education and experience required for their positions. "With absolute certainty I should have terminated some people earlier than I did; I tolerated them beyond any understanding, beyond what any normal businessman would have. I would give them too much time to try to make things work because I was quite content on building a nice company" (BCI July 12, 1982)
Inbound logistics and operations were not the only hindrance. Outbound logistics also suffered at points. Shay's need to rely on carriers such as Morgan Drive Away negatively impacted the company because they did not have the long-term relationships with dealers that normal Ford carriers had. This affected communication as some parts that were supposed to be sent to dealers for final assembly were lost by carriers or not taken with the vehicles at all. They also lacked the experience of properly handling the vehicles while loading and unloading. Some of the complaints that dealers registered to Shay such as those dealing with shoddy cosmetic appearances were actually results of negligent carriers. Paint was scraped and step boards were cracked by carriers.
Customer service was a serious issue at Shay because of the ambiguity behind who was responsible for it. With the company focus on hammering out products, little attention was left for deciding how the service would be handled once the product left the factory. One example of this ambiguity lies in Mr. Shay's quote to the Battle Creek Inquire on September 15, 1980 when he says, "Dealers who receive damaged cares should file claims with the transport company that hauls the replicas from the factory to the dealer." This suggestion is correct to the letter of the law because under shipping contracts, once the seller delivers the finished good to the carrier, the seller is no longer liable for damage to the items after that point. With his quote Mr. Shay is suggesting that the damaged was sustained en route to the dealer. While this claim is true in some cases, it wasn't true in all. Sometimes the vehicles were just missing a part. Mr. Shay admits this and says, "Sometimes the company runs out of a part but the dealer is notified of the missing part or it is shipped at a later point." If it is the carriers fault, Mr. Shay has a valid argument but still he should have taken more time to follow through on why the carriers were damaging the vehicles and possibly consider alternative carriers. While it may have saved Shay Motors some time and maybe even some money and responsibility to deal with the issue this way, it did little to build
trust between Shay Motors, the carriers, and the dealers. No matter whos at fault, it would show up as poor quality to the final consumer and it is especially in the interest of Shay Motors and the dealerships that this doesn't happen.
A large part of the pressure to fulfill orders did not come directly from the final consumers but actually the middleman. When the company went bankrupt, Chuck Robinson of Robison Ford in San Gabriel, California had claims of more than $100,000 but he still does not put the full blame on Shay. Instead he said, "Too many dealers pressured Shay to produce cars too quickly and were too greedy and properly prep the vehicles" (BCI Nov 15, 1982). Robinson sold more than 80 replicas and had experienced little more than minor regular maintenance problems. "I took delivery of the first ones and wasn't overly impressed with the quality; but considering it was a hand produced car, it was worth the money." Robison personally oversaw the prepping of all Shay replicas and created a 32-point checklist of prepping job which cost an average of $200 a car. He felt this was a small price to pay for a vehicle that brought an average of $1,600 profit, after prepping cost, on a $9,000 car. He said that it was the largest profit margin he had seen in his 25 years as a dealer. Further he expressed how it was in the dealers best interest to help keep Shay Motors afloat. "The dealers were making more profit on this automobile than any other Ford car in history," he said. Robinson personally sent out a letter to dealers telling urging them to prep the cars and to stop litigation because it was taking more time away from Shay's ability to produce.
Many of the dealers had a hard time recognizing that these cars were not being produced by Ford and they had almost no experience dealing with such a specialized vehicle from a relatively small manufacturer. Shay lacked the resources to deal with many of the minor details that could be taken care of at the dealership such as Robinson pointed out. People like Mr. Robinson who has been in the business for 25 years appreciate the novelty of the replicas and realize that there are unique issues when dealing with a specialty manufacturer. Mr. Robinson further recognized that it was in his own best interest to take the initiative to prep the vehicles and take any pressure he could off of Shay so that he could realize his $1,600 profit.
This dealer's attitude toward the company was rare, but it was a true sign of what needed to happen to improve the chances of success and longevity. The ability of Mr. Robinson to realize that he had to deal with two parties, his customer and supplier, enable him to make his profit without losing money due to lost goodwill and good name, as well as to expensive repairs that were prevented by his 32 point inspections.
Shay seemed to look to the dealers as a buffer between the final consumers and the company because communication generally flowed one way as Shay would tell the dealers what it could supply and when, and the dealers would in turn notify the customer when their car was finished. Some vast improvements could have been made that have might increased the longevity of Shay had the lines of communication been clearer. It seems many signals were crossed as the replicas made their way through the value chain.
VALUE CHAIN: SUGGESTIONS FOR LONGEVITY
The value chain suggest that a product should follow a nice flow from inbound logistics to operations to outbound logistics, then through sales and marketing and finally to customer service when necessary. Sometimes it is just not feasible for this flow to exist, especially in a start up company just getting its feet wet. In the case of Shay Motors, there were select sections that held heavy emphasis while others were brushed aside until there was available time. Marketing dominated the interest of the company from the get go because capital needs revolved around creating enough awareness to convince investors to put their money into Shay. In fact, marketing was so successful that it may have hampered the success of the company. By creating so much demand and taking so much investment capital, Shay was overwhelmed with meeting production even before the existence of a production facility. Had marketing success been slow at first and then gradually increasing, production may have been able to keep up with demand. While taking deposits was key in raising capital, some alternative methods may have been sought. Shay took deposits and sold franchising rights to dealers. At first, franchising rights came with no geographical restrictions so dealers had no protection which created a guaranteed increase of competition among dealers. The risk of competition held franchising fees down as supply was directly correlated with demand. Had Shay created districts from the start, competition would have been more limited among dealers and there would have been more of a guarantee that they would get customers in a certain area. This protection would also increase the cost of a franchising fee because of the limited supply for such a large demand.
As earlier quoted from an interview with Joe Shay, "We sold 435 congressional districts at $10,000.00 per district this generated $4,350,000. These franchise rights had to be repurchased after five years. We undervalued the price of the franchise too, as we had request for over 2000 franchises." The company did not fully understand the value of these franchising rights, and maybe more research was necessary to gauge the franchise's worth. One possible way of finding this out would have been to conduct a survey through phone or mail to some randomly selected dealers.
If they sold the franchises for higher fees then maybe they would have been less capital dependent on deposit revenues. Shay might have been able to limit the number of deposits to correlate to production ability.
Implementing geographical protection to dealers may have boosted customer service as well. Dealers would have had more confident about the number of customer orders they would handle and it would show good faith on behalf of Shay in that they weren't just looking out for themselves, but instead wanted to make sure that everyone involved with the replicas experienced success. Self-interest seemed to play a substantial role in the pressure to produce, which ultimately had an effect on the downfall of the company. As the California dealer, Mr. Robinson pointed out, dealers were greedy to make their $1,600 profit so they pressured Shay to send vehicles. They further extended this need for quick profits to the point of not prepping the vehicles properly. Even if it was Shay's fault that a car had some defects, it was in a dealer's best interest to fix them so that buyers wouldn't demand refunds and cancel orders. According to Robinson these problems were relatively inexpensive to repair and saved major repairs and complaints down the road.
One of the main problems with customer service lay in the ambiguity of responsibility for it. Even if Shay thought it had made responsibilities clear, it should have went back and made them clearer to the extent of putting it in the franchise contracts. Harry Shay once said that if dealers had a problem with vehicles then they should contact the carrier for a resolution. This type of language indicates that Mr. Shay intended for the existence of a shipment contract which would shift responsibility of the product once the product was placed in the carriers care. This intent should have been made clear to the dealers.
The responsibility placed on carriers was just one of the problems faced by outbound logistics. If the dealers and the company were both experiencing problems with carriers then alternative methods were needed. However, there are only a limited number of ways to ship cars due to the nature of the product. The use of trucks allowed the replicas to be hauled from the factory lot to the dealer's door. If one carrier was showing an inability to properly handle a product of this nature then a competing carrier should have been contacted. Shay tried to use regular dealer carriers but was unsuccessful in securing their service. If dealers were really concerned with their products then they should have used their clout with these carriers to secure their service for hauling replicas. Alternatively, rail transportation could have been used. The downside to this though is that most dealers don't have train tracks running through their lots so cars would still need to be hauled to the dealerships from a drop point.
An interesting method was created by a Chicago dealer who chartered a bus for forty customers with orders to ride up to the Shay Motors factory in Battle Creek to personally pick up their vehicles. This type of shipping, even if limited to a close vicinity would have saved Shay Motors a great deal of money because the expense would have been born by the dealer and customer.
While marketing created the pressure to perform, which in turn created minimal attention to outbound logistics and customer service, the frustrating factors that came to cripple replica production compounded exponentially with inbound logistics and operations.
Locating vendors and acquiring parts for such a highly specialized dealer was an extremely difficult task due to the nature of the product. The idea behind the replicas was to harness an old fashioned body to a modern frame and power it with modern parts for easier and cheaper maintenance. Vendors for the modern features were used to relationships with large- scale customers such as Ford, GM, and Chrysler; Shay Motors was often just bonus revenues so their orders did not receive first priority.
Vendors for the antique parts offered their own problems as producing parts for Shay lay outside their core business. Fiberglass providers such as Viking Boats, Incorporated were very skilled in producing boat molds that they used inside their own company. They had limited to no experience producing automobile molds for a company outside their core business. Viking's limited experience outside of boat molds came from providing service to Coachman RVs, it's parent company. Once again, the priority for Shay's orders was moved down the suppliers list.
One of the biggest examples of Shay re-evaluating itself and the value chain came through their experience with inbound logistics. By establishing Repliglass Incorporated, Shay was able to create a vendor whose core business was providing automobile molds.
Problems with inbound logistics fueled blunders in operations. Without the proper parts delivered at the proper time, operations would often slow until the proper part became available to complete the car. If the wait was too long, the part was installed later or shipped to the dealer when it became available. Operations were further hampered by the lack of availability of a qualified workforce.
Battle Creek, Michigan is approximately two and a half hours from Detroit. Plant location was based on the financing available in Battle Creek due to tax incentives and cheep plant space. However, this location came without the availability of a workforce steeped in automotive experience. To compensate, Shay imported many workers from Detroit and paid for their moving cost and provided some housing as well. As addressed earlier, Harry Shay points out the lack of available quality managers when he says that there were several times when he gave some people way too much responsibility and way too much time to prove themselves. Coming from his poverty stricken background but creating his own success gave Harry Shay the feeling that if given enough time, anyone could accomplish any goal so long as they concentrated and worked hard. He put the faith that guided his success into other people because he thought he could net the same result: success. However, as much as he wanted it to happen, many managers just couldn't catch on and too much time was wasted. Improvements could have been made by delegating task with assigned goals and then addressing managers appropriately when these goals were not met, especially to the gross extent that existed at Shay Motors.
While the financial savings from locating in Battle Creek were apparent immediately, the fiscal advantage of having an experience workforce may have been less visible. Locating in Detroit would have also made more vendors available to Shay because many local Detroit vendors may have lacked the resources or willingness to deal with a relatively small company in Battle Creek when they had opportunities right in Detroit with the big three auto producers. Other advantages from dealing with Detroit vendors locally would be decreased shipping time and cost. Shay already possessed plant space in Wixom, Michigan (a Detroit suburb) before moving to Battle Creek and continued to use the Wixom location as engineering headquarters. Options for expanding the Wixom plant or relocating in Detroit should have been considered more heavily.
When looking at Shay Motors retrospectively it is relatively easy apply the value chain to point out faults of the company and offer suggestions of improvement. However, the trenches of entrepreneurship often demand doing the best with what is available. Harry Shay could not sit back and analyze his company as often as necessary due to the strict production pressures that existed from the beginning. The company did show signs of evaluating its progress and needs with the creation of franchise districts and by creating its own fiberglass supplier, Repliglass.
One of the problems entrepreneurs have in evaluating their companies is due to the personal nature of the business as the company is often a direct reflection of its leader. Any problems that arise often make an entrepreneur feel that they are personally responsible and that any negative image of the company is a negative image of the person behind it. Also, they often become fascinated with their products to the point of self-detriment, such as Harry Shay's unwillingness to sell out early and cut his loses when the chance arose. Part of this stubbornness is due to the entrepreneurial spirit that forces one to think and believe that, "I can do it better."
Another aspect of the spirit is to try again, even when failure results. Even though Mr. Shay lost his company and his personal assets, the feeling that he possessed originality did not stop him from further entrepreneurial ventures. In fact, just a few short years later in 1988 he would go on to venture into business for himself again, this time to produce almanacs. This venture was quite successful as it stayed in business until his death in the summer of 1995. He was laid to rest in Novi, Michigan next to his beloved wife, Vonda, but his entrepreneurial spirit was passed on to his son Joe, a former Shay Motors executive. Joe Shay furthered the almanac success in addition to several previous entrepreneurial ventures of his own including a chain of pet stores.
One of the unfortunate consequences of following the entrepreneurial dream is that it is hard for the entrepreneur to realize the size of his impact on his respective industry. Mr. Shay's quest to figure things out for himself and love of tinkering have lasted well beyond his years and has been passed on to many people he knew merely as customer numbers. Each Shay owner is an entrepreneur in their own right, because many of them bought Shay's in order to tinker with them and figure out how they work. In the spirit of Harry Shay, they too posses the notion that "I could build it better," as adding their own modifications to personalize their Shay's is a favorite past time. Owners have even formed their own club named, "Shay Owner's Club International" which is supported be two websites containing chat rooms and message boards, and offers advice on mechanical service. The club also sponsors events such as cruises to enhance owner relationships. Customer service and relations with the final consumer were some the largest inhibitors to Shay Motors so it seems ironic that the owners have filled this void on their own. It also puts an exclamation point on the entrepreneurial claim that "I can do it better."
Battle Creek Inquirer: Various Articles, 1979 to 1982.
Coulter, Mary. "Strategic Management in Action Second Edition." Upper Saddle
River, New Jersey: Prentice Hall, 1998
Shay, Joe: Personal Communication, October 28, 2001.