Today's business headlines include this "Toyota Moves Ahead of G.M. in Sales". Yesterday, we learned that Ford has a new small car strategy. Look for GM to follow shortly.

The timing of these two events reminds me of a similar day in '02 when the same newspaper reported two items a few pages apart: Toyota had committed prime manufacturing space to hybrid production while GM had just finished shifting all its prime manufacturing capacity to the SUV.

Hindsight, in this case, provides us with a sharp view of a massive strategic failure and the opportunity to dissect it endlessly. We'd do it in 450 more words.

Why would the largest car companies in the world would choose such different approaches, given the fact that they were (and still are) working with essentially the same information? Let's try to answer that by pondering two obvious questions:

1.) Did anyone at GM even mention $4.00+ gas? If they didn't, then why not? The Europeans had had it for decades. The Chinese were coming on line as drivers. We were spending more on all fronts to get it out of the ground. It looks like GM "took a flyer".

In a sailboat race, "taking a flyer" means guessing that the wind is better in a completely different place than everyone else, and going there. Flyers pay off once in a while, but more often than not, flyer-takers find themselves in a distant last place. In fact, taking a flyer usually means that important information is being ignored. It might be argued that full-on truck production wasn't literally a flyer, since all US auto makers bet on it. But in Friedman's flat world, you only need to counter that every other developed nation had already committed to smaller cars (from the same three companies and others) to solve problems of smog, congestion and cost. In the US, however, the big three went to a place that everyone else had already rejected. This wasn't because consumers were demanding it, but instead, because there was profit in pounds of steel. Their choice was simple: find a way to profit making cars, or make something that cost more and hope for cheap gas forever. To shed car-production capabilities was in fact, counter to what they markets were saying, and it wasn't brave or bold, it was risky and wrong.

2.) Did Toyota expect the Prius to become one of the most popular car models of all time? At the same time that the Prius was being introduced, Toyota was also launching their first full-sized truck (the soon to be discontinued Tundra), shedding the last 4-cylinder pick-up platform, building a larger Camry and more powerful Lexus. No, I'm guessing that the Prius was a hedge more than anything. A simple acknowledgment that $4.00 gas might be possible, and a toe in the water if it happened.

Toyota's move was a classically conservative one. They were diversifying their portfolio by buying a few low-priced shares of energy. To borrow the sailing metaphor again, they stayed right in the middle of the race course, watching and waiting for the right wind in which to tack and then did it. Honda was right with them.

A business is just a funnel through which information passes. If information is censored, scrubbed, ignored, missed, politicized, misplaced or misunderstood along they way, then management is no better than guesswork. 

Notable too, is that observation that sailors prone to flyers take them habitually, and often blame others when they lose.

Finally, full disclosure. I've owned and liked both GM and Toyota automobiles. I've invested, however, only in Toyota stock.