It’s been a long time coming, and now it’s here: in the first quarter of 2007 Toyota sold about 90,000 more cars worldwide than GM did.

It’s not a happy event for me. A decade ago I spent a year and a half inside GM, observing how they incorporated the voice of the customer into product decisions (executive summary of the resulting report here). At that time, GM was clearly not organized and operated in a way that would yield thoroughly conceived, appealing products.

One thing I realized during that Ph.D. fieldwork was that I could have few ideas that at least 100 people inside the company did not already have. The problem wasn’t having better ideas, but the near impossibility of implementing them. My report to GM and my thesis both stressed the level of frustration inside the organization. The brighter and the more committed someone was to making a difference, the more frustrated they tended to be. I submitted my report knowing it would have very little impact. (A few dozen people responded enthusiastically, but were only able to apply bits and pieces of my recommendations at the level of their personal practices.)

Over the past decade I’ve watched as Detroit has lost about two points of market share per year, year after year. I find this slide especially sad because it was avoidable, if only these companies had truly been designed around the goal of providing the best possible products. Instead, they remain organized around executive career tracks and bonus systems. It’s clear that these companies would rather go out of business than make fundamental changes in how they are organized and operated. In a nutshell, they refuse to give up their traditional hierarchies and career games.

GM appears to have improved considerably in the years since I performed this fieldwork. Their products are more thoroughly conceived and more appealing today than they were then. But there’s still tremendous room for improvement. After all, Toyota’s products are hardly perfect in every way, and aren’t even close in some ways. So while GM has improved, they could have improved more, and more rapidly.

In the end, GM lost the #1 spot as much as Toyota won it. If they want to halt their slide, and perhaps reverse it, they need to forget about the excuses–exchange rates, media bias, legacy costs, the subprime mortgage meltdown–and become intensely focused on providing better products.

Similarly, I’m not buying the “profits are more important than sales” logic, which could be the largest excuse of them all. If GM had the bits in place to maximize profitability, they’d also still be #1. Its profits are weak for the same reasons its sales are weak. Toyota hasn’t simply bought growth at the expense of profits – it’s profits are far larger than GM’s.TrueDelta might play a small role here, by providing clearer, more promptly updated vehicle reliability information. But we’re merely providing the most level playing field possible. It’s up to GM to step up and play their best.

And for GM to step up, its leaders must step up. I’ve been waiting a couple decades for a GM executive to say, “We’ve made many mistakes, but we’re committed to remaining the industry leader, we now recognize what we have to do to remain the industry leader, and we’re going to do it.” Even with Bob Lutz as vice chair this has not yet happened.