Centerfield

I don't know about $25/hour for UAW janitors but to the issue of GM profitability, they will cut out some of their product lines (as they did with Oldsmobile) that is less profitable. Which will mean less jobs. Perhaps the 25K job cut is a signal of some product cuts?

UAW,GM and Ford's reality checks have bounced.
My dad has sold Ford for 40+ years. Sales are horrible! The dealership looks like long term parking for SUV's. Same thing happen back in the 70's.

It's hard to blame the UAW when the problem is your gas mileage numbers suck.

Who said the UAW is being blamed? Conversely, when GM et al were posting big sales numbers, did the UAW eschew raised based on a sense that the extra profits were not their idea? Or is "don't blame us" only a sensible reationale when job cuts are brought to the table.

Like corporations or hate 'em. But acknowledge that a company without sustainable profitability can only go out of business, with every worker losing his or her job.

I expect many auto companies to respond to the recently increased market for higher efficiency vehicles. But to blame the downturn in GM's fortunes on the choice to make too many gas-guzzling SUVs (and too few crappy little 4-cylinder deathtraps ) is at best hindsight and at worst leaves asides lots of other details. The fact is that the amount of money GM must contribute to fund retired worker costs is competitively crippling to the company. It's something like 2 of every 7 dollars, I don't have the figure handy.

And of course there's an equity issue, we can't just shaft retirees. But if GM goes under because it can't compete due to high costs other automakers don't have to bear, what's the answer?

It also doesn't help to own Saab, Opel, Holden and Vauxhall - all European cars that have higher employee benefits than America.

Brian,

Are you saying that GM and Ford's sales are terrible because janitors are making $25,000 a year? That's not really a lot of money. The health care costs, especially to retired employees, are obviously a competitive problem. So maybe the solution would be for the car companies to support some kind of health care reform. But the lousy cars they make are the big problem. I know few people who would even consider buying an American car; everyone I know that has bought a Ford has had problems with it. And there have been a host of stories recently attesting to the general disinterest that the public has in GM and Ford cars. Are you blaming that on the janitors?

Re-read, Marc. UAW-GM janitors are making $25 an hour, not $25K a year (which would still be more than Walmart employees) but more than twice that. That's $52K a year, roughly the median income of American households--which tend to have two incomes. And UAW GM contract benefits run to over 50% additional cost on top of salary. Skilled plant workers make $30/hr, or about $62,400/yr before the very generous benefits. The overall "worker cost" to GM of a new union janitor is closing in on $80K+/yr.

Brian's point, if I am reading it correctly, is that it's tough to generate much symapthy for either GM or their UAW workers. GM's sales are shrinking because their product is too expensive for the value received. How bad is a $9/hr ($18,720/yr if full time) WalMart worker going to feel for a Detroit UAW member when they can't afford to buy the cars the Detroit unionists make? About the unionists being pressured to absorb a little more of their health-care benefit cost, when the Wal Mart worker has to pay for most of theirs?

The predictable result of these high costs is that GM (and Ford, etc.) shift as much work overseas as they can. The union gets those great contracts, but the actual worker base of the union keeps predictably shrinking.

Tully: What is your definition of value?

I'm going to assume you're including things like fashion trends and market shifts as events that effect value.

So you're not necessarily saying that Ford/GM products are poor quality, the market just doesn't value them today, like they did last year. (When the same SUV's were selling like hotcakes)

Right. 52K per year plus bennies well above average.

I don't disagree with the notion that in some instances american cars are of poorer quality. Although, since I live in the suburbs, I know real people who own and enjoy american cars, and have ones that have performed well. Suppose for the sake of argument we grant that american cars are of poorer quaility ( I myself say only that this is possible, and that it's not always true). The blindingly obvious next question is WHY. Why is, say, a Taurus not as good as an Accord?

Newsflash: the basic components of a car are not especially complicated or new. There's a lot of extra stuff overlaid on the basics for environmental, safety, and performance reasons, but it's still an engine on a frame with wheels, with controls for steering, accelerating, stopping, and signaling. Marketers like to pretend there are tons of great new ideas and obvious distinctions on new performance notions. But let's face it: at the most important functional level, it's largely a mature technology promising only incremental improvements.

With mature technology, quality is extremely closely related to cost. When GM has much higher labor and production costs, it has to scrimp on materials and design to be competitive. There's not much else.

So what's the alternative hypothesis that this alleged quality gap can be ascribed to management instead of to workers? How does that go?I'd love to hear it. Do we really think that after almost a century of making cars that the people running Ford and GM are simply unable to build a car that will run trouble free and last for 200k miles? Do we think that if they really wanted to, and weren't just greedy fat cats, GM could pay janitors 52k per year plus bennies, skim roughly 20% of their revenue off the top for retirees, and still make and then sell such a high quality car for $3000 less than a comparable foreign import?

If you think that, where do you get both the innumeracy and the gall to feel entitled to such an opinion? At some point, don't the minimally intelligent among us graduate from "corportaions are pure evil" to "hmm, how does this really work numbers-wise and nuts and bolts-wise?

I'd say "value" is linked to your personal utility, Bob--which covers a heckuva lot of territory, as you noted. I haven't said they make lousy cars. I'd love a new 4*4 Suburban--mine is 16 years old, has over a third of a million miles on it, and I'd keep it running forever if the body wasn't rusting out. But between title/taxes, gas, and insurance, I just couldn't afford to drive a new one, much less justify buying one. Not when they carry price tags bigger than my first house did. My "personal utility value" for such a vehicle is simply lower than the price tag. And that won't likely change unless the lottery fairy pays me a visit.

But I gave up buying brand-new cars a long time back.

'Do we really think that after almost a century of making cars that the people running Ford and GM are simply unable to build a car that will run trouble free and last for 200k miles?'

Capable, yes; willing to, no. In the 1970s, they had a built-in obsolescence date of three years on their cars. When the Japanese manufacturers made cars to last six years, buyers noticed the difference. GM and Ford discovered buyer's reluctance to their products and added a better obsolescence date to the product but some consumers are still not willing to risk the money.

I just heard an extended review of GM’s plan on the BBC WorldWide radio. GM's CEO at the shareholder’s meeting explained the reasons for the 25K layoff:

1. Cost of employee health care. Each car has a $1500 price tag that is due to health care. [They give at least that amount on rebates, buyer and dealer incentives.]

2. Japanese competition. He discussed the value of the Japanese Yen. [Toyota, Nissan, Subaru and soon Hyundai have American factories; the Japanese Yen has little to do with it. He should have mentioned the Japanese competition had lower American employee costs.]

3. Glut of used cars on the market. [The penalty of making better cars.]

The shareholders weren’t buying his excuses. $100 of GM stock purchased five years ago is worth $43 today.

So the shareholders are pissed, the employees will be pissed, and lenders don’t trust you and will charge you more for loans. Sounds like it's time for management changes.

I'm not buying excuses either. Before their bonds went to junk, they certainly could've borrowed enough money to upgrade the value of their designs. Yeah, they keep talking about how hopeless it is, that so much of their value is tied up in bennies, but look: that just means that they had no choice but to make their car line more valuable!

A huge company like GM could easily do this if their had the willpower, by going into debt. They could still do it. By giving up, they're just screwing everybody. Yeah, it'd be tough. Doing tough things is why CEOs are given the big bucks. Clearly, somebody isn't earning them. Same story with that idiot Ford who thinks he can run Ford.

You guys are completely missing the point that with a mature technology, large extra costs that do not burden your competitors are fatal to your competiveness.

To suggest that this is an issue of willpower makes no sense to me, unless you are talking about the willpower to deal agressively with the UAW. The stock is in the toilet because investors are smart enough to fully understand the giant 8-ball GM is behind. If GM does turn around, it's most likely not going to be until the current UAW contract expires and workers get their overdue cold shower. No more 50-60k/year with fully paid medical to do a job that so many people are capable of doing. And this has nothing to do with the merit of UAW workers. they took what they could get, which is an American tradition. It's just that the current dynamics are such that going forward, "what they can get" HAS TO be less.

GM can make all the management changes they want, which will be largely cosmetic for purposes of mollifying the grumpy fans, like firing the coach because you can't fire the team. The turnaround won't come until they take strong action to make their labor costs competitive.

I also find the idea that GM execs are capable but not willing to be pretty stupid. It suggests a limitless willingness to watch the other guys steal the food from your plate. American carmakers continue to compete on price because their higher costs do not allow them to make cars of comparable quality and sell them at competitive prices. They can't make an Accord-quality car and sell it at Honda's prices, so they make the car that they CAN make at a price lower than Honda. It's pretty simple. IMO, they'd do if if they could get the numbers to add up.

Do the German and Japanese car companies not build their autos here in the US with UAW workers? Why is it they are able to turn a profit under the same economic conditions as the US auto makers?

If the domestic labor costs are cheaper would this not be due to the fact that health care and retirement costs in those countries are largely born by the government? Seems to me like the governments of other countries essentially subsidize their corporations by providing social goods.

Also remember that a companies health care benefits is compensation, when you talk about a company wanting to reduce, eliminate, or "get out of the health care business", what they are essentially saying is that they want to reduce the compensation of those workers. In other words what they are essentially saying is we need to reduce the compensation of workers to compete with those auto makers who use labor subsidized by their respective governments.

BTW Accords are made here in the US by UAW workers.

If the domestic labor costs are cheaper would this not be due to the fact that health care and retirement costs in those countries are largely born by the government? Seems to me like the governments of other countries essentially subsidize their corporations by providing social goods.

The accuracy of this may vary. It's probably true for Germany, Japan, and other industrialized social democracies. But is it true for Mexico, or for some parts factory workers in one of the asian tigers? I really wonder to what extent the story is of one of American worker competition with European workers with better social benefits? My guess is that it's MUCH moreso a case of American, European, and Japanese workers competing with workers from nations with much lower wages and very little social service subsidization. That's just a guess, but I think it's a good one.

Accords are made here in the US by UAW workers.

Rick, by "made," you mean "assembled," right? What about the parts for assembly? Does Honda work under the same deal costwise for parts manufacturing? Assembly is only a small part of the story.

Do the german and japanese companies have the same level of sunk costs for retired workers? Don't forget those.

Are Accords made in the US by UAW workers working under a contract identical costwise to the contracts that Ford and GM hold with UAW workers? I don't know. Do you? Anyone? If they do, then my next guess is that more recently built modern plants have led to substantial efficiencies.

Anyone know whether Ford and GM plants have the same cars/worker ratio as domestic honda plants? The info I was able to find was at best only barely suggestive of the idea that Honda, Nissan, and Toyota make more cars per worker.

Just for the record Toyota in Kentucky (they make Camry's) did not use union workers, last time I check. Generally foreign companies build their plants in "right to work" states to avoid the unions. However the people I knew who worked there said salaries were "comparable" to Ford and GM. What the lack of unions provides is flexibility to change your workforce size and structure.

Even so, year of profits from SUV sales easily provided Ford and GM with the ability to develop new vehicle. They instead chose to invest in the hydrogen boondoggle and bigger SUV's. GM in particular has been known in the alternate energy community for creation of "sterile seeds". These are alternate energy technology to wow the public but which they never intended to market.

Both developed excellent Electric vehicle then withdrew them and crushed them. Regardless of the fact that the cars were very popular.

When a ship runs aground the man steering the boat is responsible.

Rick,

Umm, no they don't. Part of the issue is the historical one- the foreigns working here with UAW employees are newer, aren't paying $1500/car for health bennies for 40 years of retirees. They also don't have as much unionized as the big three- far more of their labor is done by contract (i.e non union) people. And some, especially those building in the South, aren't using UAW employees at all. Big savings if you can pay that janitor 35/year instead of 52.

Tully,

My bad. I did misread that. And I agree that if janitors are making $52 k a year that has to hurt GM's competitiveness--at least to the extent that the Japanese companies do not have similar cost structures.

As Bob notes, foreign-owned plants tend to be located in non-union states. And newer plants that DO use UAW workers tend to have much lower cost structures. The UAW contract for Saturn workers has salaries at about 2/3's of those in the Detroit plant, though the benefits stay about the same.

Also remember that a companies health care benefits is compensation, when you talk about a company wanting to reduce, eliminate, or "get out of the health care business", what they are essentially saying is that they want to reduce the compensation of those workers. In other words what they are essentially saying is we need to reduce the compensation of workers to compete with those auto makers who use labor subsidized by their respective governments.

Rick;
Yes health care is compensation but its a funny kind of compensation that goes up in price much faster than the rate of inflation. Whereas ten year ago healthcare might have been 5% of the total compensation costs, now it might be over 10%. Healthcare becomes a progressively more expensive compensation cost. Therefore, it's very vulnerable to cuts etc. It easy to offer "healthcare benefits" that are really pretty restrictive. Its a whole 'nother matter to offer less pay, much easier for the employee to compare.

We all agree that the compensation for UAW workers at GM-Ford-Chrysler is higher than at other U.S. auto plants. My point was the GM execs didn't state the entire case (GM worker: $37/hr average, Saturn worker: $24.7, etc.) but the health costs alone as the main point of their financial losses. GM may leave the union alone today but when the contract comes up for renewal in 2007, watch out.

BTW, the UAW typically gets a contract with one of the 'Big Three' and forces the same deal on the other two. I doubt the UAW gets the Accord workers the GM-Ford-Chrysler benefits.

Mortgage Quotes |
Home Mortgage |
Second Mortgage |
Home Equity Line of Credit | HELOC | Ameriquest Mortgage