Tuesday, 25 November 2008
|0810 - Why are the Big Three in trouble?|
One word: Unions. The Heritage Foundation shows the problem clearly, in a report, Auto Bailout Ignores Excessive Labor Costs.
This chart says everything that really needs to be said:
The Democrats are calling for an auto bailout, but if they ignore the fundamental problem - that the UAW has priced its workers out of the market - they're just shuffling deck chairs on the Titanic.
current mood: disgusted
I've heard it said "GM is really a bank which also supports a healthcare- and pensions-operation; they also have an unprofitable side business in making a few automobiles".
That was a while ago; then they sold GMAC.
It's not just the Democrats calling for it. This is something Republicans are looking at as well. But yeah, this is clearly a case where the Unions got themselves a nice, shiny set of golden handcuffs and then attached themselves to the deck-rail of the Titanic.
It's hard to tell a million people that they have to take a 50% pay-cut. I think that if the alternative is telling them that they are taking a 100% pay-cut it'll go over better, but I'm a guy who has actually TAKEN a pay cut like that voluntarily, so I know it's possible to survive.
Those republicans are often referred to as RINOs, republicans in name only. They're the ones who checked fiscal conservatism at the door when they went to washington, and depending on how you count they range from 25 to 50% of the republican party in washington. Anyone who voted for the "700bil" bailout is not only not a real fiscal conservative republican, they're not pro-freedom either. They've unleashed an all-powerful position in government allowed to buy up anything and everything that one particular individual wants to buy (Treasury secretary is now a step away from dictator. Terrible.)
As for the big 3, Bankruptcy is there for a reason. The same reason that in a capitalist systems things SHOULD be allowed to fail. Bankruptcy allows a company to shed the things that aren't working and rework their business into one that will work. Things failing cleans out the inefficiencies from the system and allows new companies that are more effective to move in and part out the bits of a company or business model that have value and trash those that are worthless.
The labor rates will go down, and you'll have a base of workers available at a discount to open up a new business. Of course, Michigan is so hostile to business that those jobs will likely never materialize without a drastic shift in leadership.
Hmm... Interesting. I'm not sure how these figures came into being, since all auto workers in US factories receive about the same wages and benefits, but during my 14 years with Ford, I learned quite a bit. First, the Unions are bloated, top-heavy pools of nepotism. Next, that that industry standard for the ratio of the cost of a car compared to the wages of the worker is about 6% to 16%, with Ford averaging about 10%. Even with these oddly inflated figures, considering just the wages, the cost of a $20,000 car could be reduced to $18,000 if you replaced every human worker with a robot. Given those figures, the 'Japanese' companies would be in the range of 7%, or $18,600.
So, how is it the unions and not the executives who fly chartered jets to Washington? Or the executives like Alan Mulallay of Ford, who made $2,000,000 base salary with $28,000,000 in bonuses and stocks, 4 million stock options priced at $8.28, who then works in Dearborn during the week but flies a private company jet back to his home in Florida every weekend? This was while the company was showing record losses in the billions of dollars.
Yeah, unions are past their time, but don't blame the workers for the auto company woes. I'd like to take everyone through an auto factory and have them work on a production line for a week. Then you'd see why those people earn what they earn.
That $30 million executive makes as much as 300 UAW members. Ford has how many employees? The executive ranks are a drop in the bucket. That's what irritates me so much about calls for limits on executive compensation: quite aside from being a gross violation of everything our economic system is based on, they won't fix the problem, and won't even be of significant help in doing so.
Those people earn what they earn because that's what the UAW has strong-armed the companies into paying them. For GM to compete with Toyota, they need a cost structure like Toyota's. That graph shows it's not even close. The airlines have done it; it's the auto industry's turn.
The most I ever made in one year was $62,000 and that was with every weekend of mandatory overtime and 10 hour production shifts. 600 UAW members. Multiply that by the thousands of executives who set their own pay rates.
When it comes down to it though, I don't want to punish the people, generally rich, who make money for the country. The leaders of the Big Three lately have not been doing that though. They are idiots who have insulated themselves from the real world by a cadre of Yes Men who tell them that no, the buyers don't want interesting looking cars that get good gas mileage; that they want the dumpy looking cars that we've always built and changing the fender will be good enough for them. They are paid huge amounts while the company is bleeding, making bad decision after bad decision.
Yes, the UAW worker is generally just a trained monkey making good money, but it's hard work and wouldn't even affect the cost of a car too much if they gave up half of their salary. Meanwhile, the leaders of the UAW, blue collar grunts who get elected to their positions by the mere strength of will face these sharp witted business men who are trained for years on how to get the most of negotiations, portraying the worker as some lazy slob pushing buttons in an air conditioned facility, drinking coffee and sitting in an easy chair.
The idea that I want to convey is that the auto company executives have thrown out the scape goat of the worker to appease the angry hordes. And people have accepted this idea. Don't get fooled by this. Both sides will always tell you their own sad sob story, about how terrible things are. The truth if often squarely in the middle.
Oh, and while I spent years of hell on the production line, I spent may last years at Ford as a designer for production facilities. I helped to correct many of the problems in ergonomics that gave me nerve damage in my left leg, the grinding joint on my left shoulder, back problems, my left wrist being unable to bend (so basically my entire left side) and now hip problems. Then Ford promptly spun off the parts division, sold our productions lines to various places, including Mexico and China (I came that close to designing a facility in Mexico) and shut the plant down. Even thought that one plant was one of the only plants that was in the spin off that was making money. Fourteen years and Ford and all I can do is cringe at the things I've seen over the years.
My answer is much simpler. They make bad cars.
That's certainly part of it, but there are enough folks who are still die-hard Big Three buyers to keep them afloat - if their workers didn't cost them so insanely much compared to the competition.
If it's a problem with labor costs, why don't they move their plants to non-union states? This is not an intractable problem; if labor costs really were
the problem, they would've done that long ago.
GM, Ford, and Chrysler failed because their inept management spent the past ten years selling stupid-looking vehicles which use twice as much gas as their Japanese counterparts. They completely misread the market and have been sitting on billions of dollars of unsold inventory for years now
And, you know what? Fuck 'em. These companies dug their own grave, and unions had nothing to do with it. The problem is that nobody wants to buy their lousy products.
It would save us a lot of time and agony going forward if we just let them fail. To hell with bailouts. We've already lost 4 million jobs in this country this year, what's another couple million?
Because it's not a matter of union or non-union states; it's a matter of company-wide contracts. The only way for them to shed their hideously expensive union contracts would be to go through bankruptcy...which is precisely what lots of folks are calling for.
GM, Ford, and Chrysler could be competitive with Honda, Toyota, and Nissan if they had similar cost structures. The only way to get there is to take the UAW out back and shoot it.
I'd be fine with them going bankrupt. I doubt pumping $25B into a failed business model will do anything that setting fire to $25B wouldn't do just as well.
I definitely agree with you on your last 2 paragraphs. Ultimately, if we allow them to fail one of two things will happen. A better company will move into the slot with more efficient policies, less bloated executive salaries, better designed cars, etc. It may even buy up parts of the assets of the big 3 when they're parted out.
Else, we won't have any domestic car companies. Oh well, we've lost tons of other industries as well.
The country will be losing industries like this until they realize that smaller government, fewer onerous regulations, and lower taxes encourages and allows businesses to succeed within our borders, and allows them to create more jobs. Last I heard the US had the #1 highest corporate tax rate in the world. We're never going to attract businesses if we keep that up. (Japan was #1 until a couple years back when they lowered their corporate tax rates.)
Of course, I disagree with you on the gas usage of the cars. I actually find it rather funny that people are touting japanese hybrids as much as they are. I had a US made car from 1989 that made better gas mileage in ACTUAL USAGE than most of the hybrids. The problem with hybrids is that in real life usage they don't attain their EPA ratings, while standard gasoline engines typically meet or exceed their EPA ratings.
(My car was rated at 25mpg but consistently got 33mpg. The hybrid I saw advertised just recently got 33mpg EPA, but likely would get far lower than that in practice. The more interesting thing is that highway on hybrids is usually lower than the city mileage, so that 33mpg hybrid would probably get 25-28 highway, my old car would get 43-46 highway. My current 25mpg city car gets a pretty consistent 34-36 mpg highway. For reference, my old car was 3300 pounds, while my new (2005) one is 4500. Much of the difference is government mandated changes and safety features.)
The primary savings of most hybrids above direct gasoline is that they weigh so much less than most direct gasoline cars. If you make a direct gasoline car that weighs as much as a hybrid, it will get similar actual mileage.
(BTW, I like US made cars, think they look nice. If Chrysler is still around in 4 years, I plan on buying a Jeep Patriot or Jeep Compass. Those are heavier still (5100-5500?) but only lose a little bit of city and a fair bit of highway mileage off my tiny car, but gain a huge amount of off roading capabilities. Great for my area. They're about 24 city 29 highway.)
They actually can't help but make bad cars. Their per-unit overhead, due to the exorbitant cost of labor, is such that they can't turn a profit on anything other than gigantic expensive SUVs.