What is True for GM is True for USa today?
FD: The airline industry has gone through bankruptcy for the same reasons that auto companies should go through bankruptcy, in fact home owners in ARMs that they can not afford should go through bankruptcy. When I got in trouble with the IRS over unpaid taxes from a divorce, the IRS put me through bankruptcy to get paid.
What is good enough for Delta, United Airlines, and ME is good enough for GM.
"What is good for GM is good for America." was said in 1955.
Maybe GM and USA have so much in common today that they both need to be rebuilt from the ground up for a changed world environment.
Bail Out the Big Three Auto Producers?
Not a Good Idea
-Becker: http://www.becker-posner-blog.com/archives/2008/11/bail_out_the_bi.html
The big three American auto producers General Motors, Ford, and Chrysler, are in terrible financial shape. They have asked the government for a bailout, and the Democratic leadership in Congress is eager to give them one. The United Auto Workers union was a strong supporter of President-elect Obama and of Democratic candidates.
These companies have lost tens of billions of dollars during the past few years, and they will shortly run out of cash. GM's shares have lost almost all their value, and Ford has not done much better. Cerberus Capital, a private equity company, owns Chrysler, and it has lost most of what it invested in the company. For this reason Cerberus is trying get out of the automobile manufacturing business.
All three companies were heavily into producing trucks and SUV's when the sharp run up in gas prices induced consumers to shift away from these gas-guzzlers and toward smaller and more fuel-efficient cars. Moreover, what money GM had been making came mainly not from car production but from its automobile credit business, (GMAC). This company would borrow from banks to lend to consumers who needed help in financing their GM car purchases. The financial crisis has dried up the money available to auto financing companies, and hence eliminated the major source of their profits.
If GM is not bailed out, the company claims it will be forced into bankruptcy within a few months, and Ford's situation is only slightly better. GM is blitzing Congress, President Bush, and President -elect Obama with pleas for a bailout, followed by a warning that bankruptcy will also hurt auto suppliers throughout the nation that depend on GM's business. GM is also claiming that bankruptcy will put major financial pressure on the Pension Benefit Guaranty Corp, the federal agency that insures benefits to retirees in the auto industry as well as to million of other workers.
Nevertheless, I believe bankruptcy is better than a bailout for American consumers and taxpayers.
The main problem with American auto companies is that during the good times of the 1970s, 1980s and 1990s, they made overly generous settlements with the United Auto workers (UAW) on wages, pensions, and health benefits. Only a couple of years ago, GM was paying $5 billion per year in health benefits to retirees and current employees because their plans had wide health coverage with minimal co-payments and deductibility on health claims by present and retired employees.
In those days, the UAW was one of the most powerful unions in the US, and it bargained aggressively with the auto manufacturers, carrying out strikes when its demands were not met. When the American auto industry began to face tough competition from Japanese and German carmakers, they were saddled with excessive pay to their workers, and vastly excessive pensions and health benefits to their current and retired workers.
It is not that cars cannot be produced profitably with American workers: the American plants of Toyota and other Japanese companies, and of German auto manufacturers, have been profitable for many years.
The foreign companies have achieved this mainly by setting up their factories in Southern and border states where they could avoid the UAW, and thereby introduce efficient methods of production. Their workers have been paid well but not excessively, and these companies have kept their pension and health obligations under control while still maintaining good morale among their employees.
In recent years GM and the other American manufacturers have chipped away at their generous fringe benefits, but their health and retirement benefits still considerably exceed those received by American auto workers employed by foreign companies. As a result of lower costs, better management, and less hindrance from work rules imposed by the UAW, about 1/3 of all cars produced in the US now come from foreign owned plants.
Bankruptcy would help GM and Ford become more competitive by abrogating significant parts of their labor contracts with the UAW. One of the greatest needs would be sizable reduction in their health costs through sharp increases in the deductibility and co-payments, and a reduced coverage of medical procedures.
Bankruptcy should also help bring the wage rates of GM and Ford in line with those of foreign producers in the US. Some of their pension liabilities may be shifted onto the Pension Benefit Guarantee Corp, but even that would be preferable to an overall bailout.
A good analogy is what happened to United Airlines. By entering bankruptcy it was able to reduce its inflated cost structure by breaking contracts it had with the pilots union and other employee unions. It exited bankruptcy a slimmer and more efficient airline. Whether it is able to compete effectively in the long run is still not certain, but it is in much better shape to compete than before it entered bankruptcy.
Bankruptcy may also force out the current management of GM and Ford. I do not know for certain whether they have competent management- GM surely did not have top management for much of its recent history. I do believe, however, that when a coach of a team loses a few games, he might legitimately explain that by injuries, bad luck, or even bad officiating. These excuses become lame when he consistently loses many games, and the correct and common practice is then to fire the coach.
The same considerations apply to top management. When a company consistently does badly while some of its competitors (like Toyota) are doing well, its time to fire the management team, and see if another team can do better.
Is GM "too big" to fail? I do not believe the company is too big to go into a reorganization-which is what bankruptcy would involve. Such reorganization would abrogate its untenable labor contracts, and give it a chance to survive in long run. A bailout, by contrast, would simply postpone the needed reforms in these labor contracts, the business model of GM, and its management.
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General Motors legacy costs
By Lou Ann Hammond
http://www.carlist.com/autonews/2005/autonews_131.html
"What is good for General Motors is good for America - Chairman and CEO, Charlie Wilson, 1955.
Today this could be,What is true for General Motors is true for America.
Are companies obligated to take care of ex-employees till they die? If there is no job guarantee, why should your life be guaranteed? What does a company do when they have negotiated unsustainable obligations?
A couple of weeks ago Pulitzer prize automotive writer Dan Neil wrote a column blasting Bob Lutz and Rick Wagoner, saying, basically, that the Pontiac G6 was another reason General Motors was going to go to metal heaven and that the top guy should go with it. I will give Mr. Neil that General Motors isn’t hitting the mark on some of their cars, especially when they are compared by price in their competitive segment.
Every car company has product cycle problems and many have ridden them out. General Motors has a problem that eats away at their profit like no other company, it is their legacy costs. These problems have been gathering steam since 1950 when negotiations for pension and healthcare started, long before Bob Lutz or Rick Wagoner were in power.
General Motors marketshare is going down and has been for some time. Ford has the same problems. With every new car manufacturer coming into America, including China soon, their marketshare may continue to go down. According to Stefan Weinman spokesman for General Motors, General Motors spends $5.2 billion on health care for 1.1 million people, equaling $4,727 annually per person. People can buy cheaper cars and get the same value without the health care costs of $1,525 built into every vehicle made. Add another $675 per car for pension costs. Other car companies may have these problems, but not for some time.
BMW, Nissan, Toyota and Mercedes all build cars here in the United States with American employees, but those employees are new and very few have retired.
General Motors is the world’s largest automaker, selling nearly 9 million cars and trucks worldwide last year. It is the third-largest business in the United States, with revenue of $193 billion last year. Despite the incentives that kept sales high during America’s economic slowdown, General Motors is losing marketshare and people are saying it is because their cars are no good.
They are saying that the Big Three will have troubles because of the economic and production gaps between the non-union assembly lines set up South of the Mason Dixon line, save for a couple of plants, by Japanese and European competitors.
They are saying that General Motors is too concerned about their big cars and not as concerned about smaller more fuel efficient vehicles. They are saying that there are too many cars in general and that General Motors could get rid of a couple of lines.
General Motors oldest retiree will be 110 years old this year. The employee worked for GM for 32 years and has been collecting pension and health benefits for 47 years. If this employee dies and leaves behind a spouse, the spouse will get a partial part of his benefits.
General Motors reported its worst financial quarter in 13 years on Tuesday, posting a net loss of $1.10 billion, or $1.95 per share. In the first quarter of 2004, GM earned a profit of $1.2 billion, or $2.12 per share. According to General Motors it needs to be a 28-29 percent marketshare company to survive. They claim that 98 percent of their costs are fixed costs. The 1.2 billion profit was made from selling product helped along by incentives. If that 5.2 billion health care cost weren’t there General Motors would report a gain for the year.
Some of these problems are the same problems America itself is looking at when they look at Social Security and health care.
When Social Security was enacted the average life expectancy was below 70 years of age. Today, General Motors is paying pension to retired folks who are over 100 years old. Along with that they pay a part of their medical costs. When these contracts were negotiated there were no stop-gap measures put in force. Now, General Motors is paying the price. Because of the excellent health care they are able to receive, retired folks are living longer and collecting longer pensions.
For every worker working at General Motors they are footing the bill for 2.5 retired workers. The picture is not going to get any better as long as the UAW isn’t willing to make concessions. What concessions could the UAW make? How about going on par with what the blue-collared salaried workers make and then negotiate to the national averages.
The UAW pays 7 percent for their medical benefits while the salaried employees pay 27 percent for the same medical benefits. The national average paid for medical benefits is 32 percent. According to Jerry Dubrowski, another help would be if all employees purchased generic drugs. "Even if you pay a $5 co-pay, GM pays the rest of the amount for the brand name drug. Generic drugs are cheaper. If we could educate our workers and negotiate a different co-pay amount if a person bought generic vs. brand name the savings would be substantial."
The retirement program is just beginning. Nearly half of the 302,500 UAW members at the Big Three, Delphi and Visteon will have the necessary combination of age and years of service to retire within the next five years. 60 percent of those UAW members are GM/Delphi, 39 percent Ford/Visteon and 33 percent Daimler Chrysler. If General Motors 180,000 members retired before they were eligible for 80 percent of their Social Security GM would pay them $32,000 per year. After that GM would pay the retirees, or their spouse, an average of $16,900.
These problems won’t go away, but they can be lessened. According to Paul Taylor, chief economist, National Automobile Dealer Association (NADA), "GM still has plenty of time to turn in a decent sales year. With the economy continuing to show strength, automobile sales should hold up well, producing sales of 16.9 million units for the year says Paul Taylor, NADA’s chief economist. Two key issue should be understood. Big 3 North American manufacturers will continue to have difficulty maintaining market share unless they are willing to price effectively as consumers desire. And luxury vehicle sales will continue to be lackluster as long as the stock market underperforms expectations for it driven by expected stronger earnings."
The bigger more luxurious cars are the ones that carry more profit. As the dollar weakens it is more expensive for Europeans and Asians to bring their smaller cars to the United States. This could be the well needed shot in the arm that General Motors and Ford needs. Product will help both GM and Ford with their legacy costs. However, Toyota, Nissan and Honda are making forays into the pickup truck market that will weaken the grip GM and Ford have on that segment of the market.
This week the United Auto Workers (UAW) union held their regularly scheduled annual conference. UAW Vice President Dick Shoemaker, in charge of the GM relationship said "there is some flexibility within the agreement to do something" while UAW President Ron Gettelfinger stated that GM hasn’t asked the union to reopen the contract. According to Paul Krell, spokesman for the UAW, "The United States is the only advanced industrial nation that doesn’t have national health care. Our current President and Congress are not going to institute a single-payer insurance program."
Even though foreign governments cover most health-care and pension costs don’t expect our government to do so. President Bush is trying to convince the American public that they should invest in their own future, so that the government doesn’t have to. If he wanted to put this country at a more competitive position globally he would talk about insuring each person with a basic health coverage, nationally.
According to Automotive News, "DaimlerChrysler is in talks to set up a China venture that would make and export Chrysler cars to North America, a top executive said on Thursday, sketching a politically charged move."
In China, car makers generally pay about $1.95 an hour in wages and benefits. By comparison, DaimlerChrysler pays its German workers about $49.50 an hour, and its U.S. workers about $36.50 an hour.
The UAW countered with a press release that talked about unfair trade practices and said, "U.S. autoworkers are prepared to compete with workers anywhere in the world based on productivity, quality and innovation.
But it’s just plain wrong - for workers in China as well as the United States - to force workers to compete against each other based on who can do a job for the lowest possible wage."
Does the United States care where their cars are made? Or do they consider cars the same as medicine; they are willing to buy generic cars that are cheaper as long as they have the same active ingredients in them?
According to uaw.org the following are vehicles built by UAW members; To be sure the vehicle you are buying is assembled in the United States, check the window sticker, which will list the location of final assembly, and the Vehicle Identification Number (VIN), which is attached to the driver’s side of the dashboard. A VIN beginning with "1," "4" or "5" means the vehicle was assembled in the United States.
2005 Cars and Trucks
Buick LeSabreBuick Park AvenueCadillac CTSCadillac DeVilleCadillac STSCadillac XLRChevrolet CavalierChevrolet CobaltChevrolet CorvetteChevrolet MalibuChevrolet Malibu MaxxChrysler Sebring Dodge NeonDodge Stratus Dodge ViperFord Five Hundred Ford FocusFord Freestyle Ford GTFord MustangFord TaurusFord ThunderbirdLincoln LSLincoln Town CarMazda 6Mercury MontegoMercury SableMitsubishi EclipseMitsubishi GalantPontiac BonnevillePontiac G6Pontiac Grand AmPontiac Solstice Pontiac SunfirePontiac VibeSaturn IONSaturn L300Toyota Corolla
PICKUP TRUCKS
Chevrolet ColoradoChevrolet SilveradoChevrolet SSRDodge Dakota Dodge RamFord F-seriesFord RangerGMC CanyonGMC SierraLincoln Mark LT Mazda B-seriesToyota Tacoma
SUVs
Cadillac EscaladeCadillac SRXChevrolet BlazerChevrolet SuburbanChevrolet TahoeChevrolet Trail Blazer EXTDodge DurangoFord Escape/Escape Hybrid Ford ExcursionFord ExpeditionFord ExplorerFord Explorer Sport Trac GMC Envoy XLGMC Envoy XUVGMC Yukon/DenaliGMC Yukon XLHummer H1Hummer H2Hummer H2 SUTIsuzu Ascender (7-passenger) Jeep® Grand CherokeeJeep® LibertyJeep® WranglerLincoln AviatorLincoln NavigatorMazda TributeMercury MarinerMercury MountaineerMitsubishi EndeavorSaturn VUE
VANS
Buick TerrazaChevrolet AstroChevrolet ExpressChevrolet Uplander Chevrolet VentureChrysler Town & CountryDodge Caravan*/Grand CaravanFord E-seriesGMC Safari GMC Savana Pontiac MontanaSaturn Relay
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