Mismanagement at the Big Three
It was a dead heat. General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion.
That was the second best sales total in GM's 100-year history and the biggest loss ever for any automaker in the world.
For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.
Collectively, Detroit's Big Three automakers are currently losing about $5 billion per month, with Ford, General Motors and Chrysler, respectively, burning through $2 billion, $2 billion and $1 billion in cash every 30 days.
Tin cups in hand again during their recent testimony in Congress, leaving their corporate jets at home this time and promising to cut their paychecks to $1 per year, the CEOs from the Big Three came to Washington in even worse shape than during their Congressional appearance in November, upping their money appeal by $9 billion, from $25 billion to $34 billion. That's on top of the $25 billion in already authorized money to retool their plants.
General Motors and Chrysler added a "rush" to their latest bailout request, telling D.C.'s lawmakers that they need, respectively, an immediate $4 billion and $7 billion to ensure minimum liquidity levels, paid prior to the end of December. GM, as well, asked for an additional $4 billion for January and a third handout of $2 billion in the February/March time frame to forestall a financial calamity, plus a $6 billion line of credit from the federal government to ensure ample liquidity.
All told, GM says it needs an $18 billion taxpayer bailout, some 50 percent more than it said it needed just three weeks ago to turn things around.
With its hourly workforce already down 52 percent since 2000, from 133,000 to 64,000, and its executive ranks and salaried employees down, respectively, by 45 percent and 32 percent in the same period, General Motors now says it can get back on its feet by getting rid of its Saturn, Hummer and Saab lines and putting Pontiac on an endangered-brand list.
Also in GM's proposal for survival, and for paying back the money by 2011, is the elimination of 1,750 dealerships, the closing of four of its 47 plants, an additional 31,500 job cuts, and a new age of "full labor competitiveness" with foreign manufacturers in the U.S. within the next three years.
Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively.
Add the cost of benefits for the current workforce and the cost of pensions and health care for retirees (benefit-collecting retirees outnumber current workers by three-to-one at GM, Ford and Chrysler) and the difference in labor cost between a Toyota plant in the US. and the plants of Detroit's automakers jumps to $29 per hour.
More specifically, the hourly compensation cost for labor, including benefits and retirees' costs, at the Big Three is $73 per hour, compared with $44 per hour at a Toyota factory with American workers in the U.S.
Further, it takes fewer hours of labor to produce a car in Toyota's U.S. plants than at the plants of Detroit's automakers.
With more flexible work rules, GM says it could save hundreds of dollars per vehicle. The company maintains, for instance, that a company-wide use on non-union janitors, earning $12 per hour, would cut costs and increase competitiveness by up to $500 million a year.
Similarly, health care costs at GM for active workers and retirees account for more than a quarter of total labor compensation, adding approximately $1,000 in cost to every GM vehicle, compared to $215 in health care costs in each Toyota produced in U.S. plants.
Under UAW contracts, additionally, laid off workers are transferred to a jobs bank and receive 95 percent of their full pay and benefits to not work. This year, the cost to the Big Three will be an estimated $478 million, about $70 million less than Honda spent to build a brand new factory in Indiana.
Somewhere along the line, both management and labor in Detroit forgot the good economic advice of UAW head Walter Reuter: "Getting more and more pay for less and less work is a dead end street."
Comments (33)
Anyone who sees these comparisons will reject the bailout, that is, unless they are part of a corruption scheme.
So if Congress passes the bailout we will know what we already know - Congress is part of a corruption scheme.
Published: December 9, 2008 2:15 PM
You're making the mistake of looking at this situation as a business problem, while the people who are going to "solve" it are looking at it as a political problem. The obvious solution is to make Honda and Toyota more like GM and Ford, not the other way around.
The bailouts are just the first step. Next you have to get the unions into all the auto plants. Then you have to cartelize all of the auto industry, so all of the costs are spread over a larger group. And you have to package it all so it's for the "common good" and make it patriotic and stuff. You know, lie.
It's very simple (and quite obviously working).
Published: December 9, 2008 2:51 PM
A foolish question I know, but aren't all these bailouts against the WTO rules set in place? (not that I'm in favor of the WTO!)
If it were China or Japan instead of America handing out bailouts big labor would be screaming at the top of their lungs about the unfair foreign competition. To Quote Doc Holiday from the movie Tombstone "Their hypocrisy knows no bounds!"
Published: December 9, 2008 2:58 PM
In fairness to the big three, we should not blame all this misfortune on the current management team. Ever since FDR and the famous sit down strike by the UAW, where FDR allowed the striking UAW members to occupied the GM buildings and not evict them,the UAW has continued to grow stronger in their ridiculous demands place on the big three. So here we are today Toyotas plants in the U.S. with no unions demonstrate that a car company can make money and be profitable if it does not have a leaching union in their premises.
Published: December 9, 2008 3:05 PM
What needs to happen is Chrysler needs to go bankrupt and allowed to emerge with no legacy cost, cancelled labor contracts and reduced debt. The others will see Chrysler's advantage in the market and follow suit. Just like the airlines.
The Dems in Congress won't let this happen because the UAW is in their back pocket.
Published: December 9, 2008 4:31 PM
But once the "card check" legislation is passed, will the Toyota and Honda facilities still be non-union?
Published: December 9, 2008 4:34 PM
The "card check"may well bring the unions to the Japanese auto makers US plants. They then will respond by making more overseas & less in the US to avoid the problem. The question is, will this cause a new version of smoot hawley in response from Washington so jobs in the US "can be saved" pushed by the unions & the big 2 1/2 to continue to prop them both up.
Published: December 9, 2008 7:24 PM
The current leadership has done everything possible to fix the terrible situation they were put in. The big three lived the ideals of the "progressive" liberal for nearly 100 years and created untold prosperity in the US. Now, the world has changed, and it has taken alot of time for their workers to accept that. This crisis has made that happen. If any of them go under, disaster will ensue across the country. They provide millions of jobs to hard working americans who have nothing to do with a few bad choices the top brass at the companies made. Literally, millions of jobs will be gone, almost over night, and the 700 billion we gave to the banks will be pointless if even one goes under. THE BIG THREE MUST BE SAVED.
Published: December 9, 2008 10:33 PM
Mark,
Was your post meant to be ironic? I'm serious. I can't tell.
In the span of a single paragraph, you managed to contradict yourself. You open with "the current leadership has done everything possible to fix the terrible situation they were put in." (By whom, by the way?)
This is followed shortly by "...a few bad choices the top brass at the companies made." Which is it, Mark? Are they incompetent or the victims of bad luck? If the former, where is the wisdom of stealing billions from the taxpayers to throw good money after bad to these fools? If the latter, who was responsible and why are the rest of us responsible for fixing their mess?
As for the millions put out of work, we have a choice: prop up failed companies or use scarce resources to fund viable companies that sell things people want. The Big 3 is yesterday's news. Sink or swim, baby.
Published: December 9, 2008 11:48 PM
hmm so you talk about how much the workers at gm/chrysler cost. and how much do the execs cost...cause i remember how they flew in a private jet...remember that was like 2 weeks ago. wow i think i would have to be comfortably numb to believe its the workers failure to ask for less money. I mean after all who makes the cars(at one step or another)? and with a profit margin in the negative billions those guys fly in their own private jet. they seem like perfectly capable men in charge who can balance costs w/ profit.
wait heres the best part: i wouldnt pay for one of those crappy cars to begin with and now im buying one (maybe) without the option of driving it?
thats ridiculus.
Published: December 10, 2008 12:10 AM
Go read Atlas Shrugged and then let the big 3 all die.
All of them.
You will thank me later, kthxbi.
Published: December 10, 2008 2:44 AM
could you please tell me the source of the information you are quoting the numbers on?
i am having a tough time verifying things, and dont know what the definitive research points are.
Published: December 10, 2008 6:08 AM
Quote from Mark: "THE BIG THREE MUST BE SAVED."
So how much of your money have you given them?
Published: December 10, 2008 6:25 AM
Mark,
I can not believe that you even subscribe to the Austrian economics model so strongly held and believed by the founder of this institution, Ludwig von mises. The market forces are control by themselves if left alone by the government, millions of people will lose their jobs no doubt, but this was created by a bubble which the government allowed to develop by the infusion of cheat money into the systems. And guess what, be prepared for the next bubble after this 700 billion infusion into the markets will surely generate the next even bigger bubble. Let this market correction take place no matter how painful it becomes, keep the government out and let the market fall. Eventually the market will rebound and things will be like they should be. However, this will not happen because the politicians will do anything to show the people they are trying to help us by saving us from this catastrophy, which in the first place was created by them. I really dislike keyneisian economics.
Published: December 10, 2008 7:20 AM
No doubt dude, I think you hit the nail on the head! Well done.
jess
www.privacy-tools.at.tc
Published: December 10, 2008 8:23 AM
The compensation for everybody, CEO down, should be, in large part, based in large upon performance. Labor and management both have forgotten that they work for the investors. Both have done their best to take what they can while the companies rot around their feet.
Published: December 10, 2008 8:42 AM
A source for the numbers would be helpful.
I found these readily though, which support the numbers:
http://www.examiner.com/x-243-Progressive-Politics-Examiner~y2008m12d9-Big-Three-labor-costs-compared-to-average-manufacturing
http://www.heritage.org/Research/Economy/wm2162.cfm
Unsustainable is unsustainable. I could understand a bailout if government was trying to correct an injustice it did the industry by entering into bad trade agreements (which it has) and was subsequently going to operate in free-market mode, but it is clear the industry needs to hit the reset button!
And if bankruptcy is allowed, there will likely be a free-for-all as the good parts of these companies and the skilled labor look to make the best of things. Plenty of good new car companies could arise. I am sure there are plenty of people who would love to have a $20+/hr job right now!
-r
Published: December 10, 2008 10:09 AM
It is amazing that nowhere in the constant comparisons with the japanese does the article or comments section do anything but narrow in on the cost of the workers.
If we're comparing, let's compare the fact that the highest paid CEO of a japanese auto company does not earn over 1 million dollars a year. Whereas for example GM's ceo started way over that and has increased his pay 400% just in the last 4 years and is around 6 million.
I doubt the american workers have increased even 100% in their pay over that time.
While posting record losses, the culture of attacking those who produce while doubling the pay of management is insane.
The hourly pay is clearly comparable at us and japanese factories.
It's the benefits costs that kill.
Why not focus on the fact that the healthcare system in the US is crippling most businesses and needs to be universal like our competition?
That would do more to make us competitive than all this nonsense about cutting the workers.
The workers spend money. Lots of it. The last eight years have moved an immense amount of money into the hands of the top 1% of this country and that is the root of our retail nightmare currently. Rather than cutting it, we need to follow Henry Ford and pay people enough to buy things and get the economy moving.
Published: December 10, 2008 10:55 AM
Quote from Ben: "Why not focus on the fact that the healthcare system in the US is crippling most businesses and needs to be universal like our competition?
That would do more to make us competitive than all this nonsense about cutting the workers.
If given a choice between an auto industry bailout and socialized medicine, I choose the bailout. It will be cheaper. Of course we'll probably end up with both and neither will work.
I'm not sure who the "us" is you're describing as being more competitive. Maybe you could explain how conviscating billions of dollars from tax payers and giving it to a private industry with a bad business model will result in better competitiveness? As for the universal medical coverage, same question?
Published: December 10, 2008 1:01 PM
"Why not focus on the fact that the healthcare system in the US is crippling most businesses and needs to be universal like our competition?
That would do more to make us competitive than all this nonsense about cutting the workers."
Wrong. Japan has gov't paid health care for the unemployed and self-employed. Toyota, Nissan, et. al. pay for their insurance just like GM and Ford do, It's highly regulated in terms of costs, has fewer doctors per patient, and is headed for a crash because of rapid decline in population. Why doesn't Michigan offer to pay for their health care? How is their health care our problem?
Published: December 10, 2008 4:54 PM
"Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively."
Correction....The first part of this sentence should read: "Currently, UAW workers at Ford, GM and Chrysler earn an average of $78 (or thereabouts) per hour, plus benefits."
Published: December 10, 2008 5:21 PM
Hi,
Great article. There is something structurally wrong with the North American car manufacturers if they can't compete. There needs to be restructuring and I don't think a bailout will help that.
Warren
Stockjunction.com
http://www.stockjunction.com/index.php?option=com_myblog&show=Lost-Jobs-Nortel-Bail-out-Keegan-.html&Itemid=4
Published: December 11, 2008 1:15 AM
you should stop even wanting to buy a big all american car. for several reasons, and you all know them.
just pull the plug, because business WILL go on, work will come free in healthy businesses. it's a shift, simple as that. involving politics is crazy, america is about economy and free enterprise. if you don't deliver, you close your doors. the strong and better ones survive.
Published: December 11, 2008 3:41 AM
Seeing as the Government is fixated on "fixing" the problems with the Big 3, maybe they should be focussing on the actual problem - high labour costs.
If they really wanted to solve the problem, and "save" these companies, why not introduce legislation to reduce wages to a level that allows these companies to be profitable.
This plan has the benefit of being both incredibly overbearing and far beyond the real reach of government, and being a much cheaper solution to this made up issue. It's too bad no politician has the cojones to suggest this publicly - it would illustrate nicely how ridiculous and over the top Governments - in Canada as well as the US - have gone with trying to "solve" all these "problems".
Published: December 11, 2008 9:45 AM
Great Article
That $72/hr figure is not correct. It is much lower, including benefits.
Published: December 11, 2008 12:56 PM
Ok, so the ~$72 an hour figure includes benefits for retired employees, as GM has admitted. Fine. Does the same apply to Toyota and Honda's $40-$48 figure? What does a Big 3 worker cost without including retired employee costs to the company? People keep saying numbers, and then saying that they are wrong, but no one seems to be throwing out the truth to go along with their claims. You may wish to read http://mediamatters.org/items/200812060002
I'm still guessing the UAW workers are reimbursed significantly better than their Toyota counterparts, but no one seems to be able to settle on just how much. Also, what specifically are the Big 3 paying their retired workers that wasn't put in when the workers worked there in the first place? One day I think I have an opinion on this subject, and the next I do some reading and can't make up my mind. Somedays I wish I was just happy being ignorant.
Greg, when the airlines went bankrupt the economy wasn't in nearly as bad shape as it was now. In better times, I could see the economy recovering in stride from the bankruptcy filings of one or even 2 of the Big 3. They would be able to restructure, rebuild and probably bring back a lot of their jobs. But with the state the economy is in, I'm not so certain. I'd like to think bankruptcy would solve all the problems but my gut says it would be a catastrophe right now.
Still, the question isn't whether we should help the auto industry. If we knew that giving them a loan now would keep them afloat and not go to waste, it wouldn't matter what their employees make, that's their prerogative. The question is, can they help themselves? Will the UAW and the management really be able to patch up all their problems in a few months? Years and years of being used to living off the fat of the land, only to run out of fat all at once at the worst possible time? That's where the behavior of the execs comes into play. Their behavior is equally comparable to that of the UAW. They're both behaving as if no concessions should have to be made on their side, no drastic changes necessary. Well times are going to get rough for them. Really though, I say give them the loan, if they do go under, oops our bad. I figure they deserve at least one chance in the clutch.
Published: December 11, 2008 4:49 PM
For the Big 3 bail out, why don't the Major oil companies jump in here and help them out. They go hand and hand. Since they have smirked at us when they announced what their ernings were for the last quarter.
Published: December 11, 2008 7:45 PM
For the Big 3 bail out, why don't the Major oil companies jump in here and help them out. They go hand and hand. Since they have smirked at us when they announced what their ernings were for the last quarter.
Published: December 11, 2008 7:46 PM
Cliff
They've had plenty of chances. The Big 3 have been hemorrhaging money for a few years now. I know that here in Canada we've given GM (and I'm pretty sure the others) Government money a few times, and they keep coming back. This is not a loan. It will never be paid back, no matter how successful these companies are.
While I agree that 2 or 3 of these companies going bankrupt is probably not going to make anybody's life better, I'd argue that giving them this money is going to make everybody's life a little bit worse, except the handful of people that really benefit from this - the C level executives, union leaders and politicians that can take credit for "saving the economy". The rest of us are taking it hard.
Published: December 11, 2008 9:07 PM
as ERIK B had mentioned if this happened else where ( for a poor and small county ) bailout would be labelled as unethical.but when it happens in their own back yard rules change .hmmmmmm
Published: December 14, 2008 4:33 AM
Ok. I'll be the first to admit that I'm unsure if we should bail the big three out or not. This is what I do know. I own a Honda Accord that currently has 323 thousand miles on it. I bought it when it had 97. In all the years I've owned it, I've spent just over $1,000 in repairs that weren't general upkeep (tires and oil changes etc). I also bought a brand new GMC Sierra two years ago. The transmission fell out at 12k, I've had electronic problems with it since it was new and the dealership has never been able to fix it. It now has 34k on it (my warranty was 30k) and it needs new ball joints and the universal joints are bad. In short, it's a piece of crap that I regret buying. So just based on the quality of the products, I say let 'em sink.
Published: December 14, 2008 9:29 PM
The solution seems simple to me: all the retirees that are living off the Big Three pension funds need to come off. The biggest favor the U.S. Government can do the U.S. Auto Industry is to take all those retirees into a big taxpayer-funded charity "camp", give them room/board/medical services for life, and let the Big Three get on with meeting the newly-created criteria to get competitive with international automakers again. If they don't fix it without the handicap of supporting legions of retirees, then they really should be allowed to fail.
Until the retirees come off the Big Three charity rolls, it will never be a level playing field. Besides, I bet it won't cost $17B to feed all those folks for life.
Published: December 20, 2008 10:30 AM
This is wrong:
The 38 B number is related to an accounting change. No company, ever, anywhere, has lost that much actual money. They could have given away every vehicle they built and not lost that much. Just more stupidity from union bashers who don't know what they're talking about.Published: December 22, 2008 11:45 AM