Thursday, November 20, 2008

Who killed GM? Will it rise again?

For years now, we've heard General Motors complain that it's being lapped in the United States by Toyota because it's got five retirees in the back seat for every two people actively building its vehicles, while Toyota's U.S. operations are virtually retiree-free.  GM is also weighed down by heavy "legacy costs" for pensions and health care, while Toyota has no pension plan, and its health care costs per vehicle are barely a tenth of GM's.  GM's $1.1 billion loss in the first quarter doesn't begin to tell the whole story. The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits. [1

According to GM's annual report, it paid $73.26 per hour in wages and benefits to its hourly workers last year. [2]  GM will seek to reduce costs to about $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.  [3]

This would reduce assembly cost for each vehicle of about $1,000.  In addition if legacy costs were reduced to that which Toyota, Honda and Nissan Motor Co pay it could earn an additional $24 billion each year.  

General Motors offered buyouts to all of its 74,000 US hourly employees as the automotive giant continues to downsize operations in response to declining US market share and massive financial losses. [5]  The head of the United Automobile Workers Union said it is expected 15,000 to 20,000 workers to leave General Motors during a new round of buyouts, and that G.M. would replace nearly all of them with lower-paid employees.  Including benefits and retiree health care costs, each worker who leaves under the buyout program and is replaced by someone on the lower pay scale would save G.M. about $48 an hour, or nearly $100,000 a year.  [6

If anything has killed GM it is its managements lack of vision and the UAW's not looking out for the best interest of its members.  GM could rise again if it is able to reduce compensation to its hourly employees.  The only question is wether or not it has the time and money.
  
Germany must have faith in GM and its management since it is ready to guarantee funds for ailing carmaker Opel but any money it provides to the General Motors' unit must stay in Germany, Chancellor Angela Merkel said on Monday[7]

8 comments:

Jacob said...

I've never understood the rational behind private companies offering healthcare, pensions and the like to their employees. Even a huge company like GM or Walmart is too small to be able to guarantee such things, especially when they have no real influence on government policy.

Furthermore, a private healthcare company and a pension fund manager must charge a mark-up of 10-15%, whereas the government would charge 0%. These things are NOT suited to be provided by private actors.

Metin said...

It's not the price of the car that American auto makers need to bring down, it's the ugliness of the American cars.

European, as well as the Japanese make better-looking and sexier cars that people are willing to pay more for.

Sometimes packaging helps branding. There's nothing sexy about American cars. They surely need a better ad campaign to show it's 'kool' to own one.

Paul_Z said...

Metin,

I ran across your comment on Jason’s Blog in That’s Just the Way it is! Isn’t It? Where you mention that the American Cars are ugly, and you compare it to the European and Japanese car makers. I beg, with all due respect to disagree with you there (comment there too) and ask that you think about the substantial difference in profit (GM has a loss of $2,000 per car, and Toyota makes $1,200 per car, that’s a $3,200 difference that could pay for a great deal of “DeUgliFying” of Detroit’s cars. But that money goes to inefficiencies, poor labor contracts, and among others the inability to run the business with their own cash and not have to pay interest just to pay the light bills.

You want the real reason why we should not invest (fancy term I’m using for BAILOUT); THEY DON’T HAVE A PLAN. Who goes to a group of investors [American Taxpayers poorly represented by the Politicians] and tries to scare them into giving money (hmmm, wait don’t the scare tactics work for the Mafia) and provide no plan for how they will use the money to turn their companies around?

That’s why every tax payer should be e-mailing their congressman and their senators to tell them, the Automakers need to learn “investment request 101” before we give them one penny of our hard earned money.

Paul
The Lee’s Summit Conservative
www.leessummitconservative.blogspot.com

Paul_Z said...

Jacob,

You truly believe that the health care of your family, my family everyone’s family is best taken care of by a health care system run by the government. I grant you that we need to do something, but before I turn it over to the government, I’d open it up to full national (not statewide as it is today) competition so that the pools can be enlarged and the costs shared over larger Free Markets.

My opposition to the Government running Health Care:

1) Social Security is constantly about to go bankrupt.
2) Medicaid and Medicare are constantly being cut back.
3) Ever hear of Medicaid Supplemental Insurance?
4) The post office (the last good post master general we had was Benjamin Franklin)
5) Interstate Highway system
6) Fannie Mae (thank you for buying mortgages that banks created with people who had no way of paying back)
7) Freddie Mac (thank you for the mortgage backed securities that collapsed our economy an most of the worlds as well)
8) Have you talked to a Vet and asked him what he really thought of the Veteran’s Hospitals?
9) What was the last innovation developed and capitalized by a government official? A bureaucrat? Anyone in Government?
10) How’s Amtrak Doing?

Careful what you wish for, it may come our way and we won’t be able to turn it around. Can you name the last major entitlement program that was eliminated?

Paul
The Lee’s Summit Conservative
www.leessummitconservative.blogspot.com

TT said...

I never said I agreed with a bailout. Why won't the banks and auto manufacturers pay a visit to their local bail bondsman instead? This way they can be forced to show up for their day in court, pun intended.

But still, the bottom line is they need to sell. And ugly cars = less sales. Unless the unions accept their members working for $15 an hour or face job termination due to bankruptcy, GM and Ford cannot make cars that cost half as much as their non-ugly counterparts made in Europe or Japan. A few thousand dollars of savings will not sway this particular shopper to go American.

Time for an 'extreme makeover.'

SactoDan said...

Paul Z,

What's your beef with the interstate highway system?

steve said...

PaulZ-

quite a list you have there.

I propose that every item on there has either been looted by crooks or engineered to fail by having those who oppose it put in charge of it.

Other advanced countries (at least until they were suckered into the current financial scam) were somehow able to provide such services for their citizens -- many for several decades. And yet providing such services is unthinkable here.How odd.

N said...

Steve - That's kinda the point. It's amazingly hard for a government program to avoid falling prey to one of those two things. And even those programs that do manage to be run by completely honest people who fully support the mission of the program are often felled by the good intentions of those very same good, honest, people.