So typical-Obama auto team drives imports

It seems to me that management has done a pretty shitty job of negotiating with the unions these last 50 years or so, if they've let things get out of control to this point.

What's is this "we" crap?

Have you got a mouse in your pocket?

I am not obliged to restrict my observations to the points of view which you wish to pursue to the exclusion of ideas which occur to me.

The dealerships sure as hell won't be around long if the auto manufacturers go out of business.

You choose to focus on labor costs as it relates to the profit margins of the manufacturers.

One could as easily point out that executive salaries and perquisites are "not small when it comes to profit margins."

One could as easily say that the wage and benefits packages of steelworkers, or of parts manufacturers employee wage and benefit packages matter.

One could as easily say that the salaries and perquisites of the executives of steel manufacturers or parts manufacturers are not small when it comes to profit margins.

It is a choice to focus on employee wages and benefits packages among a host of cost factors when discussing any value-added business.

Once again, the dealerships won't be in business long if the manufacturers go under.

Many dealerships are owned in part or wholly by the auto manufacturers, and their relationship with dealerships of which they own no part is still crucial to moving the inventory they have created based on their projections about how many cars to manufacture based on estimates of how many cars they can sell, either through dealerships they own in part or wholly, as well as dealerships of which they do not own no part.

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Can you come up with a way they (Detroit, not the dealerships mind you) can make a profit per vehicle at their current labor costs?

Sure, they need to produce a product which the consumer will either find as attractive as or prefer to the product produced by Japanese, Korean and German manufacturers.

As for the rest of your comments, once again, you might just as well focus on the cost of steel or parts...

You might just as well focus on the cost of management in terms of their salaries, benefit packages and perquisites.

To hammer the point home, they are in this mess because of their own arrogance, which seems to have prevented them from taking the steps necessary to compete effectively with Japan, Korea and Germany in a more timely manner.

You can call the union costs overcompensation, and i don't necessarily disagree, which is why i reviewed the history behind the large wage and benefit packages which became the norm in the auto industry (and which, given the historic relationship between the auto industry and the steel industry, also accounts for the expensive wage and benefit packages which long obtained in the steel industry). That does not change, however, the basic fact that the Detroit manufacturers (in all their locations, of course, in the United States and Canada) don't compete well with the products the Japanese, the Koreans and the Germans offer here. If you choose to focus on labor costs, while ignoring the costs of steel and parts, and the cost of bloated management, that's fine by me, but don't expect that you are somehow entitled to insist that nothing else if as important, or that labor costs are solely responsible for their failure to make a profit.

Detroit has done a lot to become more competetive, but they've got an uphill battle to overcome decades of customer disenchantment with their products and services. It will be a long haul, and making organized labor the villain of the piece will do nothing to restore the confidence of the consumer in the auto manufacturers, and will do nothing to make their offerings more attractive to the consumers.

I hate this attitude which says, 'well, Ford is losing Billions per year, so cutting executive pay won't make a difference.'

Bullshit. It does make a difference. It gives the guys at the top an incentive to actually improve the situation.

As it exists right now, you can get hired into a top position at these companies, not do a damn thing to make them any leaner or meaner, and still walk away with millions of dollars. It's a perverse situation.

I also don't understand why the Unions are the devil and the management is presented as victims. It seems to me that management has done a pretty shitty job of negotiating with the unions these last 50 years or so, if they've let things get out of control to this point.

Now when the company fails, it's natural to blame the leaders, and want their heads. But get too carried away and you may be doing more harm than good. A general restriction on their executive pay doesn't come without risk. Some CEOs are good enough to pull companies out of messes like this, but with the executive pay restrictions these companies would have a harder time finding these executives without a large risk on less proven management.

The executive compensation just doesn't directly threaten the viability of these companies

I disagree. The 'proven management' currently in place in many different industries has shown itself to be a farce.

The theory you are putting forward is not currently being supported by the evidence available.

Once again, I disagree. The exec. compensation levels 100% threaten the viability of the companies; not b/c of how it affects the overall bottom line, but how it affects the decisions made by the management all the time.

As I have said before, when a single year or two years of salary are enough to set one up for LIFE, there is no incentive whatsoever for the management to manage the company safely. They will be fine either way.

It encourages them to take greater and greater risks in the name of short-term profits. And this is exactly what we have seen in the last decade.

Without reforming executive compensation, we will not achieve success in reforming these companies and industries.

By this reasoning how do they have any more incentive with the limit on their pay? They should already be set for life from their previous years of work and it should make no difference either way right?

I think you fundamentally misunderstand how these companies got into the problems they are in, Robert. They did so because of poor decisions of managers who were primarily interested in short-term profits over long-term stability of their companies. This is directly the fault of those who are at the top of these companies.

Absolutely not. Executives who make millions of dollars per year, tens of millions in many cases, face no pressure whatsoever to keep their company afloat.

Which scenario do you think is more likely to lead to leadership which will not run the company into the ground? You only can say 'A' if you think that paying people more money honestly gets better leadership.

I contend there is very little evidence this is true, and instead salaries have risen for a variety of other reasons, but primarily: because the execs CAN demand higher salaries, they have done so, and as they run each others' companies, the old-boys network keeps the salaries high.

You choose to focus on labor costs as it relates to the profit margins of the manufacturers.

I was unaware that we were conducting the symbolic debate of the nation, and i find it pretty ridiculous that you wish to wrap your take on this topic in the flag of national opinion, when i have no reason to assume that your point of view is representative of the national point of view.

I brought up dealerships because the manufacturers can't be profitable unless dealerships can sell their cars, and the dealerships can't sell the cars if they don't have a competitive product in the eyes of the buying public.

I made a reference to the extent to which labor costs affect the profits of the dealershp because it provides a dramatic example of the proportion of profit labor costs represent at that level, not because i was suggesting that "our" object is to bail out dealerships.

In contrast, i find your focus on the cost a labor as a function of profitability to be nonsensical when focused on to the exclusion of the costs of steel, of auto parts manufactured for the auto makers, of the costs of executive pay and benefits, and of two ultimate issues, being the "saleability" of the models offered, and the expectations of the auto makers of their ability to sell the product.

If the public had the same confidence in the products of GM, for example, as they do for Honda, then a projection of sales in those numbers, even if unrealized because of a sudden economic downturn, would not have been as disastrous for the auto manufacturers.

If the auto makers had been plowing a reasonable amount of their profits, when they were making profits, into pension funds, which they manage themselves, and had been managing them prudently, their "legacy" costs would not now be the burden to them that they have proven to be.

It is inescapable that poor management is the foundation of the crisis in auto industry today, whether it is the management of their pension funds, the management of their manufacturing enterprises, the management of their logistical and strategic resources for any given model year, or their design management's success in producing a product the public will want to buy.

. . . it wasn't about the profits of dealerships, it was about your choice to see labor costs as the cause of the loss of profitability on the part of the manufacturers. As for the cost of management, everything i've read over recent months equates in scale the cost of management salaries and benefits to the costs of assembly workers pay and benefits.

I have not said that executive compensation is more important than the cost of assembly workers' compensation, i'm just saying that it is as significant as the latter.

I also haven't suggested that costs for steel and parts do not play an equivalent part in the profitability of the competitors, because at base, my point is that Detroit is suffering because it does not compete successfully with the competition by Japanese, Korean and German companies, whether those vehicles are manufactured in North America or not.

Once again, i'm not focusing on dealership profitability. Once again, i brought it up as a means of illustrating the proportion of profits represented by labor costs.

I haven't said that Detroit can be saved without bringing labor costs down.

I have pointed out that an equivalent to labor costs is management pay and benefits.

If you assert that this is not the case, if you continue to assert that assembly worker labor costs is the crucial factor, rather than management costs, i'd love to see the figures.

I'd love to see you make that case in concrete terms rather than generalities.

I also brought up the cost of steel and auto parts because, if labor costs are so crucial in the profitability of the Detroit manufacturers, then it would be reasonable to dicuss those labor costs, too.

I've not said that there is a "dealer-centric" solution to these problems.

I mentioned labor costs as a factor in dealership profits for illustrative purposes, and you've become obsessed by it.

It is hardly my fault if you want to hammer on the matter, and i was unfortunate enough to think your obession merited a repeated response. If you didn't keep bringing it up, if you did not keep hammering on it, it would simply remain what it initially was--a means of putting labor costs in perspective as a function of profitability.

If you contend that "the ideal profit margin" for Detroit cars is exactly equal to the diffrence in labor costs between what Detroit pays and what the "outside" manufacturers pay, i'd love to see that in concrete terms, and not just generalities.

A big reason is the cost of labor. As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.

Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers - it has very few - and only $215 for active ones.

Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle - costs that the Japanese don't have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.

Here's one example of how knotty Detroit's labor problem can be:

If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn't make.

http://money.cnn.com/2007/01/26/news/companies/pluggedin_taylor_ford.fortune/index.htm?postversion=2007012611

Toyota, the most profitable of all automakers on a per-vehicle basis, increased its profit per vehicle from $1,175 in 2005 to $1,977 in 2006, the report said.

http://www.caranddriver.com/news/car_news/japanese_automakers_lead_in_per_vehicle_profit_car_news

GM cut its loss per vehicle in North America to $146 (euro106) in 2006 from $1,271 in 2005, mostly because of cost cuts that included the departure of more than 34,000 hourly workers to buyout and early retirement offers. It also is saving money through efforts to design cars and trucks globally, by increasing the number of parts common to all of its vehicles and by purchasing parts on a global basis, Harbour-Felax said.

At no time have i stated or suggested that the Detroit manufacturers would be able "suddenly" to compete with the outside manufacturers, and, in fact, i was very explicit that it will be a long, hard road. If your $1,000 figure as the beloved profit and the increased cost per vehicle due to labor costs is accurate, i'd love to see the evidence.

I don't deny it's there, but i am pointing out that you are dealing in generalities as fast and furiously as you allege that i or anyone else is.

I have been paying attention, by the way, and discussing what executive compensation packages will be is not an explanation of how profitability eroded before such a cap was in place.

As far as allowing labor costs "spiralling," one of the main points of my original post was why, historically, this happened. Once again, i'm not saying that labor costs are not a significant factor, i'm just pointing out that it is not necessarily justified to characterize it as the only problem, focusing on it to the exclusion of all others.

Show me the numbers. Have you looked in detail at management salaries and benefits as a function of the bottom line in Detroit?

To use one of your points of view, perhaps you can explain to me why Honda remains profitable when GM doesn't, when Honda manufactures in the United States and Canada.

In addition to having made deals with the UAW and the CAW, Honda also brings in Japanese management teams who recieve far, far less compensation than do American and Canadian executives.

It is also unrealistic to compare the profitability of Japanese companies to American companies because they operate on an entirley different basis in Japan and in their manufacturing operations in other countries outside North America than they do here.

Their assembly operations are the show pieces of their industry, but they save enormous amounts of their cost because their costs in Japan and other operations outside of North America pay far less for steel than they pay here or than Detroit does.

Which is why the cost of steel within North America is a significant factor of an "unlevel" playing field.

If Detroit was positioned as well outside North America as the Japanese are, it might be worthwhile to compare them as though it were an apples to apples comparison--but it's not.

It is also a factor that in both Germany and Japan, the domestic steel industries are subsidized by the government.

So long as they aren't selling that steel here, it is not a subject for trade negotiations or protests to trade regulating bodies. That means that the costs of steel and parts for German and Japanese companies on the cars they import are not equivalent to the costs to Detroit.

The same goes for auto parts in Japan where the working conditions are appalling and the compensation pathetic.

As for letting them collapse, that doesn't seem such a bad idea to me either, except for those pesky old workers, who, if they lose their jobs, aren't going to be buying other consumer products in this economy, and there are enough of them that it would be a major hit to the economy.

Negotiating realistic compensation packages is reasonable, and it can be done on the Canadian model, where the CAW has agreed to lower entry level wage and benefits packages, or on the German model, where labor gives up wages and benefits on a "tit for tat" basis with management pay and benefits cuts. The "legacy costs," though, won't go away, and are in greater measure a function of the bad economic situation which drastically reduced the value of their investments, and their consequent ability to pay out benefits.

Far more than current labor costs, the legacy costs are putting the hurt on Detroit, and nothing in the way of cutting labor costs right now is going to "suddenly" help that situation.

universal health care? why not just open the gates of hell and give satan free reign ?

I personally think it could go either way. I don't think making $300,000 a year is any more a guarantee of competence and motivation than paying millions. I think this tends to be a very personality oriented thing and that the motivated and competent individuals will tend to be so at either pay range. You'll just have higher chances of securing and retaining them with the larger compensation as it's a marketplace where others are also interested in these same qualities.

I don't know why you think you've got a grip on the issue of competition between Japanese auto manufacturers and American manufacturers, RG.

As for your remarks about legacy costs, you more or less sprung on me the notion that those costs would be curtailed. I'd sure like to see anyone pull that off. I'd be very much surprised if any politician wanted to touch that one. Perhaps the measures you recommend are those you'll take when you become benevolent dictator.

Robert, to avoid rehashing a long argument, let me sum up by saying that the failures of the auto companies are all failures of their managment.

Legacy costs too high? That's the fault of the management for not negotiating better years ago.

Current salaries too high? See above.

Oh, really? Well, in the words of Barney Frank, I'm your new efficiency expert: cut all the executive salaries to somewhere around this level and American companies will save billions of dollars next year with no real drop in performance whatsoever.

You know I think that executive compensation should be capped and regulated overall; it is one of the major reasons we find ourselves in trouble today, the unrestrained greed that drives our system and those who continually argue that we should not even attempt to restrain it.

Cycloptichorn wrote:

Robert, to avoid rehashing a long argument, let me sum up by saying that the failures of the auto companies are all failures of their managment.

Legacy costs too high? That's the fault of the management for not negotiating better years ago.

Current salaries too high? See above.

I've made no statement about whose fault it is so I'm not sure what this addresses.

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Oh, really? Well, in the words of Barney Frank, I'm your new efficiency expert: cut all the executive salaries to somewhere around this level and American companies will save billions of dollars next year with no real drop in performance whatsoever.

I see. I guess there's nothing much more to say about this. I was correct that this is a general executive pay bone you have to pick. The executive pay has already been capped, what's with the resistance to a focus on labor costs now?

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You know I think that executive compensation should be capped and regulated overall; it is one of the major reasons we find ourselves in trouble today, the unrestrained greed that drives our system and those who continually argue that we should not even attempt to restrain it.

I know your general position on it (and you know I disagree and I was once even able to convince you of my position on it), but I must admit I'm having a hard time reconciling it with this particular subject.

Their pay is already capped, you've said that you think they need to reduce labor costs. So why, when labor costs are brought up, are you back to capping executive pay?

When does the labor costs get it's turn in your spotlight?

I see. Well I still don't get how it can help the already capped Detroit and I don't really want to turn this into another thread that turns into an executive pay discussion between you and I without starting that way, but have you changed your mind since we last spoke of mandated country-wide capping?

Last I remember you found the argument that increased regulation, legal liability and taxation was a more suitable means to that end (if you want we can do this in it's own executive pay thread as well).

gosh, I just like my fords and have never had any problem with them. I didn't mean to be an ignorant faux patriot