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 have no need to wrap myself in any flag. I am perfectly fine telling you that bringing up the dealership profit margins in the middle of a discussion about manufacturer profit margins is irrelevant on my own.
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.
The profit margin of the dealerships is not the problem at all.
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.
The dealers' profit margins has no real bearing on the crisis the manufacturers face except in that as the manufacturers go so do the dealers.
So in a discussion about the manufacturers' financial health and profit margins bringing up the dealer's profit margins is not very relevant.
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.
Yeah, you already said all that and I asked you to substantiate your claims.
The cost of materials is not something unique to them.
Nor is the cost of parts, and the same arguments about labor apply here. Many of the suppliers are in the same union.
Nor is the need to make desirable products.
The executive pay and benefits have been cut drastically.
So these are issues all their competitors also face, and even if they are able to make all things equal on these fronts it does not answer the labor burden and the competitive disadvantage it is.
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.
This is not true. The union makes it harder for these companies to respond to the market and adjust their costs accordingly as they have negotiated obligations that make workforce optimization difficult. The union doesn't just negotiate their compensation but also negotiate how layoffs can be handled and the auto companies have been wrangling with them for years in their efforts to downsize.
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.
That may, or may not, be the case but either way it doesn't change the current reality it just seeks to define who to vilify.
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.
The only escapism here is the avoidance of a focus on labor costs. I've not defended any of the management of these companies.
. . . 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'd be very interested in this information, but I've not defended any labor costs, be it of assembly workers or management.
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.
Not in dollars it isn't.
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.
So what is your point when you deflect from labor costs to the cost of, to pick one example, steel? I've been saying they that labor costs are the most significant reason for their competitive disadvantage that can be addressed, and you find this "nonsensical" and bring up stuff like steel instead.
So make your case. How is the cost of steel a more relevant item to focus on?
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.
Well it's not any more useful that way. What "proportion of profits represented by labor costs" are you talking about? If your aim was to illustrate a proportion then what is said proportion.
I haven't said that Detroit can be saved without bringing labor costs down.
But you think focus on these costs are "nonsensical". If Detroit can't be saved without bringing labor costs down, then it's very relevant.
I have pointed out that an equivalent to labor costs is management pay and benefits.
Where did you point it out? Just by claiming it is so?
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've never made such an assertion, and the onus is on you to substantiate your own claim rather than ask me to disprove it's opposite.
I have claimed that the executive (not "management") pay is not hugely significant, and I have no idea what your claim is as you've provided no substantiation for it.
If the managers are overpaid that's a labor cost I support reduction in as well.
I'd love to see you make that case in concrete terms rather than generalities.
What case? To try to prove the opposite of your generalized claim? Bring the claim to the table and I'll decide whether or not I disagree with it. It's intellectually lazy to try to goad me into proving its negative.
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.
Only if these costs are significantly different for Detroit than for their competitors. If it's the same then it poses no competitive disadvantage to Detroit.
I've not said that there is a "dealer-centric" solution to these problems.
If there is no dealer-centric solution to these problems then I contend that it's far less "nonsensical" to focus on areas where there are
solutions to the problem.
I mentioned labor costs as a factor in dealership profits for illustrative purposes, and you've become obsessed by it.
You have this ass-backwards. If anything you can say I've fixated on the labor costs. You
are the one insisting my focus is nonsensical and bringing up dealers to illustrate "proportions" that you don't provide.
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.
I can see the convenience of making it my fault that you keep talking about dealers but do remember that you brought it up and defended it as relevant. You shouldn't suddenly claim it's an obsession on your interlocutor's part if asked to substantiate your claims.
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.
I've not made that specific contention (that it's exactly equal). I've contended that it's proportionally similar to what is a healthy profit margin in this industry and unlike yourself I'm prepared to defend my claims or abandon them:
The additional costs:
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.
Now on to what a healthy profit per vehicle consists of:
So in a healthy year the most profitable auto maker made $1,175 per vehicle. And in their record year they made close to 2K.
Also in that same article:
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.
This is a small sample of the data that leads me to conclude that the total labor costs (including wages, benefits and legacy benefits) is the single largest impediment to their profitability.
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.
Does the above suffice or do you want me to include more than just health care benefits?
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 can back mine up. Can you? Show us how what you prefer to focus on can have a greater impact on their profitability than the "nonsense" you claim I'm peddling.
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.
Yet it is more relevant an area for focus even after it has already been addressed? And the much larger cost that has not yet been fully addressed is nonsensical?
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.
I'm not excluding other considerations, but if they aren't even in the same ballpark as these costs (e.g. executive pay) and we can't do anything about it (cost of steel is going to be roughly the same for all manufacturers) then I'll focus where there's the obvious need to do something.
Show me the numbers. Have you looked in detail at management salaries and benefits as a function of the bottom line in Detroit?
I have to some degree, but I shouldn't be doing your research for you. This is your
claim, not mine.
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.
Lower labor costs is the most significant immediately changable factor.
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.
I've never claimed that "mak[ing] deals with the UAW" is the problem, nor manufacturing in the United States, so I don't see why those factors are a useful comparison.
Inordinate labor and benefit burden is the difference. Honda just does not share the same costs in that regard.
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.
I wish you'd try to substantiate your claims more often. This is false. We can do an apples to apples comparison of only vehicles manufactured in the United States and the difference in the labor burden is still there but I'm not going to do all the work disproving your claims if you aren't going to bother to even try substantiating them.
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.
Please substantiate this claim.
Which is why the cost of steel within North America is a significant factor of an "unlevel" playing field.
No, I'm talking about vehicles produced in the same country and with the same steel. I have no idea what you are on about so please substantiate it.
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.
This is just not true. They can use the same steel, manufacture in the same country and there's still a very simple difference where Detroit compensates for labor at a much higher cost.
Efforts to obfuscate this very basic fact are futile because some Japanese vehicles are manufactured in the US as much or more than Detroit's vehicles are and the difference in labor costs remains.
It is also a factor that in both Germany and Japan, the domestic steel industries are subsidized by the government.
No, it is not. A Japanese company manufacturing in the United States has the same access to the same steel that an American company in the United States has.
If you'd like to make the claim that the problem is the cost of steel then substantiate it. Japanese companies make their vehicles at a lower labor cost in the US. This is not a steel issue at all.
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 labor cost stands regardless of whether we are talking about imports or domestically produced cars. You are moving the goalposts.
Again: using the same steel, producing in the same country, Detroit pays much more for labor (not steel
) than its competitors.
The same goes for auto parts in Japan where the working conditions are appalling and the compensation pathetic.
Now you are just making things up. Substantiate this claim.
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.
A bankruptcy doesn't mean the company has to cease operations. In the last few years this has been illustrated repeatedly by airlines that have gone bankrupt.
A bankruptcy would force the companies to negotiate a new financial reality for all involved (union, executive etc) and force the change we are instead trying to negotiate with them as our terms for our aid.
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.
Bankruptcy can significantly change the legacy costs as far as I understand it.
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.
I'm not advocating just cutting current wages. I'm advocating that a precondition to our bailouts is to cut all labor costs. This includes current wages, current benefits, legacy benefits and more. And yes it would immediately help. These companies do not have the money to pay for these financial obligations. With these financial obligations there is a strong possibility that there is no path to profitability.
If these companies want public money to pay the obligations they are unable to then it should come with some due diligence that we aren't just postponing their collapse. And if they aren't willing to concede then let them fall. We can pick them up again after bankruptcy has made the hard concessions for them. But the bottom line is that they are broke and can't pay. We should not lend them money if they aren't going to cut up their credit cards. And if they won't bankruptcy would do it for them without a choice.