Will Ford and GM survive?

Both auto makers have huge health and pension liabilities and this is a gigantic financial albatross around their collective necks. Further, the last few years have witnessed them subsidizing customer's purchases with rebates, zero percent financing, and now, employee discounts for all. Additionally, these companies' dependence upon the profitability of small trucks (Pick-ups and SUVs) is now called into question by the recent rise in gas prices. This last event may be temporary or not. Things in the Middle East are, as usual, iffy. Pat Robertson is doing his best to piss off Venezuela's Hugo Chavez by agitating for his assassination. (If Mr. Robertson runs for U.S. president again his campaign manager's spin on this gem would be interesting--perhaps the Devil made him do it.) Hurricane Katrina's damage to Gulf oil supplies won't be apparent for at least a week. A major refinery in Louisiana has been closed because of Katrina and the possibility of its restarting is unknown at this early date. The fact that the President said U.S. Strategic Oil Supplies may be tapped is not good news (This relates more to the current price of gas in the U.S. and less to Katrina but is insignificant to long term gas prices. Releasing some of the U.S,'s oil reserves to stave off a world shortage of oil is, at best, a temporary "solution") Then, there is China and its growing demand for oil--and the dragon is presently just sipping this resource. But perhaps after the summer vacation gasoline prices will fall back to their "normal" level and I will win the NJ lottery.

The financial Elephant in the room occupied by the "Big Two" is really the fact that both S&P and Moody's (bond rating entities) have down graded GM's and Ford's debt rating to junk bond status. This means, among other things, capital for these companies will cost more in the future.

Should we blame the corporations or the unions? Well actually both are presently to blame. The companies, during the good times incurred the present liabilities and kicked that can down the road to this point. The Unions, rightly using the logic that they should share in the good times, has failed to face up to the reality of the other side of that economic logic: sharing in the bad times (give backs) so that the industry as a whole can, not only survive, but stay productive (keep costs low relative to a given production output).

It is unfair to compare Gm and Ford to their competition (sans Daimler-Chrysler) given the history of both? Perhaps, but who cares? Certainly not the market!

Personally, I remember the shoddy products both these companies forced us to buy, especially during the '70's. Sure, their product has improved immensely since then, but is this because they were looking out for the American public's interests?
Don't get me wrong I hold no grudge, I loved my first car (a Coffee gold metallic 1969 Pontiac Lemans w/ a white vinyl roof hardtop w/ heavy duty 3 speed manual Hurst shifter on the floor w/ Rally II wheels-- given the addition of dual hood scoops it looked just like a GTO and cost me "just" $2800) but the competition has afforded us two things: better and more reliable vehicles and a clearer vision of what can be. However, even though the source seemed "foreign" the result of the final process was truly American: a better product. But isn't the saving grace of our country the acceptance of, not only aliens, but their ideas that give all of us a better life?

JM

auto makers
excellent reading , but i do believe that there is only two ways to solve this problem,....the unions back down, lower wages as to allow the company to go to war against the competition,,otherwise the company must look at possibly manufacturing their vehicles else where...........Charlie747

Re: Will Ford and GM survive?

I don't know if Ford and GM are ready for the junk heap. But if unions were all that stands between these companies and profitability, I imagine management would have moved all their factories south long ago. I think it is simplistic and misleading to single out unions as a cause of high unit costs, as it is to single out corporate greed for non-union labor as a cause of declining workers' compensation. I'm pretty sure Ford and GM will survive as trademarks. But as companies they will be taken over by foreign competitors, much as Chrysler was taken over by Daimler-Benz. These competitors will rearange their product portfolio, their management structure, or whatever their real problem is. And after some painful adjustment, these companies will be profitable again.

Thomas
Moved south? Where exactly is south in your eyes.
Aside from the liability to their pensioners the wage for a UAW member is somewhere between $60 and $70 an hour [include fringes] while the wage for a worker in a nonunion shop is $20 to $30 an hour.
All the innovation in the world will not make for a level playing field. Only concessions by the union will.

What would all the global corporations do if every worker in every country in the world was a member of a union?

A rhetorical question only.

Capitalism is broken. It did a great job but it needs to be replaced.

When I wrote the post you were replying to, the place I had in mind was Alabama. The piece you are quoting is that this is where Hyundai is building a factory. I believe Mercedes has built a profitable factory there too. Another place I had in mind was South Carolina, where BMW has a production site.

My point was that if, as you say, "only concessions by the union will" "make for a level playing field", Ford could have already leveled the playing field -- by moving the whole shop to places like Tuscaloosa AL, Montgomery AL, or Spartanburg SC. But they haven't -- which suggests to me that their problem lies elsewhere.

Thomas
Toyota and the other foreign auto makers have no union agreements they can open up plants without those encumberances. Ford and GM have these agreements and can not just move and leave these behind.

But foreign corporations have been opening plants in the USA for decades. Are you saying those union agreements are binding even on such a long timescale? This stretches my imagination -- but then again, I don't know that much about the American auto industry.

In his first response to your post, au, James Morrisons offers an interesting list of problems. As far as I see, one of them would be solved by accomodative unions (the immediate cash crunch due to rebates and the price war.) The others wouldn't. Trade unions can't do anything about product portfolios that customers don't want to buy in an environment of risen oil prices. They can do nothing about historically shoddy products. Nor about pension liabilities. Nor the corporations' unsustainable debt burden. I'm not necessarily saying that unions shouldn't be accomodative -- just that it won't help terribly much.


They wouldn't exist. Only a totalitarian world government can force every worker in every country in the world into a union. And such a government would close the global corporations down.


May I ask by what?

All those programs they run, especially employee pricing, just hurts them more in the long run.

For one, they're hurting their brand image. Consumers know they're doing it: just to move cars and keep afloat. Not only does it hurt their image, but they pretty much took care of their sales for the rest of the year over the summer...all the dealers I've been talking to are very slow right now.

Nissan, Honda, Toyota, BMW...you don't see them running these gimmick promotions. People know they're getting what they pay for, and are willing to spend a little more on a Camry than some POS Ford. Not to mention some of these American cars are f'n ugly as hell....look at the Chevy Malibu.

Maybe this will get the US government to open it's eyes and realize we need a national a health insurance program and better retirement benefits. Perhaps the lobbyists for the auto industry (and other big business') will get the ears of congress to understand that our fear of socialized programs is going to do serious damage to the base of our capitalist system.
As a business woman without health insurance - I can only hope this will trigger such a result.

CHIBA, Japan (Reuters) - Ford Motor Co. said Wednesday it expects a similar deal to cut retiree health-care costs from the United Auto Workers union (UAW) as larger rival General Motors Corp. won this week.

"We expect comparable changes," Jim Padilla, Ford's (down $0.19 to $8.47, Research) chief operating officer, told reporters at the Tokyo Motor Show.

DaimlerChrysler (down $1.77 to $49.93, Research) said Tuesday its U.S. arm Chrysler would also seek immediate talks with the UAW on cost savings along the lines of the GM deal.

General Motors (down $0.97 to $29.12, Research) on Monday announced a deal with the UAW to slash its multibillion-dollar health-care costs, sending its shares up as much as 13 percent even as it posted a fourth consecutive quarterly loss.

I wrote:



Thomas quite rightly asked:



I don't know Thomas. I'm not going to say "socialism" because if I do I will be appealing to a similarly discredited 19th Century economic theory.

I'm ignorant of the possibilities I'm afraid.

Capitalism cannot be replaced any more easily than we can repeal the laws of supply and demand or those of thermodynamics. Capitalism is not an ideology it is a natural law of economics. It has and always will be present in systems of not only commerce but those involving the conception and support of life itself.

Capitalism even existed in the FSU (Former Soviet Union), that pinnacle of communism that, supposedly, was its "Shinning City upon the Hill". Here it took the so called "evil" form of the "Black Market". But the forces of capitalism will not be denied. Communist denial here supplied not only a vast and powerful military but lines of FSU citizens queuing up for toilet paper, vodka, and sundry goods.

Capitalism does tend to produce extremes in economic social structures but America's brand has been tempered by its form of government that, firstly, recognizes that its citizens' "pursuit of happiness" depends upon their own industry (hard work and innovation) which allows everyone such opportunities. Secondly, all three branches of government strive to keep a level playing field via legislation, its prosecution, and its legal oversight by the judiciary.

Most extra-societal ideologies gain currency from those disenfranchised by the current system in place. They all promise utopian results if only the ideology is faithfully followed--it never is. Communism promised a good life for all, even those who worked and contributed little to society. Fascism promised the same if races were kept pure and if everyone kowtowed to central authority. The former sets all manner of warning bells off. The latter uses the guise of strong central power to rob the citizens of their personal freedoms which allows further consolidation of power.

It is obvious that America's present social system is informed by capitalism tempered with socialism. American government is a synthesis or combination of many systems, but that is its strength. The Madisonion view of more factions being better than less finds validity in America's day to day operation of both its government and economic system.

But make no mistake, socialism depends upon capitalism. Not everyone can just lay back and eat all the bread (or cake) they want. Some must actually toil in the production of both flour and the end product loafs. We are a nation of Little Red Hens--and the bread tastes all the better for it.

JM

 

Putting GM back on the road


The New York Times

THURSDAY, OCTOBER 20, 2005




 

Why the American auto industry can't compete.

America's horribly mismanaged and inefficient health care system. Analysts estimate health care costs add from $1,000 to $1,500 to the price of every automobile produced in the United States. Manufacturers in no other advanced economy face these costs, since health care is funded by their national governments. America's dysfunctional health care system even dissuades investment here. Honda recently decided to build a new North American plant. It chose to build it in Canada. One of its stated reasons: our neighbor to the north's universal health care system.

JM - capitalism is a social construct. It had to be invented. It's just like feudalism and mercantilism and all the other ideas in economics. It has a natural life. it will be surpassed. What by I have no idea. But I would bet that during feudal times no-one foresaw capitalism.

JM - capitalism is a social construct. It had to be invented. It's just like feudalism and mercantilism and all the other ideas in economics. It has a natural life. it will be surpassed. What by I have no idea. But I would bet that during feudal times no-one foresaw capitalism.

goodfielder, thanks for the reply, but I respectfully disagree.

I see capitalism as a basic natural force dealing with resources and their value relative to demand. One might even subtract out the concept of resource. What made gold so valuable to the 15th century Western Europeans and less so to the Incas, Tulips to 17th century Dutchman, or women to sex starved sailors on shore leave?

Gold was valuable because it was perceived (and still is) as condensed wealth (potential goods and services); even more valuable if one is able to pluck it from streams or unsuspecting militarily inferior native populations sans any major effort. As for tulips, (if you don't know this story think 1929 stock market crash) this is mere speculation (think present day futures market). The example of sex starved sailors and women prostitutes is always touted as the oldest human contractual agreement. None of these requires a social construct.

Perhaps our differences come from perspective. Your view is Macroscopic, viewing large systems such as nations or large societies. Mine is Micro, I see capitalism in Black Markets, Middle Eastern Bazaars, and even in women searching for sexual partners given Darwinian mechanisms of genetic selection. But I could be wrong. Who am I to put words or concepts into your mouth/mind?

I see capitalism in human muscle atrophy! This demonstrates the human body's economy in the use of resources. If the muscle is not being used the body sees a better use for the use of incoming proteins and glucose, the latter gets stored for future use as glycogen (in the liver) and fat (in adipose tissue). As for protein, it is broken down and may be used for many things, including increased muscle mass, but if it is in surplus it is discounted with prejudice and excreted altogether, indeed muscles not in use will cause the body to divert their protein to other uses, including the generation of energy in time of famine, thus the muscle wasting so manifested in this condition. It's all basically economics.

Mine is not a Jeffersonian view of the inner goodness of man or overall hopefulness that "good" will prevail over "evil" (I don't believe in either of these concepts either). I do believe in Madison's and Hamilton's emphasis on the predictability of human nature: Look to the past to see how humans (and all free agents faced with such struggles) will behave in the future. Such pessimism allows us a rare opportunity to, not only predict the future, but also, given perceived human free agency, to mold and change it.

Respectfully,

JM

JM - always happy to disagree (or agree) respectfully. And an interesting response from you. Now I have to say up front I'm not an economist (me and numbers, well, many years ago we agreed that we weren't made for each other) so my response is intuitive and not from that background.

Are you implying that "capitalism" is another word for basic human urges? Now let me clarify that question (shameless use of a rhetorical flourish here).

For me capitalism is jut another way of organising an economy (albeit a very clever one). It's a way of meeting human needs and wants. But it's just part of a progression. Feudalism and mercantilism did the same thing - or so I would assert - but then Adam Smith came up with his Wealth of Nations in 1776 (I so like it when a can fit two important historical events in the one date, makes it easier for me to remember things) and pointed out a way of improving things. I suppose Smith was the first of the Continuous Improvement gurus in a manner of speaking.

I disagree that capitalism is natural. It's a social construct, as I said, just one way among many of meeting human needs and wants.