BY MARK PHELAN
DETROIT FREE PRESS COLUMNIST
December 5, 2008. This column by Free Press auto critic Mark Phelan originally was published on Nov. 17 and has been updated.
The debate over aid to the Detroit-based automakers is awash with half-truths and misrepresentations that are endlessly repeated by everyone from members of Congress to journalists. Here are seven myths about the companies and their vehicles, and the reality in each case.
Myth No. 1: Nobody buys their vehicles
Reality : General Motors Corp., Ford Motor Co. and Chrysler LLC sold 8.5 million vehicles in the United States last year and millions more around the world. GM outsold Toyota by about 1.2 million vehicles in the United States last year and holds a U.S. lead over Toyota of nearly 700,000 so far this year. Globally, GM in 2007 remained the world's largest automaker, selling 9,369,524 vehicles worldwide -- about 3,000 more than Toyota. Ford outsold Honda by about 850,000 and Nissan by more than 1.3 million vehicles in the United States last year. Chrysler sold more vehicles here than Nissan and Hyundai combined in 2007 and so far this year.
Myth No. 2: They build unreliable junk
Reality : The creaky, leaky vehicles of the 1980s and '90s are long gone. Consumer Reports recently found that "Ford's reliability is now on par with good Japanese automakers." The independent J.D. Power Initial Quality Study scored Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac and Lincoln brands' overall quality as high as or higher than that of Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagen and Volvo.
J.D. Power rated the Chevrolet Malibu the highest-quality midsize sedan. Both the Malibu and Ford Fusion scored better than the Honda Accord and Toyota Camry.
Myth No. 3: They build gas-guzzlers.
Reality : All of the Detroit Three build midsize sedans that the Environmental Protection Agency rates at 29-33 miles per gallon on the highway. The most fuel-efficient Chevrolet Malibu gets 33 m.p.g. on the highway, 2 m.p.g. better than the best Honda Accord. The most fuel-efficient Ford Focus has the same highway fuel economy ratings as the most efficient Toyota Corolla. The most fuel-efficient Chevrolet Cobalt has the same city fuel economy and better highway fuel economy than the most efficient non-hybrid Honda Civic. A recent study by Edmunds.com found that the Chevrolet Aveo subcompact is the least expensive car to buy and operate.
Myth No. 4: They already got a $25-billion bailout.
Reality : None of that money has been lent out and may not be for more than a year. In addition, it can, by law, be used only to invest in future vehicles and technology, so it has no effect on the shortage of operating cash the companies face because of the economic slowdown that's killing them now.
Myth No. 5: GM, Ford and Chrysler are idiots for investing in pickups and SUVs
Reality : The domestics' lineup has been truck-heavy, but Toyota, Nissan, Mercedes-Benz and BMW have spent billions of dollars on pickups and SUVs because trucks are a large and historically profitable part of the auto industry. The most fuel-efficient full-size pickups from GM, Ford and Chrysler all have higher EPA fuel-economy ratings than Toyota and Nissan's full-size pickups.
Myth No. 6: They don't build hybrids.
Reality : The Detroit Three got into the hybrid business late, but Ford and GM each now offers more hybrid models than Honda or Nissan, with several more due to hit the road in early 2009.
Myth No. 7: Their union workers are lazy and overpaid.
Reality : Chrysler tied Toyota as the most productive automaker in North America this year, according to the Harbour Report on manufacturing, which measures the amount of work done per employee. Eight of the 10 most productive vehicle assembly plants in North America belong to Chrysler, Ford or GM.
The oft-cited $70-an-hour wage and benefit figure for UAW workers inaccurately adds benefits that millions of retirees get to the pay of current workers, but divides the total only by current employees. That's like assuming you get your parents' retirement and Social Security benefits in addition to your own income.
Hourly pay for assembly line workers tops out around $28; benefits add about $14. New hires at the Detroit Three get $14 an hour. There's no pension or health care when they retire, but benefits raise their total hourly compensation to $29 while they're working. UAW wages are now comparable with Toyota workers, according to a Free Press analysis.
Contact MARK PHELAN at 313-222-6731 or phelan@freepress.com.
Monday, December 8
Automakers in Other Nations Get More Government Help
Requests for Aid made Worldwide.
BY BRENT SNAVELY and KATIE MERX •
DETROIT FREE PRESS BUSINESS WRITERS • December 8, 2008
Only in America are automotive companies being subjected to the disdain displayed by Congress and the country in recent weeks. Foreign governments generally provide broad support to their home-based auto companies, which employ thousands. In Europe, Japan and elsewhere, the governments usually provide health care coverage for workers, and in some cases, they even own a stake in their auto companies. So it's little surprise that automakers around the world are also poised to receive additional government assistance during these tough times.
"There is no way that France, Italy or Germany would let their auto industries disappear for lack of government help," said Paris-based veteran automotive journalist William Diem. "European countries are not afraid to invest in the industry."
In the United States, however, congressional leaders criticized domestic automakers and have engaged in furious debate over whether to provide the industry with $34 billion in loans to help it survive the worst industry conditions in 26 years. Experts say foreign countries don't shy away from directly funding their automotive companies.
"Other countries are totally different as to how they treat their auto industries," said George Magliano, director of automotive research for Americas at Global Insight.
Everyone needs help. While auto sales in the United States have been crushed to their lowest levels in 25 years -- hurting domestic and foreign sellers alike -- sales also are plummeting globally and are expected to get worse. In response, automotive companies around the world are asking for government assistance, either through direct funding or through tax or regulatory policy breaks.
"It is quite broad and widespread," said Stephen Collins, president of Automotive Trade Policy Council, whose Washington-based group represents the Detroit Three.
In Canada, GM, Ford and Chrysler are all seeking assistance. In Sweden, Volvo and Saab have asked for aid. General Motors' Opel division is asking for funds from Germany. Portugal and France have announced plans to craft aid packages for car and parts makers operating in their countries. Other companies seem situated to receive assistance if they need it from their government owners. Lower Saxony, a state in Germany, is a 20% shareholder of Volkswagen AG. France, meanwhile, owns about 15% of Renault SA. Even Chinese automakers are now asking for government aid to deal with the global credit crunch.
"I believe pragmatic Asian governments, faced with Detroit's current crisis, would have ... acted decisively to help the auto industry," Desmond C. Wong, president and chief executive officer of Sino Strategies Group LLC, a consultancy, said in an e-mail to the Free Press.
Boost for fuel efficiency. Foreign automakers also seem to get more assistance for research and development than domestic automakers. The European Automobile Manufacturers Association asked the European Union on Oct. 29 for 40 billion euros, about $50 billion, in a low-interest loan package "to help secure a sustainable market for current and newly developed fuel-efficient technologies."
Diem said that request was initially rejected, but is once again under consideration. The European Union also has set aside $6.3 billion of a $252-billion general economic stimulus package for the 27-country union to help European companies make cleaner cars. Mark Fulthorpe of CSM Worldwide predicts that if Congress does provide funding to the Detroit Three, the European automakers are likely to get some portion of the 40 billion they have asked for.
During testimony in front of the House Financial Services Committee on Friday, GM Chairman and Chief Executive Officer Rick Wagoner pointed out the advantages that Japanese automakers have had in the development of batteries for hybrid vehicles.
"It's not a coincidence that the leadership in battery technology today" is in South Korea and Japan, Wagoner said.
U.S. Sen. Debbie Stabenow, D-Mich., provided similar testimony last month during a Senate Banking Committee hearing.
"The reality is we have our companies competing against countries who pay for research, countries who pay for health care, countries that fight for their industry on trade agreements," Stabenow said.
Contact BRENT SNAVELY at 313-222-6512 or bsnavely@freepress.com.
BY BRENT SNAVELY and KATIE MERX •
DETROIT FREE PRESS BUSINESS WRITERS • December 8, 2008
Only in America are automotive companies being subjected to the disdain displayed by Congress and the country in recent weeks. Foreign governments generally provide broad support to their home-based auto companies, which employ thousands. In Europe, Japan and elsewhere, the governments usually provide health care coverage for workers, and in some cases, they even own a stake in their auto companies. So it's little surprise that automakers around the world are also poised to receive additional government assistance during these tough times.
"There is no way that France, Italy or Germany would let their auto industries disappear for lack of government help," said Paris-based veteran automotive journalist William Diem. "European countries are not afraid to invest in the industry."
In the United States, however, congressional leaders criticized domestic automakers and have engaged in furious debate over whether to provide the industry with $34 billion in loans to help it survive the worst industry conditions in 26 years. Experts say foreign countries don't shy away from directly funding their automotive companies.
"Other countries are totally different as to how they treat their auto industries," said George Magliano, director of automotive research for Americas at Global Insight.
Everyone needs help. While auto sales in the United States have been crushed to their lowest levels in 25 years -- hurting domestic and foreign sellers alike -- sales also are plummeting globally and are expected to get worse. In response, automotive companies around the world are asking for government assistance, either through direct funding or through tax or regulatory policy breaks.
"It is quite broad and widespread," said Stephen Collins, president of Automotive Trade Policy Council, whose Washington-based group represents the Detroit Three.
In Canada, GM, Ford and Chrysler are all seeking assistance. In Sweden, Volvo and Saab have asked for aid. General Motors' Opel division is asking for funds from Germany. Portugal and France have announced plans to craft aid packages for car and parts makers operating in their countries. Other companies seem situated to receive assistance if they need it from their government owners. Lower Saxony, a state in Germany, is a 20% shareholder of Volkswagen AG. France, meanwhile, owns about 15% of Renault SA. Even Chinese automakers are now asking for government aid to deal with the global credit crunch.
"I believe pragmatic Asian governments, faced with Detroit's current crisis, would have ... acted decisively to help the auto industry," Desmond C. Wong, president and chief executive officer of Sino Strategies Group LLC, a consultancy, said in an e-mail to the Free Press.
Boost for fuel efficiency. Foreign automakers also seem to get more assistance for research and development than domestic automakers. The European Automobile Manufacturers Association asked the European Union on Oct. 29 for 40 billion euros, about $50 billion, in a low-interest loan package "to help secure a sustainable market for current and newly developed fuel-efficient technologies."
Diem said that request was initially rejected, but is once again under consideration. The European Union also has set aside $6.3 billion of a $252-billion general economic stimulus package for the 27-country union to help European companies make cleaner cars. Mark Fulthorpe of CSM Worldwide predicts that if Congress does provide funding to the Detroit Three, the European automakers are likely to get some portion of the 40 billion they have asked for.
During testimony in front of the House Financial Services Committee on Friday, GM Chairman and Chief Executive Officer Rick Wagoner pointed out the advantages that Japanese automakers have had in the development of batteries for hybrid vehicles.
"It's not a coincidence that the leadership in battery technology today" is in South Korea and Japan, Wagoner said.
U.S. Sen. Debbie Stabenow, D-Mich., provided similar testimony last month during a Senate Banking Committee hearing.
"The reality is we have our companies competing against countries who pay for research, countries who pay for health care, countries that fight for their industry on trade agreements," Stabenow said.
Contact BRENT SNAVELY at 313-222-6512 or bsnavely@freepress.com.
Tuesday, December 2
Debunking the Myth of the $70-per-hour Autoworker
Jonathan Cohn
Nov. 21, 2008
If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour. That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with auto workers making so much, why should taxpayers--many of whom make far less--finance a plan to bail them out?
Well, here's one reason: The figure is wildly misleading.
Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automotive Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.
More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.
So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.
But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.
Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just "not true."
Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.
The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.
To be sure, we've known about these demographics for a while. Management and labor in Detroit should have figured out a solution it long ago. But while the Big Three were late in addressing this problem, they did address it eventually.
Notice how, in this article, I've constantly referred to 2007 figures? There's a good reason. In 2007, the Big Three signed a breakthrough contract with the United Auto Workers (UAW) designed, once and for all, to eliminate the compensation gap between domestic and foreign automakers in the U.S.
The agreement sought to do so, first, by creating a private trust for financing future retiree benefits--effectively removing that burden from the companies' books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.
In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.
One can debate the propriety and wisdom of these steps; two-tiered wage structures, in particular, raise various ethical concerns. But one thing is certain: It was a radical change that promised to make Detroit far more competitive. If carried out as planned, by 2010--the final year of this existing contract--total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory. The only problem is that it will be several years before these gains show up on the bottom line--years the industry probably won't have if it doesn't get financial assistance from the government.
Make no mistake: The argument over a proposed rescue package is complicated, in no small part because over the years both management and labor made some truly awful decisions while postponing the inevitable reckoning with economic reality. And even if the government does provide money, it's a tough call whether restructuring should proceed with or without a formal bankruptcy filing. Either way, yet more downsizing is inevitable.
But the next time you hear somebody say the unions have to make serious salary and benefit concessions, keep in mind that they already have--enough to keep the companies competitive, if only they can survive this crisis.
Jonathan Cohn is a senior editor at The New Republic.
Jonathan Cohn
Nov. 21, 2008
If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour. That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with auto workers making so much, why should taxpayers--many of whom make far less--finance a plan to bail them out?
Well, here's one reason: The figure is wildly misleading.
Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automotive Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.
More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.
So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.
But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.
Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just "not true."
Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.
The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.
To be sure, we've known about these demographics for a while. Management and labor in Detroit should have figured out a solution it long ago. But while the Big Three were late in addressing this problem, they did address it eventually.
Notice how, in this article, I've constantly referred to 2007 figures? There's a good reason. In 2007, the Big Three signed a breakthrough contract with the United Auto Workers (UAW) designed, once and for all, to eliminate the compensation gap between domestic and foreign automakers in the U.S.
The agreement sought to do so, first, by creating a private trust for financing future retiree benefits--effectively removing that burden from the companies' books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.
In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.
One can debate the propriety and wisdom of these steps; two-tiered wage structures, in particular, raise various ethical concerns. But one thing is certain: It was a radical change that promised to make Detroit far more competitive. If carried out as planned, by 2010--the final year of this existing contract--total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory. The only problem is that it will be several years before these gains show up on the bottom line--years the industry probably won't have if it doesn't get financial assistance from the government.
Make no mistake: The argument over a proposed rescue package is complicated, in no small part because over the years both management and labor made some truly awful decisions while postponing the inevitable reckoning with economic reality. And even if the government does provide money, it's a tough call whether restructuring should proceed with or without a formal bankruptcy filing. Either way, yet more downsizing is inevitable.
But the next time you hear somebody say the unions have to make serious salary and benefit concessions, keep in mind that they already have--enough to keep the companies competitive, if only they can survive this crisis.
Jonathan Cohn is a senior editor at The New Republic.
Ford, Chrysler and GM's Contributions after 9/11
CNN Headline News did a short news listing regarding Ford, Chrysler, and GM's contributions to the relief and recovery efforts in New York and Washington after the Sept 11, 2001 Terrorist attack.
The findings are as follows.....
1. Ford- $10 million to the American Red Cross matching employee contributions of the same number, plus 10 Ford Excursions to the NY Fire Dept. The company also offered ER response team services and office space to displaced government employees.
2. GM- $10 million to the American Red Cross matching employee contributions of the same number and a fleet of vans, suv's, and trucks.
3. Daimler Chrysler- $10 million to support the children and victims of the Sept. 11 attack.
4. Harley Davidson motorcycles- $1 million and 30 new motorcycles to the N Y Police Dept.
5. Volkswagen-Employees and management created a Sept 11 Foundation, funded initiallly with $2 million, for the assistance of the children and victims of the World Trade Center.
6. Hyundai- $300,000 to the American Red Cross.
7. Audi-Nothing.
8. BMW-Nothing.
9. Daewoo- Nothing.
10. Fiat-Nothing.
11. Honda- Nothing despite boasting of second best sales month ever in
August 2001
12. Isuzu- Nothing.
13. Mitsubishi-Nothing.
14. Nissan-Nothing.
15. Porsche-Nothing. Press release with condolences via the Porsche website.
16. Subaru- Nothing.
17. Suzuki- Nothing.
18. Toyota-Nothing, despite claims of high sales in July and August 2001. Condolences posted on their website.
The findings are as follows.....
1. Ford- $10 million to the American Red Cross matching employee contributions of the same number, plus 10 Ford Excursions to the NY Fire Dept. The company also offered ER response team services and office space to displaced government employees.
2. GM- $10 million to the American Red Cross matching employee contributions of the same number and a fleet of vans, suv's, and trucks.
3. Daimler Chrysler- $10 million to support the children and victims of the Sept. 11 attack.
4. Harley Davidson motorcycles- $1 million and 30 new motorcycles to the N Y Police Dept.
5. Volkswagen-Employees and management created a Sept 11 Foundation, funded initiallly with $2 million, for the assistance of the children and victims of the World Trade Center.
6. Hyundai- $300,000 to the American Red Cross.
7. Audi-Nothing.
8. BMW-Nothing.
9. Daewoo- Nothing.
10. Fiat-Nothing.
11. Honda- Nothing despite boasting of second best sales month ever in
August 2001
12. Isuzu- Nothing.
13. Mitsubishi-Nothing.
14. Nissan-Nothing.
15. Porsche-Nothing. Press release with condolences via the Porsche website.
16. Subaru- Nothing.
17. Suzuki- Nothing.
18. Toyota-Nothing, despite claims of high sales in July and August 2001. Condolences posted on their website.
General Motors Fact and Fiction
Common myths about General Motors, and the actual truth.
More facts can be found at http://gmfactsandfiction.com
Myth : With the largest workforce in the auto industry, General Motors has far too many people working for it.
Fact : GM has cut its payroll drastically, by 45.8 percent in the U.S. alone since 2000. In fact, GM is far from the largest employer in the industry. With 252,000 employees worldwide, GM ranks fifth overall behind Volkswagen (373,400 employees,) Renault/Nissan (316,121 employees,) Toyota (316,121 employees) and Daimler (272,382 employees). Yet GM sold more vehicles worldwide last year than any other automaker. November 18, 2008
Myth : GM doesn’t make cars that people want to buy
Fact : 9.3 million people worldwide bought GM vehicles last year.
That’s more vehicles than any other automaker in the world sold. And in the U.S., which is the world’s largest market, GM sold more vehicles than any other manufacturer in 2007, and it has sold more than any other automaker to date in 2008.
In 2008, the Chevy Malibu was named North American Car of the Year, and the Cadillac CTS was Motor Trend’s 2008 Car of the Year. In 2007, the Saturn Aura and Chevy Silverado won North American Car and Truck of the year. Those awards are given and judged by automotive journalists.
Customers have responded just as enthusiastically as the critics. Although total U.S. vehicle sales are down almost 15% so far this year (through October), a number of GM cars and crossovers have enjoyed significant sales increases:
Chevy Malibu +39%
Pontiac Vibe +36%
Pontiac G6 + 4%
Cadillac CTS +15%
Saturn Aura +7%
GMC Acadia +2%
Buick Enclave +88% October 1, 2008
Myth : GM is not actively pursuing energy saving technologies
Fact : GM sells cars and trucks in every major market in the world, and it is clear to us that oil alone cannot fuel the world’s rapidly growing vehicle fleet. That’s why GM is aggressively pursuing a broad range of advanced propulsion technologies.
These include:
Improved internal combustion powertrains, which can squeeze more miles from each gallon of gasoline or diesel;
Flex-fuel vehicles and investments in advanced biofuels;
An expanding fleet of hybrid vehicles — nine hybrid models by mid-2009;
Electrically-driven vehicles like the Chevy Volt, which is scheduled to go into production in 2010;
Advanced fuel cell vehicles, which are currently undergoing fleet tests.
There is no one-size-fits-all answer. Different countries and different customers will require different solutions. We are committed to being a global leader in providing these solutions. GM Chairman and CEO Rick Wagoner outlined this strategy at the 2006 Los Angeles Auto show. September 10, 2008
More facts can be found at http://gmfactsandfiction.com
Myth : With the largest workforce in the auto industry, General Motors has far too many people working for it.
Fact : GM has cut its payroll drastically, by 45.8 percent in the U.S. alone since 2000. In fact, GM is far from the largest employer in the industry. With 252,000 employees worldwide, GM ranks fifth overall behind Volkswagen (373,400 employees,) Renault/Nissan (316,121 employees,) Toyota (316,121 employees) and Daimler (272,382 employees). Yet GM sold more vehicles worldwide last year than any other automaker. November 18, 2008
Myth : GM doesn’t make cars that people want to buy
Fact : 9.3 million people worldwide bought GM vehicles last year.
That’s more vehicles than any other automaker in the world sold. And in the U.S., which is the world’s largest market, GM sold more vehicles than any other manufacturer in 2007, and it has sold more than any other automaker to date in 2008.
In 2008, the Chevy Malibu was named North American Car of the Year, and the Cadillac CTS was Motor Trend’s 2008 Car of the Year. In 2007, the Saturn Aura and Chevy Silverado won North American Car and Truck of the year. Those awards are given and judged by automotive journalists.
Customers have responded just as enthusiastically as the critics. Although total U.S. vehicle sales are down almost 15% so far this year (through October), a number of GM cars and crossovers have enjoyed significant sales increases:
Chevy Malibu +39%
Pontiac Vibe +36%
Pontiac G6 + 4%
Cadillac CTS +15%
Saturn Aura +7%
GMC Acadia +2%
Buick Enclave +88% October 1, 2008
Myth : GM is not actively pursuing energy saving technologies
Fact : GM sells cars and trucks in every major market in the world, and it is clear to us that oil alone cannot fuel the world’s rapidly growing vehicle fleet. That’s why GM is aggressively pursuing a broad range of advanced propulsion technologies.
These include:
Improved internal combustion powertrains, which can squeeze more miles from each gallon of gasoline or diesel;
Flex-fuel vehicles and investments in advanced biofuels;
An expanding fleet of hybrid vehicles — nine hybrid models by mid-2009;
Electrically-driven vehicles like the Chevy Volt, which is scheduled to go into production in 2010;
Advanced fuel cell vehicles, which are currently undergoing fleet tests.
There is no one-size-fits-all answer. Different countries and different customers will require different solutions. We are committed to being a global leader in providing these solutions. GM Chairman and CEO Rick Wagoner outlined this strategy at the 2006 Los Angeles Auto show. September 10, 2008
Some Ideas for the Auto Industry Loan
Emil Bandriwsky
December 1, 2008
Chrysler should file a pre-packaged Chapter 11 bankruptcy. The US Government should then provide, or guarantee, $10 billion of Debtor in Posession Financing, and guide a merger of Chrysler into General Motors. A successful merger could reportedly reduce combined structural costs by $5 billion per year. Naturally, the combined company would have to close facilities, close dealerships, and reduce employees. Unfortunately, this is inevitable in almost any scenario. There is simply too much overcapacity in the US auto industry, where total annual sales may drop from 17,000,000 units to as low as 11,000,000 for the next few years. This merger and downsizing could be done in a controlled way over a few years, and would “take care of the Chrysler problem”, which has been passed around like an unwanted orphan for the past decade, and which is almost certainly too weak to stand as an independent company for much longer.
Tomorrow, the UAW leadership will meet in Detroit to discuss further concessions, in addition to the “landmark contract of 2007”, which the Detroit 3 and the UAW claim will make American automakers competitive with the transplants by 2010. Features include shedding the retiree health care obligations, and introducing a 2-tier pay scale, with new hires starting in the $14/hour range, and only a self-funded pension (401k etc). All parties are under pressure to hammer out a contract that more quickly models the pay and benefits package of the foreign transplants in the Southern US, or even the terms of the Delphi bankruptcy.
Some obvious concessions from the UAW are :
· The infamous Jobs Bank will be eliminated. There are still over 3,000 layed off autoworkers, receiving near full pay, for an indefinate period of time; possibly for years until retirement.
· Work rules need to be modernized. The creation of artificial Job Classifications greatly contributes to overstaffing and inefficiency.
· Seniority can no longer be the primary determinant for job assignments. Certainly there are whole departments that could save huge amounts of money by assigning work based on performance, and not on seniority.
· Health care needs to be more in line with what salaried employees receive, which include an annual deductible of over $2,000.
· There are dozens or hundreds of small changes that can save the struggling automakers millions of dollars when added together. For example, all GM salaried employees went to mandatory electronic deposit of paychecks years ago, but UAW members can still request a paper check which must be printed, handled and sent by Federal Express to dozens of facilities around the country every single week.
· In exchange for further concessions the hourly workers can receive either some ownership, or an expanded profit sharing plan.
· Expand the use of temporary workers, which are widely used in the US transplants, and even in the paternalistic domestic Japanese auto industry.
Some other ideas :
· The federal TARP financial bailout should also recapitalize the auto lenders, GMAC and Ford Credit. The disappearance of credit has been devastating to auto sales, where 60% of new cars purchased require financing.
· A tax credit of $1,500 for all US military veterans who purchase a vehicle from the Detroit 3.
· An immediate nationwide moratorium on taxpayer funded inducements to foreign owned automakers. Historically, hundreds of millions of dollars were thrown at Japanese, German, and Korean automakers in the southern US for the purpose of “creating”jobs, but in reality all it did was transfer jobs from one state to another, and send the high value engineering work out of the USA permanently. Each transplant job costs 6 domestic auto industry jobs.
· The government should not set unrealistic “Green Goals” and attempt to design or specify what types of vehicles to build. This is a market function. Reportedly , the Toyota Prius, the largest selling hybrid, with over 1 million units sold in the past 10 years is still a money loser for Toyota. We don’t need the US government to mandate money losing vehicles for the US automakers.
External Variables :
· The largest factors affecting the health of the US auto industry are the overall economy, and the availablility of credit, since 60% of new cars purchased require financing.
· The current sad condition of the once dominant American auto industry has triggered a national debate on the issues of : labor unions effects on company competitiveness, guaranteed employer pensions versus self-funded 401k etc., and the cost of health care. General Motors is the world’s largest purchaser of private health insurance; spending about $5 billion a year, and has a $1,000 per vehicle cost disadvantage compared to vehicles built in coutries with nationalized health insuarance. The US is the only major industrialized nation without national health insurance, and this puts every American manufacturer, not just auto makers, at a major cost disadvantage. It is time for a national dialogue on major health care reform.
December 1, 2008
Chrysler should file a pre-packaged Chapter 11 bankruptcy. The US Government should then provide, or guarantee, $10 billion of Debtor in Posession Financing, and guide a merger of Chrysler into General Motors. A successful merger could reportedly reduce combined structural costs by $5 billion per year. Naturally, the combined company would have to close facilities, close dealerships, and reduce employees. Unfortunately, this is inevitable in almost any scenario. There is simply too much overcapacity in the US auto industry, where total annual sales may drop from 17,000,000 units to as low as 11,000,000 for the next few years. This merger and downsizing could be done in a controlled way over a few years, and would “take care of the Chrysler problem”, which has been passed around like an unwanted orphan for the past decade, and which is almost certainly too weak to stand as an independent company for much longer.
Tomorrow, the UAW leadership will meet in Detroit to discuss further concessions, in addition to the “landmark contract of 2007”, which the Detroit 3 and the UAW claim will make American automakers competitive with the transplants by 2010. Features include shedding the retiree health care obligations, and introducing a 2-tier pay scale, with new hires starting in the $14/hour range, and only a self-funded pension (401k etc). All parties are under pressure to hammer out a contract that more quickly models the pay and benefits package of the foreign transplants in the Southern US, or even the terms of the Delphi bankruptcy.
Some obvious concessions from the UAW are :
· The infamous Jobs Bank will be eliminated. There are still over 3,000 layed off autoworkers, receiving near full pay, for an indefinate period of time; possibly for years until retirement.
· Work rules need to be modernized. The creation of artificial Job Classifications greatly contributes to overstaffing and inefficiency.
· Seniority can no longer be the primary determinant for job assignments. Certainly there are whole departments that could save huge amounts of money by assigning work based on performance, and not on seniority.
· Health care needs to be more in line with what salaried employees receive, which include an annual deductible of over $2,000.
· There are dozens or hundreds of small changes that can save the struggling automakers millions of dollars when added together. For example, all GM salaried employees went to mandatory electronic deposit of paychecks years ago, but UAW members can still request a paper check which must be printed, handled and sent by Federal Express to dozens of facilities around the country every single week.
· In exchange for further concessions the hourly workers can receive either some ownership, or an expanded profit sharing plan.
· Expand the use of temporary workers, which are widely used in the US transplants, and even in the paternalistic domestic Japanese auto industry.
Some other ideas :
· The federal TARP financial bailout should also recapitalize the auto lenders, GMAC and Ford Credit. The disappearance of credit has been devastating to auto sales, where 60% of new cars purchased require financing.
· A tax credit of $1,500 for all US military veterans who purchase a vehicle from the Detroit 3.
· An immediate nationwide moratorium on taxpayer funded inducements to foreign owned automakers. Historically, hundreds of millions of dollars were thrown at Japanese, German, and Korean automakers in the southern US for the purpose of “creating”jobs, but in reality all it did was transfer jobs from one state to another, and send the high value engineering work out of the USA permanently. Each transplant job costs 6 domestic auto industry jobs.
· The government should not set unrealistic “Green Goals” and attempt to design or specify what types of vehicles to build. This is a market function. Reportedly , the Toyota Prius, the largest selling hybrid, with over 1 million units sold in the past 10 years is still a money loser for Toyota. We don’t need the US government to mandate money losing vehicles for the US automakers.
External Variables :
· The largest factors affecting the health of the US auto industry are the overall economy, and the availablility of credit, since 60% of new cars purchased require financing.
· The current sad condition of the once dominant American auto industry has triggered a national debate on the issues of : labor unions effects on company competitiveness, guaranteed employer pensions versus self-funded 401k etc., and the cost of health care. General Motors is the world’s largest purchaser of private health insurance; spending about $5 billion a year, and has a $1,000 per vehicle cost disadvantage compared to vehicles built in coutries with nationalized health insuarance. The US is the only major industrialized nation without national health insurance, and this puts every American manufacturer, not just auto makers, at a major cost disadvantage. It is time for a national dialogue on major health care reform.
Sunday, November 30
Mitch Albom - If I had the Floor at the Auto Rescue Talks
MITCH ALBOM
If I had the Floor at the Auto Rescue Talks
BY MITCH ALBOM • FREE PRESS COLUMNIST • November 23, 2008
OK. It's a fantasy. But if I had five minutes in front of Congress last week, here's what I would've said:
Good morning. First of all, before you ask, I flew commercial. Northwest Airlines. Had a bag of peanuts for breakfast. Of course, that's Northwest, which just merged with Delta, a merger you, our government, approved -- and one which, inevitably, will lead to big bonuses for their executives and higher costs for us. You seem to be OK with that kind of business.
Which makes me wonder why you're so against our kind of business? The kind we do in Detroit. The kind that gets your fingernails dirty. The kind where people use hammers and drills, not keystrokes. The kind where you get paid for making something, not moving money around a board and skimming a percentage.
You've already given hundreds of billions to banking and finance companies -- and hardly demanded anything. Yet you balk at the very idea of giving $25 billion to the Detroit Three. Heck, you shoveled that exact amount to Citigroup -- $25 billion -- just weeks ago, and that place is about to crumble anyhow.
Does the word "hypocrisy" ring a bell?
Protecting the home turf?
Sen. Shelby. Yes. You. From Alabama. You've been awfully vocal. You called the Detroit Three's leaders "failures." You said loans to them would be "wasted money." You said they should go bankrupt and "let the market work."
Why weren't you equally vocal when your state handed out hundreds of millions in tax breaks to Mercedes-Benz, Hyundai, Honda and others to open plants there? Why not "let the market work"? Or is it better for Alabama if the Detroit Three fold so that the foreign companies -- in your state -- can produce more?
Way to think of the nation first, senator.
And you, Sen. Kyl of Arizona. You told reporters: "There's no reason to throw money at a problem that's not going to get solved."
That's funny, coming from such an avid supporter of the Iraq war. You've been gung ho on that for years. So how could you just sit there when, according to the New York Times, an Iraqi former chief investigator told Congress that $13 billion in U.S. reconstruction funds "had been lost to fraud, embezzlement, theft and waste" by the Iraqi government?
That's 13 billion, senator. More than half of what the auto industry is asking for. Thirteen billion? Gone? Wasted?
Where was your "throwing money at a problem that's not going to get solved" speech then?
Watching over the bankers?
And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You've already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They're paying workers too much and selling cars for too little.
AIG lost hundred of billions in credit default swaps -- which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.
And you don't demand a paragraph from it?
Look. Nobody is saying the auto business is healthy. Its unions need to adjust more. Its models and dealerships need to shrink. Its top executives have to downsize their own importance.
But this is a business that has been around for more than a century. And some of its problems are because of that, because people get used to certain wages, manufacturers get used to certain business models. It's easy to point to foreign carmakers with tax breaks, no union costs and a cleaner slate -- not to mention help from their home countries -- and say "be more like them."
But if you let us die, you let our national spine collapse. America can't be a country of lawyers and financial analysts. We have to manufacture. We need that infrastructure. We need those jobs. We need that security. Have you forgotten who built equipment during the world wars?
Besides, let's be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who's better than Congress?
So who are you to lecture anyone on how to run a business?
Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don't kick our tires to make yourselves look better.
Contact MITCH ALBOM at 313-223-4581 or malbom@freepress.com. Catch "The Mitch Albom Show" 5-7 p.m. weekdays on WJR-AM (760).
Click here if you would like to comment on Mitch Albom's columns.
If I had the Floor at the Auto Rescue Talks
BY MITCH ALBOM • FREE PRESS COLUMNIST • November 23, 2008
OK. It's a fantasy. But if I had five minutes in front of Congress last week, here's what I would've said:
Good morning. First of all, before you ask, I flew commercial. Northwest Airlines. Had a bag of peanuts for breakfast. Of course, that's Northwest, which just merged with Delta, a merger you, our government, approved -- and one which, inevitably, will lead to big bonuses for their executives and higher costs for us. You seem to be OK with that kind of business.
Which makes me wonder why you're so against our kind of business? The kind we do in Detroit. The kind that gets your fingernails dirty. The kind where people use hammers and drills, not keystrokes. The kind where you get paid for making something, not moving money around a board and skimming a percentage.
You've already given hundreds of billions to banking and finance companies -- and hardly demanded anything. Yet you balk at the very idea of giving $25 billion to the Detroit Three. Heck, you shoveled that exact amount to Citigroup -- $25 billion -- just weeks ago, and that place is about to crumble anyhow.
Does the word "hypocrisy" ring a bell?
Protecting the home turf?
Sen. Shelby. Yes. You. From Alabama. You've been awfully vocal. You called the Detroit Three's leaders "failures." You said loans to them would be "wasted money." You said they should go bankrupt and "let the market work."
Why weren't you equally vocal when your state handed out hundreds of millions in tax breaks to Mercedes-Benz, Hyundai, Honda and others to open plants there? Why not "let the market work"? Or is it better for Alabama if the Detroit Three fold so that the foreign companies -- in your state -- can produce more?
Way to think of the nation first, senator.
And you, Sen. Kyl of Arizona. You told reporters: "There's no reason to throw money at a problem that's not going to get solved."
That's funny, coming from such an avid supporter of the Iraq war. You've been gung ho on that for years. So how could you just sit there when, according to the New York Times, an Iraqi former chief investigator told Congress that $13 billion in U.S. reconstruction funds "had been lost to fraud, embezzlement, theft and waste" by the Iraqi government?
That's 13 billion, senator. More than half of what the auto industry is asking for. Thirteen billion? Gone? Wasted?
Where was your "throwing money at a problem that's not going to get solved" speech then?
Watching over the bankers?
And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You've already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They're paying workers too much and selling cars for too little.
AIG lost hundred of billions in credit default swaps -- which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.
And you don't demand a paragraph from it?
Look. Nobody is saying the auto business is healthy. Its unions need to adjust more. Its models and dealerships need to shrink. Its top executives have to downsize their own importance.
But this is a business that has been around for more than a century. And some of its problems are because of that, because people get used to certain wages, manufacturers get used to certain business models. It's easy to point to foreign carmakers with tax breaks, no union costs and a cleaner slate -- not to mention help from their home countries -- and say "be more like them."
But if you let us die, you let our national spine collapse. America can't be a country of lawyers and financial analysts. We have to manufacture. We need that infrastructure. We need those jobs. We need that security. Have you forgotten who built equipment during the world wars?
Besides, let's be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who's better than Congress?
So who are you to lecture anyone on how to run a business?
Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don't kick our tires to make yourselves look better.
Contact MITCH ALBOM at 313-223-4581 or malbom@freepress.com. Catch "The Mitch Albom Show" 5-7 p.m. weekdays on WJR-AM (760).
Click here if you would like to comment on Mitch Albom's columns.
Wednesday, November 19
How to Bail Out General Motors - Robert Samuelson
How to Bail Out General Motors
Imposing tough conditions would improve the odds of success and discourage many other firms from seeking costly government handouts.
Robert J. Samuelson
NEWSWEEK
From the magazine issue dated Nov 24, 2008
So it's come to this: General Motors, once the world's mightiest industrial enterprise, is now flirting with bankruptcy. Ford and Chrysler may not be far behind. Car and truck sales have collapsed. GM is rapidly exhausting its cash reserves and may soon be unable to pay its bills. Here's the dilemma: GM and other U.S. automakers ought to be rescued to minimize damage to the economy, but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration seems willing to support.
In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate. Confidence among small businesses has dropped to a 28-year low, according to a survey released last week by the National Federation of Independent Business.
No one knows what further havoc a GM bankruptcy might inflict. A study by the Center for Automotive Research (CAR) estimates that 2.5 million jobs would be lost in the first year. The logic: if any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer crippling parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."
This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans and these might not be available. "Historically, when companies go bankrupt, there's 'debtor in possession' financing—investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank. No loans, no production. Another possible pitfall: worried about warranties and service, customers might shun a bankrupt GM's vehicles.
Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent and almost a quarter of the 10 million jobless have been out of work for six months or longer? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The objective is not to rescue the companies or workers; it is to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen.
First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. Economist McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened and its rendezvous with bankruptcy would merely be delayed. Already, shareholders are essentially wiped out.
Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation—wage plus fringe benefits—totaled $71 in 2007 compared with Toyota's $47. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. These costs contributed to GM's massive cash drain, $31 billion since 2005. But the United Auto Workers opposes making concessions. Just the opposite. Government aid, says UAW president Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than union welfare.
Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences—to and from SUVs.
In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process—so far—resists that desirable bargain. The conditions that Democrats seem to be discussing are mostly rhetorical gestures against high executive compensation (already limited) and in favor of more fuel efficiency (already legislated). The lame-duck Bush administration hasn't helped the conversation. It rejects additional assistance without saying why; if aid is forthcoming, it doesn't suggest what might be useful conditions.
We are now seeing the first political side effects of the open-ended $700 billion rescue of financial institutions. With so much money going to so many recipients, boundaries and rationales need to be established. When is public intervention justified? Who deserves support and why? Otherwise, political firepower will increasingly rule. The reason for imposing tough conditions on the auto industry is not only to improve the odds of success, but also—by the sacrifices required—to make the process sufficiently unpleasant so that countless other companies and unions won't demand similar handouts. In 1979, when it rescued Chrysler from bankruptcy, the Carter administration insisted on concessions from management, investors and labor. We should do as much or more.
URL: http://www.newsweek.com/id/169162
© 2008
Imposing tough conditions would improve the odds of success and discourage many other firms from seeking costly government handouts.
Robert J. Samuelson
NEWSWEEK
From the magazine issue dated Nov 24, 2008
So it's come to this: General Motors, once the world's mightiest industrial enterprise, is now flirting with bankruptcy. Ford and Chrysler may not be far behind. Car and truck sales have collapsed. GM is rapidly exhausting its cash reserves and may soon be unable to pay its bills. Here's the dilemma: GM and other U.S. automakers ought to be rescued to minimize damage to the economy, but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration seems willing to support.
In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate. Confidence among small businesses has dropped to a 28-year low, according to a survey released last week by the National Federation of Independent Business.
No one knows what further havoc a GM bankruptcy might inflict. A study by the Center for Automotive Research (CAR) estimates that 2.5 million jobs would be lost in the first year. The logic: if any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer crippling parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."
This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans and these might not be available. "Historically, when companies go bankrupt, there's 'debtor in possession' financing—investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank. No loans, no production. Another possible pitfall: worried about warranties and service, customers might shun a bankrupt GM's vehicles.
Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent and almost a quarter of the 10 million jobless have been out of work for six months or longer? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The objective is not to rescue the companies or workers; it is to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen.
First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. Economist McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened and its rendezvous with bankruptcy would merely be delayed. Already, shareholders are essentially wiped out.
Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation—wage plus fringe benefits—totaled $71 in 2007 compared with Toyota's $47. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. These costs contributed to GM's massive cash drain, $31 billion since 2005. But the United Auto Workers opposes making concessions. Just the opposite. Government aid, says UAW president Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than union welfare.
Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences—to and from SUVs.
In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process—so far—resists that desirable bargain. The conditions that Democrats seem to be discussing are mostly rhetorical gestures against high executive compensation (already limited) and in favor of more fuel efficiency (already legislated). The lame-duck Bush administration hasn't helped the conversation. It rejects additional assistance without saying why; if aid is forthcoming, it doesn't suggest what might be useful conditions.
We are now seeing the first political side effects of the open-ended $700 billion rescue of financial institutions. With so much money going to so many recipients, boundaries and rationales need to be established. When is public intervention justified? Who deserves support and why? Otherwise, political firepower will increasingly rule. The reason for imposing tough conditions on the auto industry is not only to improve the odds of success, but also—by the sacrifices required—to make the process sufficiently unpleasant so that countless other companies and unions won't demand similar handouts. In 1979, when it rescued Chrysler from bankruptcy, the Carter administration insisted on concessions from management, investors and labor. We should do as much or more.
URL: http://www.newsweek.com/id/169162
© 2008
Tuesday, November 18
Interview with Alan Mullally, Ford CEO, 11/18/2008
Interview with Alan Mullally, Ford Motor CEO, the morning before testifying before Congress on Loan to Automakers 11/18/2008.
http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=10725406
http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=10725406
Monday, November 17
10 Reasons to Support U.S. Auto Industry Loan
Emil Bandriwsky
November 20, 2008
General Motors, Ford, and Chrysler have made plenty of mistakes, but there are at least 10 good reasons why the American taxpayers should extend an emergency loan to our Big 3 Automakers. This is not about saving a few companies, and a few jobs; it is about saving an entire American industry, making an investment in America’s common future, and preventing a slide into a full economic depression.
1. The American auto industry has been practicing self help on the way toward regaining long term sustainability. General Motors was in the midst of historic cost cutting when events of this year overwhelmed our entire economy. Since 2005, GM has reduced structural costs in North America by over $9 billion. The latest UAW contract, signed in the fall of 2007, should show savings of about $6 billion a year starting in 2010, by reducing legacy costs associated with pensions and retiree health care. Between 2000 and mid-2008 the salaried workforce was reduced from 44,000 to 32,000, and the hourly workforce from 132,000 to 64,000. Other savings methods were implemented including reducing salaried employment costs by 30%, eliminating raises and discretionary bonuses for executives and suspending 401k match for salaried employees. All of this was done while GM and Ford have virtually eliminated the perceived quality gap with Japanese carmakers.
2. The current crisis is not primarily the fault of America’s Big 3. When gasoline prices doubled earlier this year the sales of trucks and SUVs plummeted. American automakers currently rely on this segment because spiraling legacy costs have virtually squeezed any profit out of the small car segment. America’s carmakers will be cost competitive in the small car segment by 2010, when major benefits from the last GM-UAW contract are realized. About 60% of new cars purchased in the US require financing, and GM’s sales in October 2008 were down over 45% compared to a year earlier. In this instance, the American automakers are victims of the financial meltdown of 2008 and the overnight disappearance of banks willing and able to lend money to car buyers.
3. The American auto industry is a national asset, and we all share some ownership. By now we know that America’s Big 3 are not “too big to fail.” They are also too important for us to allow them to fail. Almost 4% of US Gross Domestic product is auto-related and represents 10% of US industrial production by value. One out of every 10 US jobs is auto-related, with auto workers receiving $335 billion annually in compensation. The auto industry purchased $156 billion in US parts, materials and supplies, supporting jobs in all 50 states. The companies provide benefits for 775,000 retirees and surviving spouses, and provide health care benefits for 2 million Americans.
4. It is a good business decision, because it will definitely be cheaper to loan $50 billion to the American car makers, than to suffer with the monumental cost of bankruptcy, including the loss of up to 3 million jobs, and the Federal Government assuming hundreds of billions of dollars in pension and health care liabilities. Bankruptcy by any of the American auto companies would pull the entire industry down, because liquidating the assets of a bankrupt automaker would drive the survivor’s prices, along with suppliers, below the point of maintaining solvency. A bankruptcy by GM or Ford will almost certainly push the US economy into a full depression that will take years to recover from.
5. GM, Ford and Chrysler are the only American car manufacturers. A Honda or Toyota plant in Alabama or Georgia is not an American company. The Japanese and Korean transplants that enjoy millions of dollars in tax breaks, even while importing most of their assembly components, do not “create” any jobs. They merely shift employment from old industrial northern states to non-unionized Southern states. Taking into account the loss of jobs at suppliers, and support businesses, the “creation” of one job at a Hyundai plant in Mississippi, probably eliminates three jobs in Michigan or Ohio. And of course the profits are siphoned out of America.
6. Automobile manufacturing is a vital component of our national defense. Only a few generations ago America was shocked into World War 2 by the Japanese bombing of Pearl Harbor. American automakers responded by turning their industrial might toward the defense of our nation. During World War 2 General Motors was a major supplier of US military hardware, supplies and equipment. Putting these resources in the hands of Japanese, Koreans, or Germans makes the United States extremely vulnerable; both during wartime and during peacetime.
7. The car business is not “just another business”. Cars are deeply embedded in America’s culture and psyche. Our historic “love affair with the automobile” throughout the 20th century is an intertwined evolution of society and technology. The automobile enabled both the growth of America’s suburbs and her middle class. These car companies are called “iconic” for a reason; their products are inspirational. How many American songs, books, and movies have been written about Chevys, Corvettes, Ford Mustangs, T-Birds, Chrysler Hemis and so on? On the other hand, I can’t think of a single song written about a Japanese vehicle. This is not the time to turn our backs on an old friend.
8. Automobile manufacturing is a strategic growth industry internationally, and both Ford and GM are well positioned to exploit that growth. While car demand has leveled off in the mature markets of Western Europe and North America, there is immediate growth potential in the Brazil, India, Russia, and China; all of which have significant American factories. About 60% of the 10 million vehicles that GM sold in 2007 were sold outside of the United States. China is GM’s second largest market, and GM has exported about 10 billion dollars in autos and parts, proudly made in the USA, to China in the past decade. There is no similar benefit to the American economy from Honda or Toyota selling into foreign markets. Frankly speaking, the prosperity of America’s auto companies is good for the country.
9. The automobile manufacturing industry is not the same as the buggy whip industry. It is NOT inevitable that all American car companies will disappear, like the steel, clothing, consumer electronics, or so many other, formerly great, industries. A country that does not produce anything, but only consumes and complains, must eventually decline. We will not remain a great nation by swilling $5 lattes, while shopping at discount stores for cheap Chinese products, and flipping burgers for a living. The whole process of designing, building and selling cars is a very complex undertaking. There are plenty of opportunities for American ingenuity, good engineering, technology, marketing, and efficient management to compete with global carmakers whose chief advantage is primarily cheap labor.
10. The American auto industry is crucial to reducing our dependence on foreign petroleum. We can not allow ourselves to lose the race for alternative propulsion technology, including electric, flex-fuel or fuel cell vehicles. GM currently offers 18 models achieving 30 MPG highway or better, twice their nearest competitor. GM is the top ranked US Company in global R&D spending in 2008 at $8.1 billion. The Chevy Volt, an extended range electric vehicle with zero emissions, would allow most commuters after 2010 to never use a drop of gasoline. America needs to lead this technological revolution.
November 20, 2008
General Motors, Ford, and Chrysler have made plenty of mistakes, but there are at least 10 good reasons why the American taxpayers should extend an emergency loan to our Big 3 Automakers. This is not about saving a few companies, and a few jobs; it is about saving an entire American industry, making an investment in America’s common future, and preventing a slide into a full economic depression.
1. The American auto industry has been practicing self help on the way toward regaining long term sustainability. General Motors was in the midst of historic cost cutting when events of this year overwhelmed our entire economy. Since 2005, GM has reduced structural costs in North America by over $9 billion. The latest UAW contract, signed in the fall of 2007, should show savings of about $6 billion a year starting in 2010, by reducing legacy costs associated with pensions and retiree health care. Between 2000 and mid-2008 the salaried workforce was reduced from 44,000 to 32,000, and the hourly workforce from 132,000 to 64,000. Other savings methods were implemented including reducing salaried employment costs by 30%, eliminating raises and discretionary bonuses for executives and suspending 401k match for salaried employees. All of this was done while GM and Ford have virtually eliminated the perceived quality gap with Japanese carmakers.
2. The current crisis is not primarily the fault of America’s Big 3. When gasoline prices doubled earlier this year the sales of trucks and SUVs plummeted. American automakers currently rely on this segment because spiraling legacy costs have virtually squeezed any profit out of the small car segment. America’s carmakers will be cost competitive in the small car segment by 2010, when major benefits from the last GM-UAW contract are realized. About 60% of new cars purchased in the US require financing, and GM’s sales in October 2008 were down over 45% compared to a year earlier. In this instance, the American automakers are victims of the financial meltdown of 2008 and the overnight disappearance of banks willing and able to lend money to car buyers.
3. The American auto industry is a national asset, and we all share some ownership. By now we know that America’s Big 3 are not “too big to fail.” They are also too important for us to allow them to fail. Almost 4% of US Gross Domestic product is auto-related and represents 10% of US industrial production by value. One out of every 10 US jobs is auto-related, with auto workers receiving $335 billion annually in compensation. The auto industry purchased $156 billion in US parts, materials and supplies, supporting jobs in all 50 states. The companies provide benefits for 775,000 retirees and surviving spouses, and provide health care benefits for 2 million Americans.
4. It is a good business decision, because it will definitely be cheaper to loan $50 billion to the American car makers, than to suffer with the monumental cost of bankruptcy, including the loss of up to 3 million jobs, and the Federal Government assuming hundreds of billions of dollars in pension and health care liabilities. Bankruptcy by any of the American auto companies would pull the entire industry down, because liquidating the assets of a bankrupt automaker would drive the survivor’s prices, along with suppliers, below the point of maintaining solvency. A bankruptcy by GM or Ford will almost certainly push the US economy into a full depression that will take years to recover from.
5. GM, Ford and Chrysler are the only American car manufacturers. A Honda or Toyota plant in Alabama or Georgia is not an American company. The Japanese and Korean transplants that enjoy millions of dollars in tax breaks, even while importing most of their assembly components, do not “create” any jobs. They merely shift employment from old industrial northern states to non-unionized Southern states. Taking into account the loss of jobs at suppliers, and support businesses, the “creation” of one job at a Hyundai plant in Mississippi, probably eliminates three jobs in Michigan or Ohio. And of course the profits are siphoned out of America.
6. Automobile manufacturing is a vital component of our national defense. Only a few generations ago America was shocked into World War 2 by the Japanese bombing of Pearl Harbor. American automakers responded by turning their industrial might toward the defense of our nation. During World War 2 General Motors was a major supplier of US military hardware, supplies and equipment. Putting these resources in the hands of Japanese, Koreans, or Germans makes the United States extremely vulnerable; both during wartime and during peacetime.
7. The car business is not “just another business”. Cars are deeply embedded in America’s culture and psyche. Our historic “love affair with the automobile” throughout the 20th century is an intertwined evolution of society and technology. The automobile enabled both the growth of America’s suburbs and her middle class. These car companies are called “iconic” for a reason; their products are inspirational. How many American songs, books, and movies have been written about Chevys, Corvettes, Ford Mustangs, T-Birds, Chrysler Hemis and so on? On the other hand, I can’t think of a single song written about a Japanese vehicle. This is not the time to turn our backs on an old friend.
8. Automobile manufacturing is a strategic growth industry internationally, and both Ford and GM are well positioned to exploit that growth. While car demand has leveled off in the mature markets of Western Europe and North America, there is immediate growth potential in the Brazil, India, Russia, and China; all of which have significant American factories. About 60% of the 10 million vehicles that GM sold in 2007 were sold outside of the United States. China is GM’s second largest market, and GM has exported about 10 billion dollars in autos and parts, proudly made in the USA, to China in the past decade. There is no similar benefit to the American economy from Honda or Toyota selling into foreign markets. Frankly speaking, the prosperity of America’s auto companies is good for the country.
9. The automobile manufacturing industry is not the same as the buggy whip industry. It is NOT inevitable that all American car companies will disappear, like the steel, clothing, consumer electronics, or so many other, formerly great, industries. A country that does not produce anything, but only consumes and complains, must eventually decline. We will not remain a great nation by swilling $5 lattes, while shopping at discount stores for cheap Chinese products, and flipping burgers for a living. The whole process of designing, building and selling cars is a very complex undertaking. There are plenty of opportunities for American ingenuity, good engineering, technology, marketing, and efficient management to compete with global carmakers whose chief advantage is primarily cheap labor.
10. The American auto industry is crucial to reducing our dependence on foreign petroleum. We can not allow ourselves to lose the race for alternative propulsion technology, including electric, flex-fuel or fuel cell vehicles. GM currently offers 18 models achieving 30 MPG highway or better, twice their nearest competitor. GM is the top ranked US Company in global R&D spending in 2008 at $8.1 billion. The Chevy Volt, an extended range electric vehicle with zero emissions, would allow most commuters after 2010 to never use a drop of gasoline. America needs to lead this technological revolution.
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