GM Situation in US getting worse

[Ohio XB]

Originally Posted by SSbaby

The airline carriers post 9/11 went bankrupt and restructured... to the point where they are financially viable today.

There should be a clear indication that the car industry as a whole is undergoing a substantial revamp. There is still hope for GM providing the US govt could reassure consumers that cars made in Detroit will continue to be backed with warranty, service and spare parts.

These are just my opinions, not industry speculation.

This comparison has been made many times but the context has to be illustrated too.


When you buy an airline ticket for $150 or $1,500 you get on the plane, fly for a few hours, get off and go on your way. Maybe a week later you are going to do it again to get back home, then you go back to work and on with your daily life. If they are in Chapter 11 bankruptcy but still operating you only engage them for a few hours of service anyways. If they do not emerge from bankruptcy, oh well, you will most likely be home and see it on the news.


When you buy a car for $14,000 or $37,000 you are expecting the manufacturer to warrantee the car for various durations for the next 3 to 5 years and for a specific amount of mileage, whether 36,000 or 75,000 miles. It is an ongoing relationship for at least several of the following years between the customer and the company that the purchase is made from. If they are in bankruptcy and they don't emerge from it then you lose the warrantee on your car. Also, if they are in bankruptcy where is the company going to be cutting money from and how will that affect the quality of the car?

An airline either flies or it doesn't. Success or failure, and failure is very very rare. A car has a higher incidence of failure, no matter who made it, and we are conditioned to have a warrantee to be there if it does, or else the car can cost us money this month, in a few more months, and for the next couple years.


Basically there is a lot more of an investment in buying a car than a plane ticket and the relationship is also much much longer.


Steve

[Ohio XB]

Originally Posted by buggerlugs

http://www.news.com.au/story/0,27574...-23109,00.html Hopefully this will help Ford US

Just a correction to that story, it was in the 2007 contract that the VEBA was established to relieve a big portion of the healthcare costs for retirees, there was no new contract in 2005.

In 2005 the 2003 contract was opened to allow for concessions and Competitive Operating Agreements at the local level that changed a lot of work rules to make them more flexible, allow outsourcing of some jobs, and do more work with less people.


Steve

[Ohio XB]

Originally Posted by imugli

And I agree with him.

Chapter 11 is the best chance GM have of coming through this not owned by the Chinese. It's also the best chance the US taxpayers have of ever seeing their money again.

Yes, it will mean layoffs, but show me a manufacturing industry in the developed world where that isn't happening anyway? Why should the auto industry be any different? Because there's more of them?

I don't believe lay-offs are the biggest issue. Look at Ford. Over the past 3 or so years they have reduced out 57,000 employees and closed 17 plants.

The big issue is whether or not people will buy their products. I elaborate on this in an above post.

Then there is also the race to the bottom with wages in this country that has been going on for years.

If GM goes down to say a $20/hour wage then Toyota will also demand their wages go below that. Then GM will be forced to match it and then you have a race to the bottom. Toyota has already made statements to this notion, lowering their wages. Toyota can only do this if the UAW lowers their wages, which Toyota bases their wages on to keep their employees from joining the union.

The race to the bottom in wages was started with NAFTA, the North American Free Trade Agreement. Because of this agreement Americans living in a nice middle class income in the American lifestyle, sending a kid to college, now had to compete with someone in Mexico making $1.25/hour. This worked to start driving down wages in the US in the name of "competitiveness". Yeah, a Yank making $14/hour is going to be able to compete with a worker that lives in a shack making $1.25/hour in a place where there is little or no environmental regulations that the company must otherwise spend money to meet.

Then Clinton was able to get the Chinese market to open up to the US and the Chinese would work for 60 cents an hour. Many of the companies that moved production to Mexico were now closing up shop and laying off over paid Mexicans to move to China for a more "competitive" wage.

Now that China has boomed and wages have gone up to $1 - $2 per hour a lot of companies are begining to move to Vietnam and other smaller Asian companies where wages are still 60 cents an hour.



Now we have the car companies, where labor costs on average is 10% of what it costs to make their products, racing to the bottom in wages. There are people in Alabama that get paid only $10 - $14 per hour for auto assembly work. I was making $13.50/hr when I hired into Ford in 1992! This kind of work is worth more than $14/hr. Yeah, on TV it looks easy and you can't imagine how it can be hard on you, but do it one day, I wish everyone could, and a lot will be learned. Remember, the people you watch doing it have done it literally hundreds of thousands of times and you get pretty good at anything when you do it that much.


Steve

[Bud Bud]

Originally Posted by Ohio XB

Then there is also the race to the bottom with wages in this country that has been going on for years.

If GM goes down to say a $20/hour wage then Toyota will also demand their wages go below that. Then GM will be forced to match it and then you have a race to the bottom.

Steve

Steve you are in the best position to answer this, are new cars just too cheap in the US? Do they need to be a little more expensive to pay for workers earned entitlements? Nobody wants too see their standards of living eroded, so are or have new carsj ust been too cheap in the past in the US to have maintained the standard of entitlements expected by developed economies today?

I have always been amazed with the good value for dollar of US cars even when you factor in the dollar comparison.

[Ohio XB]

Steve you are in the best position to answer this, are new cars just too cheap in the US? Do they need to be a little more expensive to pay for workers earned entitlements? Nobody wants too see their standards of living eroded, so are or have new carsj ust been too cheap in the past in the US to have maintained the standard of entitlements expected by developed economies today?

I have always been amazed with the good value for dollar of US cars even when you factor in the dollar comparison.

Because the market is so competitive prices are set by the amount of choices there are. So the companies need to make profit on what they can sell the car for, period. Ford is doing this by putting more value into their cars. They have improved styling, more features, more tech that younger buyers want, and better quality and safety ratings. I believe Ford is relying on this to sway buyers to buy a Ford, because Americans, even more than a bargain, appreciate value.


When Ford relied on the trucks and SUV's to bring in the profits and this was working THERE WAS NO CONCERN FOR THE WAGES AND BENEFITS of the UAW members. Ford was making billions of dollars profit each year with basically what we have now.

What's different now that the wages and benefits are such a concern?

The former business environment changed away to cars. Ford had not been strong in making profit on cars. Cars were built to meet the average fuel economy standard and if Ford only broke even or lost money on the car it didn't matter because the profit on trucks and SUV's more than made up for it. Now they HAVE to make profit on cars. THIS is what is different.

Even though there is only about $1500 in total labor costs to build a vehicle it is the easiest way to cut expenses. To cut expenses elsewhere takes a lot of effort, planning, and thought. To cut wages all you have to do is get the people to agree to it. If you don't have a union you don't even need to do that, just cut them. Instant savings and a no brainer.




Hey, you thought there was more labor than that to build a vehicle? So does everyone else.


When I was building the Mercury Villager minivan in 1994 I was told in a letter put out by the plant manager that there was $1,500 total labor cost in each vehicle. In 2004 when we were building the Ford Escape small SUV I was told by the Engineer in charge of production that there was $1,300 total labor in a vehicle. Efficiencies accounted for the reduction and the savings is actually greater than just what you see on the surface. This was 10 years later and the cost was cheaper. Even if the cost stayed the same it would have been a savings because of inflation.



So you see, this is why the union is so animate about ALL stakeholders contributing to reducing costs. Labor is really such a small part of it. You've seen the 10% figure as an industrial average. That means on a $20,000 car there is only $2,000 in labor. At Ford the percentage is less than 10% as well; 8% and 7%.

Yet the nation, and a good part of the world, have bought into the idea that our wages are the problem. Nevermind how the company modelled their business plan to rely on trucks and SUV's. The media and politicians want you to believe the UAW dragged them all down.

Ford is now in a great position to come out of the gate running with great products (cars!) as soon as the economy picks up. Right now every manufacturer in the country is hurting big time as sales are off 35 - 50%.



Steve

[Swordsman88]

Thanks for the insight Steve. Your thoughts from the 'shop floor' give a pretty good isnight into car manufacturing, not just the economics of it (which you seem to have a pretty good handle on also).

Even so, i have to agree somewhat with Bud. He has asked the question as to whether cars in the US are jsut too cheap. I know you have a much much larger market (to the point european/japanese manufacturers are dictating entire model lines according to US market needs) but even so, the prices of cars seems very cheap compared to the rest of the world. Aussie large cars are said to be the best value large sedans in the world, but the price Holden must sell GM SS commodores for pontiac to turn a profit is ridiculous!

I know exchange rates muddy the waters but my question is this: do americans think new cars are affordable? Here in australia alot of people for many years (and its returning again with the current economic climate) viewed cars as being quite expensive, particulary imports and luxury models. it seems americans don't have this view??? Or is this just my perception?

[Wally]

I would dare say the labour cost is easily skewed by outsourcing preassembled components. It's much easier to belt a supplier, paying poverty wages, around the head than a direct employ workforce.

As example 60% of the Texan built Toyota Tundra parts are Mexican.

Steve do you think the Simpsons spoof on the Canyonero was the beginning of the end for the SUV?

[Bud Bud]

Steve, I know what point you are making, oh and thanks for the detailed reply. And I do agree, the labour content is surprisingly very low and also shows that there really is not much meat left on the bone to cut either. How much more is dedicated to the pension plan, or is this included in the $1500? Either way the answer is not there.

When I was in the U.S. (Oct 2005), I was amazed at the advertised price on TV for upcoming 2006 models. They were advertising drive away prices of around $25,000 U.S. for sedans and some smaller soft roader SUV’s that would be equivalent to $40,000 plus drive away here at around the same time. The exchange rate would have been around 75 US cents to our $1.00 which would have represented about a quarter cheaper in the U.S. for the same car. This would bring either the U.S. made car up to around $30,000 compared to our price or at least bring the cost of ours down to plus 25%.of the U.S. price to around $32,000. These were not run out models either but were advertised as 2006 stock.

The reason I have pointed this out is, with (in this case) GM selling over 8 million cars last year, if they made just $1,000 average more per car more, then that would equate to a gross increase of 8 thousand million or 8 billion for last year alone. If you equated this across the board to every manufacture in the U.S., then they would not be looking for Gov. hand outs atm.

I know that you could not put the price up by $1,000 just like that but you have to wonder if the real price of a new car in the U.S. has kept pace with the standard of living expected from a developed economy.

Note back then, the GTO was selling for around $32, 000 U.S. just to be competitive. Ours were selling new from around $64,000 Aud. at the same time. This is twice the price and without the extras like freight etc tacked on. If they were freighted free but were sold for minus 25% of our retail price, then they would have had to of been sold for $48,000 U.S.

Sorry for the long post
Bud Bud.

[greenfoam]

There's something in that. When I was in the states for a few months in 2001, I noted that alot of people that were driving 1995 ish cars were really embarrased about driving such an "old" car. I really took notice of that and also amazed how how much disregard they had for such cars. They never looked after them I bet most never get an oil change etc. Everyone kinda just expects to drive a car for a few years then chuck it out and get a new one. It's much different in Australia where only the fairly well off are in the new car market or at least until the very fleating short lived boom of the last decade that was allways the case and I think we will be back to normal now for the next decade

[buggerlugs]

http://www.news.com.au/business/stor...-31037,00.html I wish they'd make their mind up.........

[Wally]

Yes they have tentative agreement with the union for freeing up the pension funds in exhange for cash and equity. Like Ford the agreement includes devolution of wages from $60/hr, down to parity with overseas rates of ~$48/hr. The process allows GM to pursue it's planned bond issue, per the business plan issued to the US govt in exchange for loans.

[Ohio XB]

Originally Posted by Swordsman88

Thanks for the insight Steve. Your thoughts from the 'shop floor' give a pretty good isnight into car manufacturing, not just the economics of it (which you seem to have a pretty good handle on also).

Even so, i have to agree somewhat with Bud. He has asked the question as to whether cars in the US are jsut too cheap. I know you have a much much larger market (to the point european/japanese manufacturers are dictating entire model lines according to US market needs) but even so, the prices of cars seems very cheap compared to the rest of the world. Aussie large cars are said to be the best value large sedans in the world, but the price Holden must sell GM SS commodores for pontiac to turn a profit is ridiculous!

I know exchange rates muddy the waters but my question is this: do americans think new cars are affordable? Here in australia alot of people for many years (and its returning again with the current economic climate) viewed cars as being quite expensive, particulary imports and luxury models. it seems americans don't have this view??? Or is this just my perception?

There may be two reasons for this. First is the amount of competition in the market, as I mentioned before.

Buick
Cadillac
Chevrolet
GMC
Hummer
Pontiac
Saab
Saturn Corporation
Aston Martin
Ford Motor Company
Jaguar Cars
Lincoln
Mazda
Mercury
Volvo Cars
Chrysler
Dodge
Jeep
BMW
Honda
Hyundai
Mazda
Mercedes-Benz
Mitsubishi
Nissan
Subaru
Toyota

And then when you multiply the number of companies by the number of models.......it's a crapload. So competition is fierce and competition makes pricing competitive.


Another thing, I believe, is during the 1980's and 1990's the price of vehicles accelerated much faster than the rate of inflation, possibly due in part to the rapid introduction of EFI, proliferation of air bags and anti-lock brakes as standard equipment, ect., improved market growth as optimism improved among consumers, and also the opportunity for increased profit as people were willing to pay more as evidenced by increased sales.

I believe there was a point after this that prices leveled off, especially as American quality lagged behind Japanese auto makers. I remember in the early 1990's the CEO's of the Big3 were questioned about the high price of vehicles. The CEO's from GM and Chrysler acknowledged that prices have got out of hand and they were looking at options to do something about it. The CEO from Ford said "I didn't make people pay $25,000 for an Explorer", which scared the crap out of me. This was 1995-ish and Explorers were selling for $25,000. You can get an Explorer now for about the same price, at the entry level.

In the US there is a business practice of pricing your goods at "Whatever the market will bear", which means however much you can get people to pay for it. Keep raising your price and then when sales begin to drop off you back off a little bit. In the early 1990's I saw F-150's go from $8,000 to $17,000 in just a couple years. There's that big profit on trucks and SUV's I mentioned earlier.



Another concern is the productivity of US factories. I have seen for years that the US has the highest level of productivity per worker than any other country in the world. I have not seen anything recently so this may have changed, or it may have improved even more as companies have downsized their work forces while still producing the same amount of work, which I know we have done here at Ford.


Steve

[Ohio XB]

Originally Posted by Wally

I would dare say the labour cost is easily skewed by outsourcing preassembled components. It's much easier to belt a supplier, paying poverty wages, around the head than a direct employ workforce.

As example 60% of the Texan built Toyota Tundra parts are Mexican.

Steve do you think the Simpsons spoof on the Canyonero was the beginning of the end for the SUV?

Sorry, I don't watch the Simpsons.


The wages reported by the manufacturer are for that company's workforce only. One thing I will mention is that Ford is insourcing more and more work, so I believe that is a testament to the UAW's concessions and ability to be "competitive".


I think the begining of the end of the SUV was the increase in the price of gasoline. Before the increases started a couple years ago it was about $1.15 US per gallon. When it got to $2.50 per gallon that was probably the begining of the end of the SUV. $3.75 was probably the last nail in the coffin.


Steve

[Ohio XB]

Originally Posted by Bud Bud

Steve, I know what point you are making, oh and thanks for the detailed reply. And I do agree, the labour content is surprisingly very low and also shows that there really is not much meat left on the bone to cut either. How much more is dedicated to the pension plan, or is this included in the $1500? Either way the answer is not there.

When I was in the U.S. (Oct 2005), I was amazed at the advertised price on TV for upcoming 2006 models. They were advertising drive away prices of around $25,000 U.S. for sedans and some smaller soft roader SUV’s that would be equivalent to $40,000 plus drive away here at around the same time. The exchange rate would have been around 75 US cents to our $1.00 which would have represented about a quarter cheaper in the U.S. for the same car. This would bring either the U.S. made car up to around $30,000 compared to our price or at least bring the cost of ours down to plus 25%.of the U.S. price to around $32,000. These were not run out models either but were advertised as 2006 stock.

The reason I have pointed this out is, with (in this case) GM selling over 8 million cars last year, if they made just $1,000 average more per car more, then that would equate to a gross increase of 8 thousand million or 8 billion for last year alone. If you equated this across the board to every manufacture in the U.S., then they would not be looking for Gov. hand outs atm.

I know that you could not put the price up by $1,000 just like that but you have to wonder if the real price of a new car in the U.S. has kept pace with the standard of living expected from a developed economy.

Note back then, the GTO was selling for around $32, 000 U.S. just to be competitive. Ours were selling new from around $64,000 Aud. at the same time. This is twice the price and without the extras like freight etc tacked on. If they were freighted free but were sold for minus 25% of our retail price, then they would have had to of been sold for $48,000 U.S.

Sorry for the long post
Bud Bud.

How much more is dedicated to the pension plan, or is this included in the $1500?

That IS included in that $1,500.

In response to your comment about making $1,000 per car, yes, that would have been great, but the top brass at these companies did not see it that way. Who cared about making $1,000 on a car when you were making $10,000 on a truck or SUV?

Sales of trucks and SUV's don't sell as much now so now they HAVE to make money on cars, and this was not a concern for them before. Sales of trucks and SUV's dropped to where they could barely cover their operating expenses, and as we have all seen they didn't even sell enough of them in recent years to do that. As the transplants increased their efficiencies and priced their vehicles lower the Big3 really had a pricing issue on their cars to worry about now.

I believe Ford has done real well in this area because beyond the recent UAW concessions Ford has for years been working on reducing their costs to design and tool for building vehicles.

They've reduced the time for designing and bringing a vehicle to market by 2 years. They've greatly reduced the number of prototypes that have to be built from hundreds to tens with powerful software that enables engineers to test just about every aspect virtually, beyond designing and test fitting everything virtually. They've been retooling ALL their assembly plants with flexible body shops which can build a variety of vehicles at once as well as minimalizing time and costs to "retool" for all new vehicles. Even the Cleveland plant that is building the new EcoBoost V6 has flexible tooling now.

They are doing more with less people.

In all I hope FNA has been taking lessons from FOA.


As far as the prices of cars keeping pace with the standard of living in the US see my above post about the price fo vehicles accelerating in the US in the 80's and 90's in particular.

As far as the standard of living in the US, I believe the last Census Bureau statistics put the average US income at $40,000. I think that was houshold income, but I don't know for sure. This is on it's way down with the economy being what it is and the race to the bottom on wages.


Steve

[Ohio XB]

Originally Posted by buggerlugs

http://www.news.com.au/business/stor...-31037,00.html I wish they'd make their mind up.........

I think they are trying to get some of that "Ford Effect". This is the first I heard of this. Guess what? It is probably the only bit I will hear of this. The US media will not like that info at all so they will not report it. I'll let you know if they do.


Steve

[imugli]

Originally Posted by Ohio XB

I think they are trying to get some of that "Ford Effect". This is the first I heard of this. Guess what? It is probably the only bit I will hear of this. The US media will not like that info at all so they will not report it. I'll let you know if they do.


Steve

Steve,

See

Here

and here

and here

So it's on the web, don't know about the box though...

[Ohio XB]

Yeah, later I happened to see an article in the Wall Street Journal as well. I wonder if it was on television?


Now they just had a recall of over 270,000 vehicles. That will be on the television news.


Steve

[imugli]

Originally Posted by Ohio XB

Yeah, later I happened to see an article in the Wall Street Journal as well. I wonder if it was on television?


Now they just had a recall of over 270,000 vehicles. That will be on the television news.


Steve

I just saw this... Article said the defect could cause the cars to roll away...

That's possibly the best news at least a few dealers could hear right now :-)

The guy who got caught stealing 81 of the cars on his lot now has an excuse - "They rolled away ocifer..."

I'm sure there are more one liners to come from this one...

[vztrt]

Well Holden are considered viable because of the money given by the federal government. But it doesn't mean they are safe.

http://business.theage.com.au/busine...0331-9icx.html

GM overhaul puts Holden in neutral
Anne Davies, Washington
April 1, 2009

THE Obama Administration's decision to reject General Motors' restructuring plan and tell it to try harder over the next 60 days or face bankruptcy, has raised new uncertainties about the car giant's overseas operations, including those in Australia.

Australian officials and executives at GM Holden are watching developments closely.

Monday's assessment by the US President's car industry taskforce made no specific mention of the Australian subsidiary, GM Holden, but its criticisms of the GM plan for being overly optimistic in its assumptions amounts to an order to the company to go back and revisit all elements of the plan.

In February, GM told the US Government "Holden is projected to be a viable operation, making a positive NPV (net present value) contribution", thanks to grants provided by the Rudd Government to help develop a more fuel-efficient four-cylinder car.

"Consistent with the requirements of the federal loan, the company's plan will make its foreign operations competitive and sustainable," GM said.

But on Monday, the taskforce reported that the GM plan was "based on a number of assumptions that will be very challenging to meet without a more dramatic restructuring in which many of its planned changes are accelerated".

Of GM's foreign operations, only the European operations got a specific mention, with the taskforce warning that GM still did not have a firm commitment of funds from European governments and this "represented a risk to the viability of GM's current plan".

The taskforce was even more sceptical about the future of Chrysler, which does not manufacture in Australia. It has just 30 days to clinch an alliance with Italy's Fiat to secure further bail-out funds or face bankruptcy.

Holden Australia has committed to building a fuel-efficient four-cylinder car at its Elizabeth plant, in Adelaide. But the $149 million pledged by the Rudd Government in December under its green car scheme depends on as much as $450 million from GM.

The US Congress has made it clear it wants tight restrictions on US taxpayers' funds being sent overseas to help foreign plants, and it is insisting that all investments are approved by an oversight committee.

Innovation, Industry, Science and Research Minister Kim Carr said yesterday he remained confident that the Australian four-cylinder, fuel-efficient car project would go ahead .

"GM Australia has been found viable," Senator Carr said. "That's extremely important and it clearly would not have been viable without the new car plan -- and the decisive issue there was Government policy."

Holden has already said it will need to cut staff, as part of the global effort by General Motors to shed 47,000 workers . It has yet to announce the scope of the cuts.

A spokesman for GM Holden, Scott Whiffin, said yesterday: "Our view is the events out of the US have no immediate impact on us, but they reinforce the need for all General Motors companies to contribute to the global entity.

"We are going to need to make some changes in the short term because, basically, the market has become much more challenging here in recent months," Mr Whiffin said.

As well as the "very immediate challenges", the company was also rigorously reviewing its longer-term plans, he said.

"We are not going to speculate on what will happen as a result of developments in the US," he said, adding that the company would let the workforce know first before publicly announcing any cutbacks.

Also of concern to Australian officials is the future of GM's finance arm, GMAC, which has been restructured to be eligible for funds from the US bank bail-out scheme, the Troubled Assets Relief Fund. Its abrupt withdrawal from providing finance to dealers and showrooms late last year has created a serious credit crunch in the US and Australia.

Senator Carr said that even if GM went into administration, he did not think it would make any difference to the Australian operations. "It's in a form of administration now," he said. "When was the last time the American Government removed a chief executive?"