What happens when the big 3 are gone?

[shredder]

I'm of the opinion that the root cause of the big three's problem was the quality of their product. I grew up in a "Ford family", and the thought of buying a foriegn car wasn't even considered a remote possiblity. However, several Ford cars later I got fed up with bad transmissions, faulty fuel pumps, and poor workmanship in general and finally took the plunge and in 2001 bought a VW TDI Jetta. After 135,000 trouble free miles I just wish I had done it sooner. I think a lot of americans had similiar experiences to mine and although Detroit has recognized their quality contol problem and by and large corrected it, it's too late. I just think americans wouldn't mind spending a little more to "buy american" if the car they were buying was of the same quality as a foreign made car, but they got tired of buying **** and started buying Japanese cars. Just my two cents.

[Michael Emrys]

It goes back a bit further than that. Somewhere about the mid-1950s a significant and growing proportion of American drivers began noticing that many European-made cars were better made, burned less gas, and most of all were a hell of a lot more fun to drive. The sticker price was higher, due mainly to tariffs and duties, and servicing could be problematical, but all that was considered worth it. Owning a foreign car, especially a sports car, placed one among the cognoscenti, an automotive elite and stamped one as an individual of discriminating taste.

The first Japanese cars didn't begin appearing on the US market until the early '60s and were greeted with condescending snickers as poor imitations, but after a decade they had got their act together, carved out a niche for themselves and were making definite inroads at many levels of the market. I think the gas crunch of 1974 gave them a big boost as by that time they had many models that would appeal to Americans as the standard family car, which is where the big sales are.

Michael

[volfrahm]

But aren't VWs and Nissans made in Mexico if you buy in the U.S.? The $50,000 plus cars are probably made in their native countries.

How many of the parts for Japanese made cars are made in China or Taiwan? Are BMWs and Mercedes the only pure German cars? Do they also have global connections in production?

I think the only sensible way to keep car manufacturing in the U.S. is to nationalize the automotive industry. It can be made self-sufficient just like how Nixon mandated the USPS to be self-sufficient. If the big 3 are gone, then doesn't that mean 1 out of 12 or so will lose their jobs in the U.S.?

[dieseltaylor]

No cars are pure now. All buy in bits from other companies. They also share development and Peugeot and BMW have a co-developed engine and factory to build them.

Honeywell pretty much make all the camshaft sensors. Turbo chargers are primarily from Garrett [Honeywell] or Borg-Warner sourced from two companies Mercedes announced in September they are taking back turbocharger production from IHI. The 200000 units produced will make them the 3rd largest producer in Europe.

Garrett turbochargers are in 35 different makes including BMW and Mercedes.

The future big boys will be Toyota, VW-Audi - no doubt shortly to be called Porsche, and Renault-Nissan. And Ford , and possibly GM will make five.

[Lars]

Are BMWs and Mercedes the only pure German cars? Do they also have global connections in production?

BMW's are made in South Carolina.

And don't buy the hype on job loses. The numbers are coming from the exact same people who can't run a car company.

[dieseltaylor]

http://www.cbsnews.com/stories/2008/11/24/opinion/main4630039.shtml

While some manufacturers have been successful at reducing variation, others, such as American car makers, have not (despite highly touted "quality programs"). Combined, GM and Ford spent more than $8 billion in warranty costs last year. From 2003 to 2006, DaimlerChrysler spent an average of 4.5 percent of revenue on covering products under warranty, while GM spent roughly 3 percent. By comparison, Toyota spent only 1.25 percent of its revenue on warranty costs.

Then, there is safety recall data. From 2000 to 2006, GM had 1,014 safety-related recalls, Ford had 558, and Toyota had 131, despite the fact that Toyota sells more vehicles than Ford.

Perhaps the biggest reason for the decline of the U.S. automotive and electronics industry is what happens after warranty period ends. When the manufacturer pays for warranty repairs it's an inconvenience, but when consumers are forced to pay for costly repairs, they lose loyalty to the brand.

The consequences of product variability include huge losses within a manufacturing facility as well. Because products vary, many will not even be good enough to be sold. Those products are thrown away or re-worked. The loss in profits can be considerable, and the rate of "bad parts" being made internally is disturbingly high.

[Tero]

The bliss of globalization: the US car manufacture gets saved (possibly ?) at the price of 140 000 jobs vanishing in Sweden if/when the US owned Saab and Volvo go under.

[Lars]

Er, weren't Saab and Volvo well on their way to going out before?

Thought the US purchase brought them back.

[ASL Veteran]

I just wanted to pass through here and provide some extra reading material for those who are interested. Three articles from the Heritage foundation (leans right):

http://www.heritage.org/Research/Economy/wm2135.cfm

http://www.heritage.org/Research/Economy/wm2137.cfm

http://www.heritage.org/Research/Economy/WM2133.cfm

Three articles from the Cato Institute (leans right):

http://www.cato.org/pub_display.php?pub_id=9804

http://www.cato.org/pub_display.php?pub_id=9787

http://www.cato.org/pub_display.php?pub_id=9783

and two articles from the Brookings Institute (leans left)

http://www.brookings.edu/opinions/2008/1127_detroit_selloff_crandall_winston.aspx

http://www.brookings.edu/opinions/2008/1202_automakers_burtless.aspx

[dieseltaylor]

ASL Vet - I have not had a chance to read those links yet - but this came my way and may be a repeat of somethings contained in yours. Briefly a short article on the lies about autoworkers wages

http://mediamatters.org/items/200812060002?f=h_latest

[Stalins Organ]

Isn't there some sort of forum rule against posting links without providing some op-ed of your own?? :/

[dieseltaylor]

The typical UAW worker at the Big Three earned between $71 and $76 an hour in 2006.

Heritage

My quote

Between November 11 and December 4, as Congress has considered a potential bailout for the auto industry, Media Matters for America has found dozens of media figures and outlets advancing the falsehood that autoworkers employed by the domestic automakers are paid $70 or more per hour in wages and benefits, some using it to blame autoworkers for the domestic auto industry's financial straits. The false assertions echo automakers' claims during the 2007 contract negotiations that union workers receive $70 or more per hour in wages and benefits. However, GM recently has reportedly pointed out that the figure representing the hourly cost of labor to U.S. automakers -- a cost that GM reportedly puts at $69 -- includes not only current workers' hourly wages and benefits, such as health care and retirement, but also retirement and health-care benefits that U.S. automakers are providing for current retirees, as Media Matters has noted. Despite the automakers' acknowledgement, the media continue to repeat the $70 or more per hour myth.

[costard]

Isn't there some sort of forum rule against posting links without providing some op-ed of your own?? :/

Oh no! More ammunition for JK! :eek:

The cost of managing labour turns out to be roughly 50% of the hourly wage (or so it is claimed - I don't see how this cost should rise as the wage rises, but there you go..): it is most probably this figure (150% of base wage) that is being quoted. So, when you are contracting your labour force, each of whom collects $28 an hour (less taxes), you charge out at $42 plus profit.

[Runyan99]

If GM is paying pensions, it is no myth that the dollars are going out the door. This buzz I hear about '$70 being a big lie' is just another example of union spin. If a guy works for 30 years and takes a pension for another 20, it seems reasonable to work that into the accounting regarding hourly compensation. Once again the unions are trying to misdirect attention from themselves. Look at the corporate jet!

[dieseltaylor]

Runyan - the idea is for pensions to be funded whilst the worker is a GM worker, not funded by succeeding generations of workers. In the UK companies are required to fund their pension liabilities as they go. I doubt that the US can be much different in accounting procedures ...

Sometimes companies get caught out and have to make a big dollop in as the actuaries have calculated a shortfall exists. Conversely there can be surpluses and the company can reduce payments or take a holiday from paying in. It is very apparent that the big three have not correctly funded their liabilities or have agreed terms in the past but not thought through the effects. Fundamental short termism to get their bonuses on the basis they will have retired by the time the house of cards collapses?

Here is a little article explaining how it works with one company

http://thescotsman.scotsman.com/business/BE-now-facing-pension-shortfall.2367820.jp

[Elmar Bijlsma]

Having read Michael Moore's piece on this last week, I find myself tempted to agree with him. Not only in the puzzling difference between the financial bailout of hot air salesmen and craptastic car makers, but also in that loaning them the money seems as insensible as letting them go bust.

[ASL Veteran]

ASL Vet - I have not had a chance to read those links yet - but this came my way and may be a repeat of somethings contained in yours. Briefly a short article on the lies about autoworkers wages

http://mediamatters.org/items/200812060002?f=h_latest

My intent is not to get into a discussion about this issue, but I have to mention that in the first Heritage Foundation article the compensation is broken down into base wages, health benefits, and all other benefits http://www.heritage.org/Research/Economy/images/wm2135_table1.gif

The base wages on that chart come to 29.15 per hour which is consistent with the base wage the unions are claiming in the article you linked to. Of the eight articles I linked to for general reading I don't think any of them exclusively 'blamed' UAW wages, but they do consider it a major factor (well, except for the two by Brookings Institute - but they lean left so I would expect that - the two Brookings Institute articles counterpoint the other six I linked to). Anyway, I just wanted to post here for clarification purposes only.

[ASL Veteran]

Diesel Taylor, in fact, in the first Heritage Foundation article I linked to the author directly discusses what you linked to and rebuts it. Basically the entire second half of that first article addresses what you just posted about. You may want to read that first article a little more closely.

Here is one of the key parts in that first article about it

I called GM news relations director Tom Wilkinson in Detroit this morning and explained the controversy. He's quite familiar with it. He sent me a recent article by Jonathan Cohn from The New Republic headlined "Assembly Line: Debunking the myth of the $70-per-hour autoworker." The story relies on data supplied by the Center for Automotive Research, all on the up and up. Here's a key paragraph of the story:

"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."

However, even though the UAW said in 2007 that "[t]he highest figures sometimes cited also include the benefit costs of retirees who are no longer on the payroll," and GM has acknowledged that its $70 or more per hour figure includes payments for current retirees, media figures and outlets have repeatedly advanced the false claim about autoworkers:

There is plenty more about that though and I wouldn't want to make a giant post just to quote about what's in the article already.

[Tero]

If GM is paying pensions, it is no myth that the dollars are going out the door. This buzz I hear about '$70 being a big lie' is just another example of union spin. If a guy works for 30 years and takes a pension for another 20, it seems reasonable to work that into the accounting regarding hourly compensation. Once again the unions are trying to misdirect attention from themselves. Look at the corporate jet!

Here in Finland the calculated average life expectancy of a pensioner is two years after retirement.

Then again we have national health care with national pension funds. Private pension insurances have only recently come to the market with the adjoining scare-advertising about how your level of income drops ~40-50% when you retire.

[ASL Veteran]

Incidentally they just added two more articles about the auto bailout on the Heritage Foundations website for the interested. This one also speaks directly to the issue raised by DieselTaylor and the 70 per hour wages:

http://www.heritage.org/Research/Economy/wm2162.cfm

One sample quote in the article because I think someone raised an accounting issue

Under the accounting rules established by the Financial Accounting Standards Board, the Detroit automakers must report their liability for future benefits as they accrue.[6] The hourly benefits figure includes payments into defined benefit pension plans to provide future pensions to current workers. It also includes the estimated costs of future retirement health benefits that current workers earn today.

Chrysler, for example, reports paying $20.14 an hour in health costs for its hourly employees. That figure includes the estimated cost of their health benefits in retirement, calculated according to Financial Accounting Standard 106.[7] The government does not allow Chrysler to promise to pay tens of thousands of dollars in health benefits in the future without reporting that cost on its balance sheets today.

The second article speaks to the economic impact of the failure of the big three and the "millions of job losses" etc stuff being bandied about.

http://www.heritage.org/Research/Economy/wm2160.cfm

another sample quote from that article

Ford, General Motors, and Chrysler rely heavily on an economic impact study by the Center for Automotive Research (CAR) in making their case for a financial bailout. This report claims that the simultaneous failure of these three companies would result in a loss of 3.3 million jobs nationally in the same year as the company shutdowns.[1] However, this estimate is based on highly dubious assumptions.

When these same questionable assumptions are run through a widely understood and respected model of the economy, the dramatic spin-off results are not produced.[2] Instead, only the Big Three auto companies and their immediate suppliers suffer job losses in the first year.

The article then goes on to discuss the various ways of calculating economic impact. Once again though, the Heritage Foundation is a conservative think tank so you won't find too many 'pro' bailout articles on their website

[Stalins Organ]

If GM is paying pensions, it is no myth that the dollars are going out the door. This buzz I hear about '$70 being a big lie' is just another example of union spin. If a guy works for 30 years and takes a pension for another 20, it seems reasonable to work that into the accounting regarding hourly compensation.

Accounting for it is fine and it is definitely a real expense....but they are not getting paid it as any common person (as opposed to an accountant or tax lawyer) would understand it.

blaming it all on the unions is drivel - the unions get nothing that management doesn't agree to, and the USA has been collectively happy with the current arrangements (more or less) for the last 50-60 years by virtue of prefering the product.

Everyone who has ever bought a "big 3" car is as much to blame as the unions.

[JonS]

[costard]

I drove for seven hours along our crappy freeways yesterday in my govt. issue Mitsubishi four wheel drive. At one point someone passed me in his huge Chevrolet and I thought: I bet he has a comfortable ride.

[M. Bates]

The big 3 are over-unionised and badly run.

Let 'em go bust, they'll get bought out.

[dieseltaylor]

Love that advert JonS : )

Costard: You buy your own car you can have whatever you can afford! I suspect the guy in the Chevy is envious of the BMW owner so lets face it people are rarely totally happy until they have the AstonMartin. : ) Having a car other people are envious of seems to make the driver feel gooood!

AslVet: Thanks for the links, it has been halpful to remove all the bull from the discussion. I am in favour of Chapter11 myself but obviously have no huge insight into the precise fiancial problems. My gut feeling is they will be back for more and nothing solved.

Management are the chief culprits:

Detroit's problems predate the financial meltdown. Management and labor consigned the Big Three to a future of troubles when they agreed to preposterous work rules, requiring management to pay workers at 90% of their salaries when they were laid off. Those rules compelled General Motors in particular to keep pumping out vehicles in the face of shrinking demand earlier in the decade, ushering in the period of "0% financing" for five, six and seven years. Because labor costs were locked in, it made more sense to keep producing and selling at below the full cost of production.

Management also gave labor the "Cadillac platter" of health and retirement benefits, all of which substantially increased the cost of producing vehicles at unionized plants in America. Management and labor always assumed that the U.S. government would come to the rescue when the chickens came home to roost over this inefficient, uncompetitive cost structure.

And bear in mind that between them they have not had a top five selling car for years. It is a huge indictment of US business practices. Saddening.