Tuesday, November 11, 2008

What to do with the Auto Industry?...

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The U.S. Auto industry, or should I say the "Top Three" automakers, are in trouble. Both GM and Ford are reporting massives loses and doubt that they will be able to continue operations if they do not receive additional "bail-out" money from the Federal government (Taxpayers)...



Democratic Speaker of the House Nancy Pelosi is doing her best to bring more of this taxpayer aid to save the Big-3 automakers and the jobs they represent. Possibly her actions are to secure additional “bail-out” money so to prevent the Big-3 auto manufacturers from having to go into bankruptcy courts where many of the negotiated Union Auto-workers would be subject to cancellation or change. Unions are a very large voting bloc for the Democratic Party and this may be a significant reason for Pelosi’s actions… Do you Think!!!…



As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese



Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers - it has very few - and only $215 for active ones



Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle - costs that the Japanese don’t have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.



For those of you keeping score at home, that’s approximately $2,615 in costs per vehicle manufactured which GM has to pay (and thus pass on to its customers) that foreign automakers don’t. But that’s just the beginning. Labor work requirements, which state that workers can’t be laid off even when the auto company has no work for them, cost the auto industry even more:



"If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn’t make"



"If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands"



Management for the auto manufacturers are also very much responsible for the state and condition of the American owned industry for they have negotiated and signed off on the contracts that have led to where they are now… But should the Federal government once again “bail-out” an industry that has gotten itself into trouble by their own “greed” (both Mgmt and Unions) and actions?



In the past I have bought American made vehicles such as Chrysler, Chevrolet, and General Motors products, to support the American worker. I do not wish to see harm to those retired workers who put their time in and are looking to get their promised benefits. But with these bad deals that were made by BOTH sides resulting in an additional $2,615 tacked onto a GM price tag, should the government bail these guys out with our tax money? And with Honda and other auto manufacturers operating plants in Texas, the Carolina’s, and other states, should I not buy a auto that was made by American workers in these plants?…

6 comments:

Anonymous said...

Rightside, here in the U.K., I own a Ford Focus. It is a diesel and gets 50mpg. Why cant I get this car is the U.S.? Reason, Ford says that it would cost about $2500 dollars more to produce and that Americans are not prone to buy diesel autos. Wouldn't you pay a little more to buy a fuel efficient vehicle? They automakes can and have the technology to produce fuel efficient autos!

RightsideVA said...

Diesel technology has come a long way and run much cleaner then in the past but people still feel they pollute too much.

Not sure if the EPA or environmental crowd would allow diesel engines without a massive fight. It is interesting that since the ethanol issue has now proven to be a problem with higher fuel cost, higher food cost, and not being good for engines, the benefits of ethanol have been silenced in the media. Where is the talk or trumpeting of how much cleaner the air is now since the mandatory addition of ethanol in our fuel?

Anonymous said...

If we let the automakers go under there will be a loss of millions of jobs. Its not just the union workers but all of the other industrys that make parts for cars. Rubber, plastic, steel workers, salesmen, auto repair shops. Its more then just the loss of union workers you know!

Bubba said...

make no mistake about it. This bail out will go righ to the unions. This is the first course of an all he can spend buffet for Obama to repay his supporters like the unions and MoveOn.

Why should we bail out the unions if Mr. Obama's ideas for health care are so great? Kill the union benefits and let the companies become competitive again.

A bail out will only be a bandaid on the problem, it will only give the companies more time to find better relocation sights in business friendly nations. But then again this isn't about the companies. This is for the unions.

Bubba

RightsideVA said...

anonymous 5:57,

Thae failure of the top 3 will result in a merger or a re-org of the actual companies. There would still be a demand for the products you mentioned but it might be from Honda, BMW, Hyundai, etc but there will still be a demand.

Other companies may find themselves in the same situation as the Top 3 and they too will have to change\improve to survive.
I look for the top 3 to re-org and come back stronger and leaner and able to provide a good product that benefits both the maker and the consumer if the free mkt is allowed. If they are simply "bailed-out" by the congress to preserve the unions, their votes, and many in Mgmt who did not run their companies the correct way...

Phil said...

good piece. Change colors on comments. Impossible to read.