High costs imperil Big 3

lrymal · February 12, 2005

Howdy, y'all. I was taken to task via e-mail about a statement I made in which I stated that I felt the Big Three automakers would no longer be in the top five as far as market share was concerned, in ten years. So, to qualify my statement, I found the following article may contribute a bit:

High costs imperil Big Three

David Guralnick / The Detroit News

Richard Dauch, chairman and chief executive of American Axle & Manufacturing, created a stir earlier this month at the Economic Club of Detroit when he said the survival of the Big Three automakers is threatened....:

Like it or not, Detroit is in the cross hairs of world automotive competition.

For more, CLICK HERE >>>>

MCourson · February 12, 2005

If the Asians can learn to build a superior vehicle for less cost then more power to them. If the Big 3 cant keep up, then they deserve to go under. Capitalism is a wonderful thing.

apache sierra · February 12, 2005

Thats why they are desperately trying to allign themselves with the european and japanese markets by buying into their automotive industry. Owning a piece of the future(pie) is always a good hedge

cedjunior · February 12, 2005

Unions and Lawsuits is whats killin them.

Elwood 2000 · February 13, 2005

cedjunior is exactly right!

lrymal · February 13, 2005

If the Asians can learn to build a superior vehicle for less cost then more power to them. If the Big 3 cant keep up, then they deserve to go under. Capitalism is a wonderful thing.

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I keep mulling over this..... With all things being equal, Capitalism is indeed wonderful. But, the American dollar isn't competitive globally, hence labor costs are totally out of balance, as the article explains. I would like to blame the lawsuit mess that we have here, although I have wondered if it exists in the third world countries as well.

I read *somewhere* about the birthing and creation of the new MiniCooper. Everything is foreign with it---everything. From the engine to the seats, not any one country's automotive industry builds the MiniCooper. This is done to keep its costs waaay down. The assembly plant is strictly, that. Just an assembly plant. All the bits and pieces are bolted up, and out the door it goes. The parts are produced as the result of a world-global bid.

Imagine. Driving our new GMC / CHEVY SILVERADO using airbagged steering wheels made in, ummm, Pakistan, Somalia, Mainland China. On the other hand, we enthusiasts choose to get in debates over the GM trucks' nose, while Ford, Chrysler, and GM totally lose site of their competitive edge, duking it out with each other, ignoring the world full-sized pickup market that is just entering the North American scene en masse.

Ah well.......... so be it. I can see it now. I'll be driving my six-passenger, mid-gated (electronically controlled), full-sized 4-wheel drive pickup that is sporting variable-load horsepower that tops out at 500 rwhp and getting 35 mpg, ummm, on a smooth Nitro/Hydrogen fuel mix. It will be built by Hainoo-Wang in Shanghai, China which won "Truck of the Year" by MotorTrend 2015.

In the meantime Ford, GM, and Chrysler are going through their final take-over in the courts by Apple-Microsoft, as a result of Bill Gates surrendering his hopeless debts for fulfillment of his personal bankruptcy requirements.

Ignore me, y'all. Slow Sunday morning with the flu....

MCourson · February 13, 2005

If the Asians can learn to build a superior vehicle for less cost then more power to them. If the Big 3 cant keep up, then they deserve to go under. Capitalism is a wonderful thing.

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I keep mulling over this..... With all things being equal, Capitalism is indeed wonderful. But, the American dollar isn't competitive globally, hence labor costs are totally out of balance, as the article explains. I would like to blame the lawsuit mess that we have here, although I have wondered if it exists in the third world countries as well.

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I agree, the American dollar is not as competivie because every one here has that gimmie gimme gimme or I'll sue ya attitude. They don't understand that in a truely free market they would get what they were worth. You want more? Work more, work smarter, work more efficient. But the numbers of the uneducated banded together and got their way. And who will the Unions blame compared to who is really at fault?

93Stocker · February 15, 2005

If the Asians can learn to build a superior vehicle for less cost then more power to them. If the Big 3 cant keep up, then they deserve to go under. Capitalism is a wonderful thing.

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I agree, the American dollar is not as competivie because every one here has that gimmie gimme gimme or I'll sue ya attitude. They don't understand that in a truely free market they would get what they were worth. You want more? Work more, work smarter, work more efficient. But the numbers of the uneducated banded together and got their way. And who will the Unions blame compared to who is really at fault?

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High costs imperil American manufacturing generally. Jobs and job creation are critical to our way of life and standard of living. Buying the products of foreign manufacturers sends money out of the country. Since we buy far more from foreign countries than we export to them, we have a huge trade deficit. The more good paying jobs we have in this country the better for us all. Higher pay results in higher tax revenue. As a country, we don't currently take in enough money to pay our bills so we also have a huge Federal budget deficit. This deficit is financed by issuing debt obligations through the U.S.Treasury (that's really you and me). This debt is increasingly financed by foreign entities giving "more power to them"! If the Big 3 (2 actually, Chrysler isn't an American owned company) go under, it would not be good for America or Americans.

Many U.S. companies have exported jobs to inexpensive foreign labor markets. Some of these employ child labor, pay $1.00/hr., ignore health, safety, and environmental concerns, etc. These poor people "get what they're worth" in developing countries with huge labor forces and a low standard of living. American workers can't compete against this backdrop even when they do "work more, work smarter, work more efficient". As for "who is really at fault?", there may be plenty of blame to go around but, what about CEO's and Boards of Directors? It was reported that Ford fired their former CEO after he made a number of poor decisions that led to a $5.5 billion loss for the company. He received a severance package worth $23 million for his efforts, wonder what the UAW severance package is? It was announced yesterday that General Motors is paying Fiat approximately $1.3 billion to get out of an agreement it had previously signed to buy Fiat. Surely it wasn't the case that "the uneducated banded together and got their way" in either situation. It's more like the highly educated screwed up and cost their companies lots of money and maybe their employees a few more jobs as well!

Wingnut · February 15, 2005

An action plan

Detroit’s auto industry needs an “action plan” for a healthy future. You and I have every right to demand it.

Here are 10 points to help us get started:

1. Respect the human resource and realize that people are our most important asset. We would not be in business without our employees and the positive spirit of our workforces.

2. Where unions are present, foster cooperative partnerships to maintain sound management and workforce relations.

3. Implement proactive programs for education, training and skill-set development to adequately prepare your workforce for the demands of an increasingly high tech and sophisticated workplace. The massive advance of technology in product, processes and systems requires a totally different set of skills.

4. Continue to invest in research and development, regardless of the economic climate.

5. Provide the highest quality products, services and customer response in an efficient, timely manner — and at a fair and competitive price.

6. “Design in” all the right features in your products, processes and systems to best serve your organization and your customers. All quality and cost issues start with design. Provide continuous direction and review of product design from concept to production. All design and process needs to be done simultaneously and concurrently using the latest technical capabilities.

7. Negotiate sourcing agreements with organizations maintaining world leadership standards and capability.

8. Actively engage your company and human resources in the communities where your associates live and work.

9. Work with your governments — local, state and national — to create the right operating environment. Work to correct “real” economic issues.

10. Realize that you need a good balance among your stakeholders. This includes your employees, the shareholders, unions, suppliers, customers, communities and related financial institutions.

(Global competition) is the defining issue of our time in Detroit. Everyone in this room has to make the decision to mentally and intellectually involve themselves in the solution to this issue. In the short term, manufacturing will have more than its fair share of challenges. With no pain and strain, there will be no gain.

The moment of choice for the American auto industry is at hand. Detroit and its people must come to a decision. Let us decide to be the industrial leaders of our time, so Detroit remains the world automotive epicenter.

I like how he doesn't get to quality and design of the end product until the 5th and 6th items.

And not to start a flame war or anything...But costs? Why do some people get paid $25 an hour to put 5 bolts in a dashboard? That's a decent wage for unskilled labor.

MCourson · February 15, 2005

But costs? Why do some people get paid $25 an hour to put 5 bolts in a dashboard? That's a decent wage for unskilled labor.

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Exactly my point.

robsawatsky · February 16, 2005

The 10-point action plan previously posted addresses a lot of general business problems but fails to identify the one single most important economic reality, which is:

As any nation increases its standard-of-living, particularly in relation to other countries, the cost of labour becomes disproportionately higher for the manufacturing of mass-produced goods of all sorts. Eventually, the manufacturing sector for many types of products becomes uncompetitive internationally IF in-country labour continues to contriibute heavily to the content of the products. Locally-sourced, low-cost, raw materials can offset some of these costs, assuming they are available. But the labour intensive industries that produce the raw materials and first layer of processing suffer the same labour-cost increase problem.

In a nutshell, if you want to continue to have a profitable national manufacturing sector, the old processes of raw-material to finished retail goods have to be open to radical change. Including, multi-national sourcing of components and materials. OR, put up huge tariffs, win the election, and end up even worse a few years down the road.

It isn't restricted to auto's either. Look at the clothing industry. I think Levi's have no (or close to zero, compared to what they used to have) denim jeans plants in US or Canada anymore.

I saw that breakdown of the Mini's components. The sources come from all over the world, but I noticed many of the suppliers are controlled by North American and European companies even if the factories are elsewhere.

93Stocker · February 16, 2005

But costs? Why do some people get paid $25 an hour to put 5 bolts in a dashboard? That's a decent wage for unskilled labor.

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Exactly my point.

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I did a net search and found a Washington Post article that stated the hourly wage rate at a Toyota plant in Georgetown, KY. is $24.20. The plant's employees are not represented by a union. So, I guess the answer to the $25/hr. question might be as simple as that's the industry standard. It appears to me that having to pay union negotiated hourly wage rates is not the root cause of the domestic manufacturers problems vs. their foreign competitors.

Updating on GM/Fiat: Media reports today said GM had already written off its original $2.4 billion investment in Fiat. In total GM spent $4.4 billion to establish and terminate its relationship with Fiat. It has been called "a strategic blunder" and worse by industry insiders. As I said before, there may be plenty of blame to go around.