I believe there are several reasons as to why the big three are in trouble. What i am going to focus on is mainly General Motors as they seem to be the largest company of the three in trouble.
Lets start with product diversity. GM pretty much has under its name, Opel, Saab, GMC, Chevrolet, Buick, Oldsmobile(dissolved), Cadillac, Pontiac, Holden, HUMMER, and a joint venture with Deawoo (gag). Now lets focus on the sales of these models, particularly the ones that we see everyday on the road.
As you can see GM has A LOT of cars in its lineup as well as a lot of cars that, if you comopare prices are competing against each other. Wouldn't one think that diversification is a good thing so you can reach all ends of the market to maximize profit...correct? Well that is correct but GM, as it saeems went to far and started creating its own competition. Recently during a vehicle purchase by my Dad, we looked at the GMC Yukon Denali and the Cadillac Escalade and Hummer H2 SUT Alpha. When comparing prices of the vehicles they were all similary priced? So the choice came down to three different brands from the same company? Something seems a little off here don't you think? This type of example is what i think is getting GM in trouble. You have the Pontiac Grand Prix competing agaisnt the chevy Malibu, Monte Carlo, and Buick Enclave. Why so many? These cars share the same underpinnings, suspension, engine and transmission choices....Another example is Chevy Trucks and GMC trucks. Basically the same trucks, price difference of less then a grand all competing against each other. Why is this?
Its this wasteful spending on badge engineering and retooling factories that basically is getting GM into hot water. Toyota, Ford, Chrysler etc all have 2 or three brand variations and there is a large gab in between each variation. A ford Taurus is 5,000 bucks less then a Mercury Sable. A Toyota Sequoia is 20k less then a Lexus LX570, despite they have the same underpinnings. These companies are more focused on selling to a distinct group, but GM seems to have lost its way.
Pretty much the reason i think GM is in the trouble it is now, aside from shoddy quality and whiny unions is because they have too much of basically one things. They have gotten to the point where they have their own cars and trucks competing against each other, taking away from their profits.
I tried to make it clear but i was thinking faster then i could type.
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There are several more problems as to why GM and the Big 3 are in fiscal trouble than what you’ve already mentioned. First, GM has a huge problem with unions and pension liabilities to retirees. Take my grandpa for example; he worked at GM for 16 years back in the 1970s, which was the minimum number of years of service to receive full-time benefits. Was his contribution to the company in those 16 years worth the next 25 years (and still going, he’s 88 now and still kicking) of benefits which he has sucked up? Hardly. GM didn’t have the foresight to realize that they would eventually be competing with outside foreign competition (Honda, Toyota, Nissan) and not be able to control the prices for their products in an oligopoly. They have since begun to correct the issues, I’m not exactly sure when, but I suppose they realized this problem in the late 1990s (when health care began heating up), however it was too late. There were too many old geezers like my grandpa who were already suckling on the GM teet. It’ll take awhile for these pensioners to die off. My uncle, who just retired from Delphi (subsidiary of GM), was offered $500,000 cash, or the traditional pension. He chose the pension, contrary to the rest of my family’s wishes believing if they were to offer him $500,000 in cash, the pension must be worth more. This may be why he worked in a factory. The reason why Delphi offered him the pension was to unbridle themselves from the risk of him outliving their own projections, as well as the medical costs he might have later on. My uncle failed to do some financial analysis, or discuss this with a financial advisor and instead believes that GM is going to be around forever, as well as Delphi. I doubt that will be the case.
ReplyDeleteThe second reason why the Big 3 are tanking more than they already are, is because of the fear of them going under. Just like in a bank run, when nobody will put money into a bank if it’s about to fold, nobody is going to invest money in a car which might not have any support in the future. Support as in, parts, repair, any safety recalls, as well as the future resale value of the vehicle. If anyone remembers the Yugo, (the car not the country), it was an extremely cheap car built in the mid 1980s, that’s notorious of being a terrible car, but you can’t even find one on the market now since there’s no parts being built to repair them.
Those are just 2 of the reasons GM, Ford, and Chrysler are gagging on a spoon.
Coming from a GM family (who was not even on the assembly line or in the union-they were and are all salaried workers) it really bothers me when I hear people talk negatively about the Big 3. I had an internship with General Motors this summer and what I learned opened my eyes to the things that these people are facing right now.
ReplyDeleteCharles H. I don't know what your grandpa did for GM, but working in a factory environment is certainly not for everyone. For two weeks I had to work on the assembly line and help build the Chevy Cobalt and Pontiac G5. You have absolutely no idea how awful it is to do something 650 times a day over and over and over again five to six times a week, UNLESS YOU HAVE DONE IT. I could not imagine doing this for a month let alone thirty years and that is what most of the union workers do. I think it takes someone very special to work on an assembly line.
With that said, I *DO* think that the UAW has taken advantage of General Motors. Although, I think there work is very valued, $29-$40 an hour is entirely too much to be paying them. Some did not even have high school degrees and would complain about GM, but where else would they find a job to pay them $40 an hour?? NO where. Another thing, they can miss a lot of work and get away with it because of the union and the binding contract they are in, which is totally unfair because they still get paid. I believe more strict rules and a pay cut to about $19/hr would be beneficial to GM.
But, we have to understand that that cannot
happen unless GM breaks their UAW contract and that can only happen if GM goes bankrupt. The UAW is a very strong group of people and a force to be reckoned with so it is very hard for them to decrease their workers wages.
Why this hurts me so much when I hear people complaining and saying "let them go under" is because during my summer there, even though I did meet whiny pansys working the union system, I met so many more people who were so blessed to have such a good job and were honest, good workers. GM has laid off thousands and thousands of people who just went to work everyday to make a living and always followed the rules. They had nothing to do with the decisions that the corporate headquarters made and the financial situation that GM got into. But they are ALL suffering for it. Laid off, with four children and no longer a steady income. This is typical there. People who have no idea what is going on and how badly these people are suffering are the first ones to make statements about letting them go under. They have no clue the impact this has on the economy and these peoples lives.
Another reason you must take into consideration is the BIG 3 were the first ones to invent cars in the early 1900's with the Model T. They have millions of more retired workers to pay for pensions AS THEY SHOULD they have been around for a hundred years.
Everyone wants to say "Foreign car companies are doing so good"-they should be, they have not run into any of the issues of a long running automobile maker. And when you buy a foreign car, your money leaves this country and goes to that country immediately. I don't drive a foreign car so therefore this is not my concern, but I don't really know why people do (blah blah blah foreign cars are better). But i'm not really sure why you would give your money to another country, when you have GM, Chrysler, & Ford to choose from.
Foreign companies also sometimes don't have labor laws so they can make their workers work for very little wages and increase output=obviously doing well for the company and doing better than ANY American company with strict labor law AND a minimum wage. But that's not how I like to roll and I don't approve of giving my money to companies that mistreat workers.
To end this, I believe saying the Big 3 are "gagging on a spoon" is not a very respectful statement. The Big 3 were the ones to invent the automobile, so now when they face financial troubles they are all supposed to fall? Not leave one American company, who was responsible for the creation of the automobile in the first place? And, they are such a huge part of this economy that if they did fall, GM alone would create over a million job losses. That is without Chrysler or Ford. There is no way they can fall, it is not economically feasible.
I'm not sure whether or not Mahdey S. is for the survival of the domestic automakers or not, however you (Bethany B.) make it quite clear that you wish to protect the 3 as they are icons of the American economy.
ReplyDeleteHave you ever heard of Joseph Schumpeter? He, among others in the Austrian School of Economics (including Friedrich Hayek who we watched a video on) developed the theory of "creative destruction". This theory predicts that any vacuum created by the loss of large industry will be filled by a smaller, leaner organization to fill the need, if a need is desired. Comments such as that 'they must survive because we owe it to them' is exactly the kind of thinking which the Austrian Economists were against.
The perils facing the 3 may be the same issues, or could be completely different issues from what the foreign automakers will face in the future when they are the dominant players in the industry. Their time will come, and when it does, it could be a new American automaker with a hydrogen car, or it could be Tata Motors of India, with a whole new assortment of economy cars. The fact remains, the most efficient, the best value for the consumer, and the most desired car will survive. Although it's questionable now in the American pysche that American cars suck, it wasn't like that came from out of the blue. There were, and are valid complaints outlined by Mahdey for why the automakers have fallen out of choice. If the foreign automakers don't adapt to their future challenges, they'll be meeting the same fate.
Now in regards to the UAW and line workers, I completely agree that the work sucks. I never said or intended to imply that the work was easy. What I tried to convey was the question of whether or not people like my grandpa are entitled to such gross compensation in the future. Any firm must look at the cost of producing a vehicle, current, as well as future costs to see if it's priced accordingly.
In this article, http://money.cnn.com/2007/01/26/news/companies/pluggedin_taylor_ford.fortune/index.htm
it states that "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."
Is this really feasible? Assuming a new car generates about $16,000-$30,000 in revenue, over $1,500 is spent on the non-producing cost of healthcare for retired workers. I can understand automakers being responsible for worker's compensation for injuries directly caused by the work which they do, however they should not be responsible for cradle to grave financial security. No other industry has such loyalty to its employees, especially today.
It's not the fault of the employee. Many current employees come from automaker homes, growing up in Flint, or Lordstown. I can understand that alot of them expected to go right from High School to a full-time job at GM for example until they retired. However, the rules of the game has changed. Not just for auto manufacturers but for everyone. I'm not sure about the survival mechanisms which the U.S. used to try and save the steel producers, but time has shown that they failed. Whether or not that outcome was a detriment to our economy is a different debate.
However, what is pertinent is that in this class, we have had plenty of examples where regulation has shown to be a hindrance to efficient output.
Let me ask you this, how many people have benefited from cheaper, better quality cars? I know plenty of people who would not have bought a car if a cheap quality car hadn't been available. I also know a bunch of people who have bought a foreign car and used the money they saved to increase their utility elsewhere. Increasing the cost of the car to subsidize these pensions increases the deadweight loss.
Coming full circle, the failure of GM, Ford, and Chrysler will not mean a failure in the u.s. automarket. There will still be a demand for cars, and what will most likely happen, is that the foreign makers will purchase the plants, renovate them, and start building cars using the same people that were employed by the domestics, at a cheaper efficient wage, with less benefits.
It is not the place of private business to supply benefits it is the government. If the workers don't want to work for the foriegn automakers since the wages are unjustly to low, then they should be able to move on to another career. However, as long as the people have a choice of where to work, and the employers have the right to offer work at any wage, the question of pay and benefits is an economic one, and not a moral one.