Tuesday, November 29, 2005
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GM: it's about more than legacy costs
Sean Gregory asks a useful question in Time: if the problems at GM are symptomatic of American manufacturing writ large, then why are foreign auto firms doing so well in the United States?
According to the Center for Automotive Research (CAR), the number of manufacturing jobs created by foreign-based automakers in the U.S. has risen 72% since 1993, to about 60,000. (The Big Three currently account for around 240,000 manufacturing jobs in the U.S., down from 340,000 in 1993.) The Asian companies have grown the fastest. Toyota, which plans to overtake GM soon as the world's largest automaker, has 11 U.S. plants and expects to open a truck factory in San Antonio, Texas, in 2006. European brands, including BMW and Mercedes-Benz, are also growing. CAR estimates that foreign automakers operating in the U.S. add 1.8 million jobs to the American economy, including white-collar, dealership and supplier positions--from partsmakers to the bartenders at post-whistle watering holes.Click here for a CAR report on the contribution of foreign automakers to the U.S. economy. posted by Dan on 11.29.05 at 08:12 PM
1) make homely cars that are not durable
2) provide short warranties and lousy service
3) be arrogant
4) sign union contracts that allow featherbedding, tolerate high absenteeism, constant grievances, etc.
The finance geeks running the company have built a great bank (GMAC) with an auto albatross tied to it.
GM still doesn't "get it," and it may require bankruptcy before the do.
In the mean time the toll of workers, families, suppliers, etc., is going to be gruesome.posted by: save_the_rustbelt on 11.29.05 at 08:12 PM [permalink]
posted by: Jon H on 11.29.05 at 08:12 PM [permalink]
Paul Graham has some interesting comments on why American-corporation-designed cars are so unappealing here. IMHO, the key quote is:
posted by: Mike Stiber on 11.29.05 at 08:12 PM [permalink]
And 3 mores points to your GM formula save_the rustbelt:
- Abuse your suppliers so much that they compromise quality and cooperation
One of the interesting by-products of a stagnant industry or company is what happens to the age of your labor force. From the 1970s to the 1990 employment by the big 3 essentially stagnated as for all pratical purposes they did not hire new employees. Consequently, the average age of their work force grew sharply so that by the 1990s you needed your 20 year pin to get on the factory floor in Detroit. But compensation is very much a function of years of service, so average wage costs rose sharply. In contrast, the Japanese firms were opening new plants and hiring new emploess that had little experience.
In the short run, a company can prosper by betting on inertia. In the long run, it can prosper only by betting on change.
GM and Ford were doing very well a few years ago, when fuel costs were low, the economy was booming, and customers were willing to spend their money on high-margin vehicles like trucks and SUVs. The fact was, though, that most of the people who bought SUVs did not need all the space they had and hardly ever took them off-road; the economy was not always going to be booming, and fuel costs were bound to go up. Faced with the choice of maximizing profit (hence share price) in the short term and preparing for change, GM and Ford barely even blinked. Now they are behind the eight ball as far as their customers are concerned, with cars less appealing than those made by Honda and Toyota and large vehicles less attractive to newly mileage-conscious consumers -- and also much more expensive than very similar used vehicles now flooding the market.
High wage and non-wage compensation and burdensome legacy costs would handicap American car manufacturers even if they had prepared for a future different from the mid-1990s, but if they had done this we wouldn't be talking about bankruptcy for either GM or Ford.posted by: Zathras on 11.29.05 at 08:12 PM [permalink]
> Disconect R&D from marketing and
While I doubt that the mythical 100 mpg carb ever existed, a good friend of mine spent 20 years in the Tech Center doing absolutely mind-boggling fundamental research resulting in numerous breakthroughs in auto technology that never made it into sellable products. Marketing always had a reason it wouldn't work, it seems.
Crankyposted by: Cranky Observer on 11.29.05 at 08:12 PM [permalink]
Well, Cranky, would not a GM bankruptcy be a positive good thing, releasing all that research for use by whomever succeeds GM in the US market?posted by: Don on 11.29.05 at 08:12 PM [permalink]
I've managed to save up roughly $11703 in my bank account, but I'm not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?posted by: Courtney Gidts on 11.29.05 at 08:12 PM [permalink]
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