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To bail out or not to bail out?

The Question: Bailout or no bailout?

Postulate 1: It's not auto sales that's the problem
I heard a quote the other day from senator Tom Coburn, one of the Republicans filibustering the auto bailout plan:
"In 2007, GM sold 9.37 million cars worldwide. Toyota, that same year, sold 9.37 million cars worldwide. GM lost 38.7 billion. Toyota made 17.7 billion. Therein lies the problem."

Now wait a minute. What I keeping hearing is this: "The problem is that no one will buy American-made cars." In fact, this made the rounds on the 'tubes this week:

Shitty cars poster

So what's the truth?

Turns out Coburn is right and the poster above (while catchy) is wrong.  Google around and you'll find plenty of references (mostly from reports that came out in January of this year):
MSNBC
Washington Post
etc.

In 2007, GM (the biggest and most dramatic example of "trouble" in the US auto industry) beat Toyota in worldwide sales by only a few thousand cars, but they each basically sold 9.37 million cars.

As an aside, GM's sales are going down in the US, but they are going up basically everywhere else:
"Overall, we sold more than 9 million cars and trucks in 2007 for the third year in a row, and only the fourth time in GM history. Of those sales, a record 59 percent were outside the U.S. ... In 2007, our sales in Europe were up about 9 percent to a record 2.2 million units ... Strong demand for GM cars and trucks in the United Kingdom, Ukraine, Italy, Greece and Russia – where sales doubled to almost 260,000 units – made GM the fastest growing major automobile manufacturer in Europe in 2007 ... n 2007, we, with our local partners, became the first global automaker to sell more than one million vehicles there. Other highlights include 74 percent sales growth in India, and 30 percent growth in export sales from GM Daewoo in Korea. ... In our Latin America, Africa and Middle East region, sales were up 19 percent to a record 1.2 million units in 2007. All-time sales records were set in the important Brazilian market, as well as in Argentina, Chile, Colombia, Egypt and Venezuela."
From GM's 2007 Annual Report

It's pretty clear that GM is selling plenty of cars, and while the American market is tanking, they're growing rapidly around the world.  Where's the problem, then?


Postulate 2: Maybe it's the employee costs?
A lot of folks assume that non-American cars are made mostly in non-US plants, but that's no longer true. Most Toyotas sold in the US are also made in the US. However, those Toyota plants are non-unionized. The hourly rate for union GM workers versus non-union Toyota workers is about the same, but when you add in benefits, there's a HUGE margin:

"Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively. ... the hourly compensation cost for labor, including benefits and retirees' costs, at the Big Three is $73 per hour, compared with $44 per hour at a Toyota factory with American workers in the U.S."
From blog.mises.org

It takes roughly the same number of hours for Toyota to make a car as GM, but the cost-per-hour is hugely different. GM's unionized workers have a sweet deal, but it may be a deal that runs their company into the ground. When you get the average profit or loss per vehicle (total profit loss/vehicles sold), you see this stark statistic:

"For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold."
From blog.mises.org

In other words, every time GM makes and sells a vehicle, they LOSE four grand. Unbelievable. They simply can't afford to research, design, manufacture, deliver, and sell cars at a price that makes a profit.


Postulate 3: Maybe it's everything EXCEPT sales?
Unions don't account for all of it. There are other issues, such as distribution costs (Toyota sells through a MUCH smaller network of dealers, apparently), supply chain efficiencies, the fact that a lot of GM's sales are cheap sales to rental fleets, and so on.

If, as it appears, GM is selling plenty of cars but hemmorhaging money everywhere, then it's hard for me to see doing anything to prop them up. It seems the demand is there, and they just need to go through a painful period of slimming down. You know, the kind of thing companies do when they go through a Chapter 11.








Comments

( 5 comments — Leave a comment )
miladyelizabeth
Dec. 18th, 2008 10:34 pm (UTC)
Wow, I'm not sure how I feel about this. On the one hand, they obviously need to cut costs. On the other hand, workers need insurance and benefits. Blargh.
ladyviola5
Dec. 19th, 2008 05:05 am (UTC)
Workers at the foreign plants get benefits as well, and often good ones. The main difference? The big three American plants are almost all in the midwest. The new foreign plants? Alabama and Tennessee. Cost of living is WAY cheaper in the south. Also, when you consider how much of your paycheck goes to the union with the big three, it ends up being not much difference between the two.

http://www.weeklystandard.com/Content/Public/Articles/000/000/015/918gvijq.asp

"There's a simple explanation. It's what I call the progressive anti-unionism of the transplants. It consists of one factor: They pay well. Workers not only make far more than the prevailing wage in the rural areas where most plants are located but also considerably more than every state's average wage. With overtime, they can earn $70,000 or more a year at some plants. Average pay and benefits: roughly $45 an hour."

""We don't have a culture that values union organizing," says Haley Barbour, the Republican governor of Mississippi who persuaded Toyota to locate a Prius plant in Blue Springs in northern Mississippi. "Our workers like overtime and pay for performance. They feel like they get a better deal without the union.""

"The UAW's problem is that it has little to offer. High pay? The workers have that. "If you're making $50 an hour, what do you need a union for?" says Randle. Job security? Workers tend to rate a successful company as a better security bet than a union whose members are losing jobs by the tens of thousands. A voice on the assembly line? Transplant workers have that, just not through a third-party like the UAW.

So the UAW is left with a handful of weak arguments about on-the-job accidents, overworked employees, and sweatshop conditions. "Why would a worker in Alabama or Texas making far and away the best wages he ever could want to join the UAW?" says Washington attorney Richard Wyatt, who specializes in labor issues. "The UAW has no story to tell these people that makes any sense.""
mrbri
Dec. 19th, 2008 06:30 pm (UTC)
It looks like the bailout just happened.
I don't get it. I'm not purely a believer in "Corporate Darwinism". As a matter of fact, I thought I made that word up. I just Googled it and I discovered that I did not.
Anywho. Where was the gov'ment when the American TV makers all went out of business? Oh yeah, other companies made better quality TVs for less money.
I see no point in the bailout. Take the 17 billion and give half of it to Tesla motors. Give the rest to Honda and Toyota and tell them to use the factories and employees of our failed greedy corporations and make cars people want. If they don't like the factories we have now, they can wait until October, at which time they will be burned to the ground in Detroit's annual rite-of-passage.
Then they can be re-located to the likes of Pelion and Aynor.
boktheinternal
Dec. 20th, 2008 03:10 pm (UTC)
Interesting post
I've thought about this a bit myself. Some comments on each postulate follow.

Postulate 1:

Though I support the notion to a certain extent that Japanese cars are vastly superior in craftsmanship and reliability, American motor vehicles have become much more reliable over the years. Hell, even Harely Davidson motorcycles are no longer TOTAL pieces of shit. Used to be that if you bought a Harely and were smart, you took it home, took it apart, then put it back together again (Not making this up. My Dad is a long time motorcyclist who knows his shit.) Now they are overpriced, still not very good bikes, and driven by rich people in biker costumes on pleasant weekends... but I digress...

Auto industry. If you want a good gauge of vehicle reliability, you can pick up a copy of consumer report's annual reviews. If my memory serves me right, Toyota and Honda in particular tend to have across the board great reliability on their products. However, the over all reliability of most vehicles has gotten to the point that many folks will want a new car well before their old one dies (if they do regular scheduled maintenance, change the oil, etc.)

Most automobile manufacturers sell a number of vehicles only in certain regions. For example, many of the super tiny super high efficiency cars have been out in Japan and Europe for awhile, but still haven't made it state-side in any significant amount.

Something I didn't see you directly mention is the possibility that GM has done a far better job marketing and/or producing vehicles specific to the demographic of other nations far better than they have here at home. Based on their record breaking sales, it would be easy to assume this (how accurate such an assumption would be is entirely questionable, of course).

Now, I can't help but get mildly conspiracy theorist and go so far as to say the big three might not WANT to meet consumer demand in the USA. Case in point: the EV-1. It was a great idea, but poorly executed. If you watch the documentary "who killed the electric car", you may even be led to believe that maybe the public wasn't ready for an electric vehicle (which is very possible).

One of the problems you don't hear much about electrics is the problem for manufacturers when it comes to vehicle maintenance... the problem being that there is so damn little of it. Electrics have far less to be replaced, often have self contained parts, use little to no oil, and are often much more streamlined in many ways. Thus, there is less money to be made by all if you have a product that needs less stuff replaced or lubricated on a regular basis.

I can't help but wonder how much of a part big oil played in killing the EV-1 and other electrics. Hell, if I ran a huge money making industry that had a large investment and cash cow that relied on people using multiple products I produced nearly every day of their lives... why would I want to give it up (excluding, of course, those pesky things like morals, wanting to have a habitable planet for future generations, etc.)?

If electric cars had the range, convenience, and price point of gas cars (the later probably being the most important and furthest off), that would be a massive threat to many industries that exist to support the current machines of transportation.

Fast forward to today: with the drop in gas prices, electric sales have gone to total shit once again in the USA (makes me sad). Once again, I think cost of purchase is the big issue. People don't want to factor in fuel saving costs. They look at the up front costs.

Who knows, maybe I am alone in wanting an all electric car that can drive itself and be recharged by an at-home roof mounted photovoltaic array or wind turbine. I'm still holding out.
boktheinternal
Dec. 20th, 2008 03:15 pm (UTC)
Postulate 2 and 3:

Frankly, I think this and postulate 3 are the main issues. Sadly, I think this will also be remembered as a text-book case against unions in a capitalistic market-driven society. Unions are basically a form of socialism. With capitalism running more and more rampant in the world, this particular approach is probably not the most practical. Now, if in fact, it's really things OTHER than the union and sales, but merely issues of mismanagement and bad choices in supply chain... well, the unions will still get shit for it.

From a big picture point of view, with the banks, auto manufacturers, and DRAM manufacturers all really feeling the hurt, massive amounts of people around the world losing their jobs while many of the ultra-rich still stay rich... I can't help but wonder if humanity starts re-evaluating the way the markets work, and perhaps get forced into re-evaluating how to curtail greed and/or address the side-effects of rampant un-checked capitalism.

Frankly, I think we're at the beginning of a new world-wide economic collapse and/or depression. A part of me hopes that's the case, since maybe... MAYBE, we'll do that human bit where we band together, get to know our neighbors, help one another out, and FIX the damn problem.
( 5 comments — Leave a comment )