Why does US auto industry have so much trouble competing?

Nope

(but i'd hardly consider 1995 the glory days of Detroit!).

 

You would buy a Ford if you wanted an SUV or a heavy truck or a mustang. That is what fueled the resurgence of American automakers for the last 15 years - Why is it surprising that super-cramped, hyper-expensive Japan is better at building and marketing small & mid-sized fuel efficient sedans, while open-road, cheap gas US carmakers do better with large trucks, SUV's, & gas guzzling sports cars? Not surprising in the least, especially since gas-guzzling is now on the outs with higher fuel prices. I don't understand why people don't think the business cycle and other market forces don't affect the auto industry like they effect everything else.


To close the book on unions - it's both amusing and somewhat sad that people automatically think that fat-cat, greedy American union workers are responsible for the downfall of the auto industry - Let's examine the major auto producing nations: who do you think has a sweeter labor set-up from a worker's perspective:

1. A Japanese auto worker who has a guarantee of lifetime employment; 2. A German auto worker where the trade unions are very powerful and who lives in a social welfare state w/government health care, et etc etc ; or 3. A UAW worker at a GM plant in Flint Michigan?

If you said number 3, you're smoking crack.

 

The domestic utility vehicle market is eroding as foreign autodealers are moving in.

Toyota has been quick to adapt to regional pressures. They've been training regional managers to handle regional duties. They've also allowed home grown designs to hit the market. The US designed Scion and Prius have been surprises for their success. Meanwhile, GM designs their cars in Europe and tries to slap the same model across the world.

Their planned hybrid Camry is set to make a killing. For all the talk domestic car companies have dished for hybrids and new technologies, they've let a foreign company trump them again.

 

I think when one of the GM guys came to UT to recruit, I think he said something that kind of tell why there was a problem. In the 70's and 80's, GM hired most of engineers and designers from Michigan area, mostly likely someone who were offsprings of other GM engineers and designers. In as sense, you basically are hiring someone for most of his life is getting a new car every two to three years because his dad gets specials and etc. That cause a problem with not only not looking ahead and building cars to last, but also really killed innovation with not having people from a diverse pool to create these cars.


They end up with a lot of car nuts and gear heads (and I say that with affection) that can make some really good top of the line cars (corvettes) but when it comes to an average family sedan, they just don't know the idea well enough to design a good competetive one. They are trying to change now, hiring college students that are from different backgrounds, but I get the feeling that its just playing catchup and it'll be a couple of years before there are suffecient new blood to cause a revolution.

 

They missed out big on hybrids and are miles behind - for the last 10 years, when people talked about better fuel efficiency & particularly SUV's, and the associated matters like global warming, US carmakers simply changed the subject to vaporware, and said "hey, look at the pretty FREEDOM CAR!", gambling that the SUV golden goose was going to keep laying eggs indefinitely. Now high gas prices are here and thier vehicles aren't as popular and they are missing out on the hybrid market - that's what happens when you make a losing bet.

 

Unions and their effects cannot be overlooked as easily as SamFisher is trying to play them off. GM has about 2.5 retired pensioners per active employee. Those pensioners' health care costs amount to about $1,500 PER VEHICLE sold by GM today. That, my friends, is a problem. The Japanese manufacturers do not have this issue to deal with. This problem is to blame for GM's financial woes, which together with their missing of the boat on consumer car preferences has led to major issues at the world's largest auto maker.

 

Precisely. Extremely poor design. Extremely ugly. Average performance.

Since I like sports cars and I have fairly limited means, there is absolutely nothing offered by the American car industry that is appealing. The only American cars I can think of that were even somewhat in the same category were the Fiero and the 2nd Gen Probe. The Fiero used to have problems with the engine dropping out when the mounts would unexpectedly and catastrophically fail. I wouldn't buy a 2nd Gen Probe because I knew someone who owned a 1st Gen, and the quality level was horrible.

 

The hybrid Camry is very exciting. This car will be really hot. I wonder how Toyota will price it. I'm sure there is no way I could afford it.

 

This is an article i found, i bolded the response specific to your quote but the whole journal is one big refute and explanation on the problems.

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http://www.dfw.com/mld/dfw/business...90.htm?template=contentModules/printstory.jsp

Then and Now
Not only is the world different now, but what we know of what’s past is often wrong
By Ed Wallace
Special to the Star-Telegram


"It is unfair for us to complain about American jobs in the automotive industry being outsourced to other countries when Japanese, German and Korean automakers are outsourcing their formerly home-done jobs to the United States. There are now 23 foreign-owned car and parts plants operating in North America, and more are coming."

“The biggest drain on GM’s profitability is their welfare system. It is their health care obligations and their pension obligations. The SUV is not killing them, and don’t let the media tell you that — and don’t let a bunch of knucklehead, numbskull, ignoramus activists in the media tell you this — because that’s not what’s causing General Motors’ or Ford’s or Chrysler’s problem.”
— Rush Limbaugh, earlier this month

It is unfair to discuss what’s said by brethren in radio, without saying that on many issues I’ve agreed with the positions Rush has taken. I could say the same thing about Al Franken or anyone else on talk radio. No one is right all the time, nor are they wrong all the time.

All that said, in the discussion excerpted about the problems facing Detroit, Rush also quoted a column by George Will, whom Rush agreed with, saying that Will had postulated it is only the exorbitant costs for health care and retirement plans that are breaking the banks in Michigan, not lost market share or a reduction of the high gross profits associated with sport utility vehicles. Rush later added that Social Security should be dumped and replaced by the pre-Great Depression plan: self-saved retirement.

Well, the problem with that is history. It tells us that in that period few individuals managed to save a strong nest egg for their retirement, and then they watched it be completely broken and emptied by the Depression. And in the period before 1929, the American middle class was nowhere near as large as it is today. Only a few jobs paid so well that a person could enjoy a reasonable lifestyle and still have enough left of their weekly paycheck to fund retirement.

I would also take exception to anyone’s classifying people who work full-time and receive payment that includes benefits, such as health care and some form of retirement package, as welfare recipients. That being said, let’s discuss what truly ails Detroit.

Rebirth or Reincarnation?
Paul Ingrassia, president of Dow Jones Newswire, wrote in a May 17th Wall Street Journal article that what we are witnessing today is not the death of the American automobile industry, but its rebirth. Ingrassia added that it is unfair for us to complain about American jobs in the automotive industry being outsourced to other countries when Japanese, German and Korean automakers are outsourcing their formerly home-done jobs to the United States. There are now 23 foreign-owned car and parts plants operating in North America, and more are coming.

First, let’s take up the issue of Mr. Will’s column and Rush’s quotes from his show, and why they are inaccurate. Last year General Motors earned $3.9 billion — and GM predicted that its health care costs would rise as much as $1 billion in 2005. Government reimbursement for the new Medicare prescription drug benefits would offset much of this premium increase, so the net effect to GM’s bottom line would be far less than $900 million. Under this simple equation, all other things being equal, General Motors should still be well on the way to earning $3 billion in this fiscal year. Of course, GM posted a $1.1 billion loss in the first quarter. So something else is obviously eating at their profits.

Daimler lost about the same amount of money during that period, but I have yet to see anyone claiming that Mercedes could possibly go out of business. No, in the American press, possible Armageddon scenarios are published daily only because Kirk Kerkorian offered to buy 28 million shares of GM’s outstanding stock. But, when Daimler CDO Bodo Uebber admitted a week ago Saturday that outside and possibly unfriendly hedge fund operators have managed to acquire up to 15% of Daimler’s outstanding shares, not a word was said, no punditry quoted.



Magic Numbers
Now, let’s talk reality. Many of the Japanese importers of automobiles have sold their cars for years without ever once posting a profit on their North American operations. In Mitsubishi’s case, for the period of 1982 to 1997, the company accumulated losses from North American operations totaling $1.7 billion for having had the pleasure of selling their automobiles to you and your neighbors. Acura went over a decade with once turning a net profit here. In fairness, neither of these two firms had but few legacy costs — such as employment benefits — factored into their bottom line. And certainly both companies had huge automotive hits during this period; but selling in North America didn’t make them any money.

So, why did Japanese and Korean automakers decide to enter our market, in many cases knowing that business would be done at a loss for years? It’s the magic of volume production. Because the more cars and trucks any company manufactures, the less each vehicle costs. Last year, when General Motors was running its large SUV plants on overtime, theoretically the cost to produce each vehicle was less than it’s been this year; many SUV plants have been on extended downtime, forcing GM to pay primary earnings to workers while no production was being done. That seriously hurts the gross profit on each vehicle produced.

Additionally, we continue to hear that GM’s costs for health insurance and pension plans are in the neighborhood of $1,500 per car. Again, that figure varies, based on how many cars and trucks GM manufactures in one year. Obviously, if General Motors came up with four new solid-hit vehicles (with volumes in the 250,000 range) in the next couple of years, then GM could amortize its legacy costs over another million units annually, reducing the cost per vehicle dramatically. So, the Japanese in many cases were willing to lose money selling cars here because it increased their overall production, lowering the cost of each vehicle built, which improves the corporation’s bottom line in the long run.



A Million Missing Customers
Also hurting automakers are a couple of other factors, which have apparently escaped those discussing Detroit’s current financial problems. One is the loss of America’s blue-collar middle class; the other is the wage structure of entry-level jobs against the price of new cars today. Over the last 25 years, the United Autoworkers have lost right at one million well-paid members. It’s no stretch of the imagination to believe that most of those members purchased GM, Ford or Chrysler products, which today likely loses those companies at least 200,000 – 250,000 sales a year.

Throw in the loss of jobs in the American parts industry, and in steel or glass manufacturing, and one could easily claim that Detroit, while saving billions in labor costs, has also intentionally eliminated the careers of well over a million former loyal customers.

Finally, for those of us in the Baby Boom generation, let’s take a walk back to 1969, when we were listening to KFJZ’s Larry Shannon spinning the Youngbloods’ “Get Together,” while our younger siblings were driving us nuts with “Sugar, Sugar” by the Archies. We worked at local businesses after school at minimum-wage jobs that earned us $3,380 that year. If that sounds horrible today, one should also remember that a brand-new 1969 Ford Mustang convertible listed for just $2,832. Yes, with no overtime whatsoever, if you worked at a minimum-wage job for 12 months in 1969, you could pay cash for a brand-new car — a Mustang convertible, no less.

Today, working the same 40-hour week at minimum wage, one would earn $10,712 — or about $13,853 short of what you’d need to cruise Camp Bowie in your new ragtop Mustang. (As a point of reference, in 1969 a minimum-wage job amounted to 34.02% of the average family’s income; today a minimum-wage job is just 20.6%.) This alone explains the success of low-cost imports such as Hyundai and Kia.

Get Real, Rush
No one disputes that health care and the costs of the pending Baby Boom retirement are a huge drag on every corporation’s bottom line. But they’re no more costly to GM, Ford and Chrysler than to any other large and long term American corporation who employs people with decent wages and a pre-defined retirement package.

Most assuredly, no one working today would agree that being compensated makes you a welfare recipient. Nevertheless, Detroit’s automakers have lost millions of their former customers, some of whom were their own employees, as our blue-collar middle class has shrunk. Meanwhile, the foreign automakers who own factories here have watched their customer bases expand with their own American employees.

At the same time, no one has considered the fact that as minimum-wage workers in the sixties, our purchasing power was infinitely better than that of those bottom wage earners today, which was the biggest incentive for us to become another generation of car lovers. In the end, we still purchase more cars and trucks today, per family, than we have at any time in American history, save the period of 1973 – 1977. So, all is not lost. Detroit simply needs to create more new product that appeals to the new and more upscale demographic of today’s car buyer.

As for Rush: I admire his accomplishments; and if I made $20 million a year, I wouldn’t need health insurance or Social Security either. But most of those reading this column today do.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day and hosts the talk show Wheels Saturdays from 8:00 to 1:00 on 570 KLIF. E-mail: ed-wallace@charter.net

 

As I said before, there are a few reasons why GM and Ford are struggling.

First, let me start with GM:

1) Health benefits to its employees/ex-employees are killing their profits, literally.

2) They used to make the majority of their profits selling big, reliable SUVs/Trucks that the public trusted, until oil prices skyrocketed and made the operating cost of these vehicles too prohibitive to most Americans.

3) They are still recovering from an era of low-quality products, and they are yet to shed their old rep, despite recieving awards/being ranked among the top in the world in brand quality.

4) Perhaps most important, they haven't really come out with a "must-have" vehicle in quiet sometime, which hurts them. They barely update their old product, and that means they fall behind the competition in many aspects. The Cavalier didn't die until this model year, and the Cobalt (a good vehicle by the way) isn't receiving the kind of reception from the public GM has expected. The Solastice is really the first car that might come even close to a "must-have" status for GM, and it's doubtful that it will be that big a seller, at least it won't be enough to solve GM's problems.

As for Ford, it is more simple:

1) The whole Explorer "roll-over" and Firestone tires flap really, really hurt their rep and their image. It was a PR disaster that they may never fully recover from. Reputation is everything in this business.

2) Bad, bad product lineup that doesn't really appeal to anyone. Only consistent winner has been the F-150, from which they derive most of their profit. The new Mustang looks like a big winner as well, but it just came out, and that means it will take some time to jolt the whole company with some momentum.

3) same problem as GM in the health-benefits department.

Chrysler, on the other hand, is doing better than the other two, primarily because of their new product lineup (the 300C and the Magnum, to name two) that have become image cars for the company, and brought a lot of customers into their showrooms. They have been selling most of these cars not just at, but above their sticker prices (I know because I paid above the sticker for a 300). Also, may be their partnership with Mercedes-Benz improved their image a bit.

On the other hand, anyone that calls Japanese products (with exception of Nissans/Infinities and Mazdas) "fun" or "beautifully designed" is smoking something. There is NOTHING more dull than a Toyota/Lexus, but they are reliable/high quality vehicles for sure. If you call a Toyota "fun" or good looking, then you must be a middle-aged man

Nissan is not nearly as high quality as Toyota or Honda, but I would buy a Nissan over either one any day of the week.

As to the high-mileage comparison people were talking about, please pray tell how many people EVER keep their newly purchased vehicles beyond 5 years or 100k miles? Not many at all, and even a Kia will last you up to 100k on most occasions. If you are driving a car past 100-150k miles, then you are either dead broke or just too damn attached to your car.

 

You are right, but you ordered everything wrong. Seriously. It would be idiotic to pretend like the legacy health care costs aren't hurting the company, but as someone who has seen detailed financial information of these companies (as well as their competitors), the problem is not primarily the union issues. Take a closer look at the balance sheet of these companies. Look at the funded portion of the pension obligations. Look at what they have sacrificed in order to increase volumes. If they could get their head out of their asses, they would produce cars that their consumers want. Unfortunately, (at least until last August) they really thought cars like the H2 would be a key to the turnaround. It's easy to blame other people for your problems, but when you can't figure out your own consumer, that's your real problem.

If GM and Ford go down, they will go down because they don;t truly understand the consumer. The union costs are a problem, but obsucre the real issue.

 

Detroit's executives can fail, recieve huge "golden parachutes" as a reward for their failure, deliberately not fund retirement benefits promised to their workers, who worked for their retirement in good faith... hanging those employees and their families out to dry, and somehow it's the "fault" of the employees and not the failed management of the corporations?

Bull****. The crap being pushed by the extremists in control of the Republican Party is as fine an example of the disease afflicting our country as you could find. It's a sickness that's gripped our government from the top, starting with the fool in the Oval Office, down through Congress and into far too many of state governments... the Texas Legislature being as good an example of the rot of extremism and corruption on that level as one could find inthe United States.

Take the blinders off and look around.


Keep D&D Civil!!

 

Who says America can't build a small car!

 

It is really a side issue. However, notice the bitterness at which the conservatives attack auto workers for having health benefits. They aren't supposed to have national health care like virtually all other advanced econonomies; nor are they supposed to get it through their jobs. Let them be uninsured or pay for health insurance with their near minimum wage jobs once their unions are busted.

This is really so deeply elitist and UnChristian at its core. Show me the Bible quote that says only the wealthy or well educated should have access to health care. Show me where Limbaugh and the other elitists give up their own corporate health care plans.

Of course, the auto industries health care woes do show that we need national health care so that our industries aren't burdened by trying to fund our wasteful health care system for their employees.

 

or you are fairly happy with the quality of your car and dont feel the commercially implanted urge to get a new car every 3 years.

 

Wow, I did not realize that health care for Mexican autoworkers was so costly. I guess that's a lot of tequila and band-aids.

The "PER VEHICLE" thing that you helpfully capitalized should be a clue in that you're being spun - I wonder why they didn't say "per worker"? I'm guessing that the number wouldn't be quite iimpressive - since their vehicle sales & productions were WAY down this year due to flagging demand and in many cases due to the fact that they discontinued product lines (e.g, the Cavalier) in order to switch over to newer ones - which has the effect of exaggerating this statistic greatly

http://www.businessweek.com/magazine/content/05_24/b3937071_mz058.htm

But until GM & Ford realize their dream of a national health care system, I guess they' and their overpaid mexican work force will just have to compete with "cheap" japanese and german labor which is keeping them from selling Pontiac Sunbirds.

 

delete

 

A good article that discusses some of the problems with the NA auto industry.

http://www.detnews.com/2005/editorial/0503/27/A15-129850.htm