Wednesday, February 18, 2009

Bailing Out The Big Three

Why reward Detroit (and punish taxpayers) for making unprofitable cars?


18 Comments:

At 2/18/2009 12:18 AM, Anonymous t jefferson said...

Compare the hourly managment ratio and tell me if the American auto industry is healthy. The ratio is around 1 manager to 2 workers, this didn't just happen in year 2005 the ratio was the same.

Steering has 1,220 salaried employees and 2,400 hourly workers in Buena Vista, headquarters for the steering division of Troy-based Delphi Corp.

GM Powertrain Bay City is operating on a reduced schedule now. There are 162 hourly workers on duty and 152 laid off, she said. The plant has about 80 salaried employees.

http://www.mlive.com/businessreview/oakland/index.ssf/2009/02/delphi_steering_in_buena_vista.html
http://www.mlive.com/news/bay-city/index.ssf/2009/01/bay_city_powertrain_idles_work.html

 
At 2/18/2009 12:31 AM, Blogger fboness said...

It's the entire economy that is being punished as wealth is sucked out of every capital pool to transfer to the auto black hole.

 
At 2/18/2009 1:22 AM, Anonymous Anonymous said...

Industries subsidized by the U.S. government:
1. farming
2. banking
3. insurance [AIG]
4. ethanol

and yet only detroit is demonized and required to provide a plan to demonstarte their viability.

bankers receive hundreds of billions of u.s. taxpayer dollars and are implored to cooperate with congress and lend money. "please mr. banker, if we give you $100B, will you please give my neighbor a car loan? huh? pretty please?

where is the plan from the banks?
the farmers got a plan?
how about the federal government provide a plan on how they are going to get 20% more efficient before they confiscate any more of my money through taxation?
is your state going to do 20% more work with the same number of people?

oh wait. the u.s. congress only tells detroit how much more efficient they have to be each year. everybody else is free to do whatever the hell they want. and puh-lease, don't you dare tell nancy pelosi or harry reid that they have to reduce their expenses by 20%. why, they are much too important to be bothered with following the rules they deem necessary for the rest of us schmucks.

if you think nobama, pelosi and reid are going to solve your problems, i've got a bridge i'd like to sell you.

 
At 2/18/2009 4:24 AM, Blogger 1 said...

"Why reward Detroit (and punish taxpayers) for making unprofitable cars?"...

Shouldn't we be asking that of the Senators and Representatives that foisted off the CAFE standards onto the auto industry?

 
At 2/18/2009 9:02 AM, Blogger David W. Leitch said...

It is tempting, very tempting indeed, to bash Ford, GM, and Chrysler. After all, they are an industry that could not turn on a dime if their life depended upon that, and, at this moment, it certainly does.

Clearly their outdated business model leaves one wondering how they have managed to survive this long. They need to change and they had better do it quick. However, they will need help.

Having said that let me take a moment to call your attention to the facts around the business operations of the foreign car makers. Given that I am fairly familiar with Honda of America (Marysville, Ohio), I will limit myself to that set of facts.

Honda set up operations in Marysville, Ohio more than twenty-five years ago. In their zeal to attract that major manufacturer to Ohio, the Ohio legislature virtually gave away the store in the form of dirt cheap labor. You see, Honda, through Addeco and Acloche, among others, in partnership with the State of Ohio, employees thousands of “temporary” workers. These men and women work in virtually all areas of Honda’s Ohio plants right along side the “regular” Honda associates doing the exact same jobs for half the pay and no benefits. This concept extends to the administrative pool as well.

The plain fact is that these temporary associates have the privilege of working as a temporary employee through their respective temp agency for as long as two years. At the end of their two-year tour, they are guaranteed and interview with Honda. If they are not hired by Honda they are required to take a 30-day unpaid vacation whereupon they can return to Honda in a different position somewhere in the plant. Sometimes they must go to a different plant, possibly even a different shift. From there the cycle repeats itself for as long as the individual is willing to subject him or herself to this treatment.

I worked at Honda of Marysville as a temp twice in recent years. In doing so I met and worked alongside other temps who were on their third and fourth two-year tour as a Honda temp. Anecdotally, I heard of some working still more two-year tours as a temp.

My point is that the Hondas of the world enjoy an embedded cost structure that the US automakers simply cannot compete with on any level. Sure, again, it is easy to quip that the US automakers need to cut headcount, dump their unions or twist the arm of union leadership to force concessions that will make the US automakers more competitive.

Well, that is a nice concept and makes for a great bar room rant. However, the reality is that the legislators that make it possible for Honda to employ temporary employees at greatly reduced costs are the same legislators who make the laws that the US automakers have to deal with when negotiating with the unions and providing pensions for retirees.

From that perspective, the US automakers are doomed. That is unless there are fundamental changes in the way US business, including the foreign business operators, deals with labor issues, including but not limited to labor costs, health care costs, and pension costs.

This has to start with the way our legislators craft the laws that level or destabilize, as the case may be, the playing field. Given their track record I do not hold out much hope.

In the end we will see a continuing decline in the standard of living in this country as homegrown business clamors to compete with foreign competition. (Do not misinterpret my message to think that I am protectionist or seeking limits on trade. Absolutely not as I subscribe to Adam Smith’s concepts as articulated in his work, Wealth of Nations.)

This imbalance in the business climate will last only until the rest of the world negotiates the same learning curve it took us to get where we are today as a nation. Specifically, it took us 200 + years to get where we are. It will take the rest of the world a much shorter amount of time to catch up, for the most part, given technology and information sharing/availability. The downside is that the U.S. has another twenty to thirty years to endure the eroding business climate (quality of life for employees) before the playing field gets truly leveled.

Until then, enjoy driving your Honda or Toyota while you search for your next employment opportunity. I hope you meet with success.

David W. Leitch, BSBA; MBA

 
At 2/18/2009 9:12 AM, Anonymous Rand said...

A true believer is someone who drives his (or her) Toyota (or Honda, or BMW, etc.) to a rally blaming George Bush for the collapse of the domestic automobile industry.

 
At 2/18/2009 12:08 PM, Blogger @sethstorm said...

Mr. Leitch

Or Ohio needs to twist Honda to remove some of the deception.

Another idea would be to get rid of H1/L1 and have those from the Manufacturing Belt replace that. Those whom are laid off in Ohio (as well as the other states) aren't just auto workers - they're also in "white collar" professions. Just work with the population as it is.


I search for what employment opportunities in a GM-built car.

 
At 2/18/2009 12:10 PM, Blogger @sethstorm said...

I search for what employment opportunities in a GM-built car.

*typo - meant:
I search for what employment opportunities may exist in a GM-built car.

 
At 2/18/2009 12:48 PM, Blogger KauaiMark said...

Anon--
Industries that shouldn't be subsidized by the U.S. government:
1. farming
2. banking
3. insurance [AIG]
4. ethanol

 
At 2/18/2009 12:51 PM, Anonymous Mika said...

Thank you, Mr. Leitch, for bringing some wisdom this this site which is sometimes in short supply. Anon makes a very good as well.

Also, in these discussions, folks keep forgetting - or refusing to acknowledge - that the Japanese manufacturers are now tanking as badly as our domestic companies, underscoring how the lack of sales is not of Detroit's own doing. . . . Let's stop blaming the victim.

 
At 2/18/2009 12:55 PM, Anonymous Mika said...

Corrected Text:

Thank you, Mr. Leitch, for bringing some wisdom to this site which is sometimes in short supply. Anon makes a very good point as well.

Also, in these discussions, folks keep forgetting - or refusing to acknowledge - that the Japanese manufacturers are now tanking as badly as our domestic companies, underscoring how the lack of sales is not of Detroit's own doing. . . . Let's stop blaming the victim.

 
At 2/18/2009 1:00 PM, Anonymous Anonymous said...

People: in either alternative (loans vs bankruptcy) the US taxpayer will foot the bill; it is 'six of one, half-dozen of the other'. If you listened to the press conference yesterday, the reality is that the various types of bankruptcies available to GM will cost the US Government/US taxpayers MORE than the loans.

Given this, as a free-marketer I would think that we would have to choose the loan pathway under the assumption that a corporation/gvt mix, albeit screwed up, is still better than 100% government path (bankruptcy)...

 
At 2/18/2009 3:43 PM, Blogger QT said...

Mike,

The difference is that the transplants are not looking for government financing nor have they been destroying private capital like GM for the past 30 years. The invisible hand has finally given up on GM & Chev which is why government is the only taker since private investors wouldn't touch this dog with a barge pole.

Ford and the transplants are far better managed and able to survive this downturn.

What the government is doing is preventing GM from major restructuring that can only happen in bankrupcty and creating conditions that will ensure failure. The billions are insufficient to do more than keep the present, unworkable business model preventing downsizing and major consolidation of its brands that would allow GM to emerge as more viable, smaller player.

GM's management has resisted making changes and still holds on to a vision of the way it used to be when they were the dominant player in the world auto industry. Unless GM can reinvent itself which will take more cash that just bridge financing, taxpayers will be picking up the bill anyway.

 
At 2/18/2009 5:33 PM, Blogger bob wright said...

So why don't the same people calling for the bankruptcy of the domestic auto companies also advocate for letting the banks go under.

I see no reason why BOA, Citi, .... shouldn't be allowed to fail.

The Japanese, Chinese, or Arabs could certainly step in and buy much of what's left of the U.S. financial sector out of bankruptcy - they've got the cash.

So what if our largest banks are owned by foreign companies - right? There would still be many regional and local banks domestically domiciled.

 
At 2/18/2009 7:15 PM, Blogger bob wright said...

KauaiMark,

what you said.

 
At 2/18/2009 7:36 PM, Anonymous Anonymous said...

Poorly run banks should fail. Car companies should fail. Until companies in both industries fail/are allowed to fail, artificial barriers to entry exist that prevent new companies from coming in and making those markets work efficiently again.

Also, the temporary workers were working at those plants voluntarily. Nobody forced them to work there.

 
At 2/19/2009 6:04 AM, Blogger John said...

As for t Jerrerson's comment;

"Steering has 1,220 salaried employees and 2,400 hourly workers in Buena Vista, headquarters for the steering division of Troy-based Delphi Corp"

I currently work there as a contractor, those salary employees are engineers and designers, not managers. That facility not only manufactures but designs and tests steering components for foreign and American cars

 
At 2/19/2009 5:01 PM, Anonymous t jefferson said...

John
I used to do manpower studies at Steering for the Union. In the summer when the Exucutives were running their kids through the ratio got as bad as 1:1.6. it really doesn't matter what you call Managers, Forman, or Contractors what matters is how many people it takes to manufacture a componet, and that ratio isn't healthy.

 

Post a Comment

Links to this post:

Create a Link

<< Home