By on June 30, 2007

gmlansingoutlook2.jpgLet’s keep things in perspective. Delphi has been in bankruptcy since October 8, 2005. As in "we need protection from our creditors and a new way to do business or we’ll have to throw all our workers onto the streets." Since the former GM subsidiary filed for Chapter 11, the company has lost billions of dollars. To view Delphi's deal with the UAW as a demonstration of the union’s ability to “accept reality” is like suggesting that a doctor looking at a patient with multiple bullet wounds should be praised for thinking a bit of surgery might be in order.

As Frank Williams pointed-out previously, the union has already drained huge amounts of blood money (GM’s) from Delphi’s wounded body. By the time yesterday’s UAW contract vote rolled around, 8k of Delphi’s 25k UAW workers had already been bought out (with General Motors’ money). Of the 17k remaining members, 4k more get a buyout and/or buy down program (financed by General Motors). The rest exchanged job security for pay and benefits cuts.

Well, not exactly. The agreement allows Delphi to close or sell 21 of its 29 U.S. factories. While there are lay-off payments (up to $40k) and “flow back” provisions for workers whose plants are history, a great number of Delphi’s union members will be SOL. And while the words “pay cut” may be music to Detroit execs’ ears, it’s actually more like a glass ceiling; the majority of Delphi’s current UAW members already work at the lower wage rate. 

In short, the UAW arranged a pay-off for 4k GM-era members, maintained the status quo on pay for the remaining workers and “allowed” Delphi to downsize its U.S. operations by around 80 percent.

Ah, but does this set a pattern bargaining precedent for the UAW’s upcoming negotiations with GM? Does the Delphi agreement reflect a “new era” in labor negotiations that will allow General Motors to reduce its wage costs to parity with Toyota and transplants and, thus, turn its business around? Nope.

Again, Delphi is a bankrupt company hemorrhaging money. GM is a going concern, albeit one that’s hemorrhaging money. In fact, the new Delphi – UAW contract will cost The General $7b (for pension and retiree health care expenses), a one-time $500m payment (when Delphi emerges from bankruptcy protection) and annual payments of $400m to $500m after that (for an “undetermined number of years"). 

[GM says a forthcoming $2b reduction in their Delphi-related parts bill cancels out the cost of the annual payments. That remains to be seen.]

Anyway, when it comes to their upcoming contract with GM, the UAW will abide by the same principle that informed the Delphi deal (and every other deal they’ve ever made): get as much money as possible for their members. Nothing wrong with that. But you can't ignore the fact that the union was perfectly happy to let/watch Delphi fall into Chapter 11 before [eventually] agreeing to this week’s contract. 

I know, I know: management. Even so it’s not credible to think the UAW will cut a similar deal with GM to prevent the automaker from tipping into bankruptcy. Even though The General’s mortgaged up to its eyeballs and burning through cash, the company’s ability to stay in business is proof that it can afford its UAW contracts. You know; if you see it that way.

Of course, the "you" in question here are GM’s UAW workers. While Delphi’s UAW workers had over two years of doom and gloom in which to contemplate a jobless future (and then four days to forestall it), GM’s UAW workers see signs of life everywhere.

GM’s foreign subsidiaries are going great guns. There’s a whole bunch of shiny new products on the showroom floor. Five hundred engineers are working on fuel cells. CEO Rabid Rick Wagoner, Car Czar Maximum Bob Lutz and the rest of The General’s high-flying management team are still swanning around in their Gulfstream jets, banking millions in bonuses and stock options. General Motors’ stock price is now sky high. And just this week, GM sold its Allison Transmission unit to a pair of buyout firms for $5.6b.

And they want me to work for $14 an hour?

UAW boss Ron Gettelfinger is no dope. He’s looked at GM’s books. He knows what’s really going down (market share, for one, margins for another). But at the end of the proverbial day, GM’s UAW workers must agree to cutbacks, givebacks, buyouts or layoffs. At Delphi, they were already in the shit, convinced they faced a choice between nothing (chapter 7), a little more than nothing (Delphi’s original offer) and something (the final deal). Similar concessions from GM’s workers are not likely.

Until GM goes bankrupt. When GM files for Chapter 11, its workforce will finally start coming ‘round to the idea that it's time to give back what they already enjoy. Until then, why would they? 

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59 Comments on “General Motors Death Watch 135: A Whimper, Not a Bang...”


  • avatar
    Sid Vicious

    Unfortunately I pretty much see status quo in Detroit with this summer’s contract. (There’s really only one.) There will be “concessions” that mean little at this point. The union will “give back” things that play well in the media but don’t really cost much – legal services, jobs bank (going forward there should be little need for this), some more health care co-pays. Whatever.

    I don’t think that Cerberus will have their ducks in enough of a row to break out the night sticks yet. But maybe. I’m hoping for a good fight (for the sake of American manufacturing) as I have been for 20 years, but I bet it’s another bust. Without a doubt they’ll continue to beat up on the White Collar employees, active and retired. We’ll see.

  • avatar
    KatiePuckrik

    Mr Farago, I couldn’t agree more. As much as many poeple put a significant portion of blame at the UAW’s door they have to accept that the UAW are just trying to get the best for their members and like you say, how can Gettlefinger justify agreeing to pay cuts and lay offs whilst managements are reaping stock options and golden parachutes?

    I said before in a previous post that what GM needs is Mr Carlos “I’m a little overrated” Ghosn. Not necessarily for the swift and savage cuts but for “the buck stops here” mentality. Management must accept their fair share of the blame before they even think of asking the UAW for cuts and concessions. The UAW didn’t approve the FIATsco episode, did they?

    It is only then that UAW and management can work together to finding a reasonable solution. If management make significant concessions against themselves, then, maybe, the UAW might make a few of their own….?

  • avatar
    AGR

    Delphi had an “umbilical cord” to GM from the outset, this was not a secret to anyone.

    GM has an “umbilical cord” to who? Now that they have sold Allison to raise additional money(Allison is profitable with a niche product and market). There is very little left to sell to raise money to make pay outs, this too is no secret.

    Breathe a sigh of relief for finally cleaning up Delphi, and lets start over again in a few months.

    Just like the union can demand more, shareholders are also entitled to something. For the past few years GM shareholders have been taking a “beating” that the shares are up a bit, they are nowhere near what they were several years ago.In May of 2000 GM shares were $93 yesterday they were at 37.80 which is an improvement from the previous lows of less than 30.

    All the coporate “boys” fly around in G5’s or Challengers where is the big deal.

  • avatar

    AGR:

    All the corporate “boys” fly around in G5’s or Challengers where is the big deal.

    Think about it from a GM workers’ perspective.

  • avatar
    Pch101

    I guess that my take on this is a bit different. As someone who has done business turnarounds myself, I look at a company such as GM and ask myself: How can it get fixed?

    The first place I look is at the sources of revenue generation, i.e. the products and services. When I review GMNA, I don’t like what I see.

    Most disconcerting is its heavy dependence on trucks and SUV’s, which are both getting squeezed and will likely continue to get squeezed just so long as oil prices remain this high. There is no diversity in the product lineup to allow them to switch marketing positions or segments when market conditions change. This is a company that cannot triumph in the face of climbing oil prices or a growing environmental movement.

    Meanwhile, all of the bread-and-butter cars that were supposed to turn their fortunes — the Aura, Impala, G6, Lacrosse, you name it — are all fleet darlings, and have not impressed the buying public that continues to flock to Camcords and the like with a vengeance. Wagoner’s promises of eliminating the fleets are not being kept, and with margins this low (fleet buyers pay bottom dollar), these cars can’t hope to be profitable.

    Since the present situation sucks, the next question is: What of the future? And that doesn’t look good, either.

    With product development cycles as long as they are, it would take years to replace this deficient product lineup with products that might work. The European-inspired cars won’t, in my opinion, do the trick. But even if the products were somehow improved overnight, given the negative brand equity of the GM stable, it could take a couple of generations (8-10 years) before the public changes its mind about them.

    So the only source of net positive cash flow that GMNA seems to have these days is coming from selling off assets. And they are running out of assets to sell.

    All of this means that bankruptcy is inevitable. Without products to generate revenues that can lead to profit, it’s just a matter of time.

    In bankruptcy, the order of priority is: secured creditors, unsecured creditors, equity holders, and everyone else. This chain of succession puts the union toward the bottom of the list.

    All of this means that a bankruptcy will result in a “cramdown” of the union contract. This means that the contract will get severely revised against the union, and substantial cuts will be made once the General goes into Ch. 11.

    If the union leadership believes that bankruptcy is inevitable, it would be foolish for them to compromise too much now, prior to the bankruptcy. The more that they give up now, the worse that the cramdown will be, as they will have given up their negotiation leverage by starting from a lower point.

    Now, if the union leadership believes that the product lineup could work and that bankruptcy isn’t inevitable, then they should be eagerly cutting a deal, as GM will need the cost savings to implement the program. But since Wagoner doesn’t have a plan that’s worth the napkin it’s written on, why give up a lot today so that you have to give up even more tomorrow?

  • avatar
    mikey

    And they want me to work for 14$ an hour?
    The previous paragraph of DW 135 says it all.
    The management team at GM is either living in a fantasy world or they are criminally incompetant.
    The prevailing thought/opinions on the shop floor is,its all smoke and mirrors and creative bookkeeping.
    Cause we see zero evidence of a company in dire financial straits or struggling for that matter.
    Bankruptcy?They would laugh you off the floor.
    As sharp and as savvy as Ron G is it ain’t gonna sell with the rank and file.
    Good Death Watch RF I think youv’e done some research with the hourly folks,cause you nailed our thoughts to a tee.

  • avatar
    Pch101

    Mikey, if the rank-and-file thinks that GM is doing well, then those guys are in just as much of a fantasy land as a Wagoner-led press conference.

    GMNA is in deep trouble, and is headed for a cliff because its products are horribly uncompetitive and don’t meet market needs. You can’t make money if you don’t have products that customers want, and it’s pretty clear that customers not named Hertz and Avis don’t want them.

    I’m assuming that the UAW leadership is intelligent enough to have a big picture view and therefore sees the train wreck that’s coming. Maybe it’s easier for the line workers to turn up everyday if they believe that everything is just fine, even though it’s not even close to being fine.

  • avatar

    Great interpretation of the situation by RF and pch101. Union bosses aren’t dumb, they know what’s up.

    In Canada, Buzz Hargrove rejected any idea union buy-out of Big 3 equity. In the U.S., the UAW is already trying to diversify its customer base. Believe me, they know the game.

  • avatar
    mikey

    pch 101
    Its not so much of us living in a fantasy world as it is denial or perhaps ignorance.
    Fact remains that management is still throwing money around, and it buisness as usual in the plant.
    We are all off now for corporate shut down We come back to scheduled [mandatory] overtime.
    What are supposed to read into that?GMs paying time and half to sell Impalas to Budget and Hertz?
    I personally don’t care if Rick W takes the company jet for a dentist appointment or if Bob Lutz gets more money than Brett Farve.
    Long as they keep thier hands offa my stack

  • avatar
    50merc

    “Think about it from a worker’s perspective.” “We see zero evidence of a company in dire financial trouble.” Aye, there’s the rub. Top brass seems to have a pirate ship mentality; go for all the gusto you can get while it lasts. I’ve complained about the UAW’s sense of entitlement, but I readily concede that management chutzpah is even more aggravating. In WW2 Churchill and Roosevelt decided Germany and Japan must be pulverized in order to discredit the militarists for keeps. In Detroit, it seems only bankruptcy can break the spell of unreality.

    Pch101 has given us an excellent analysis of turnaround prospects. Certainly, wrenching change all around would be necessary. This must already be deterring savvy potential customers. I wouldn’t trust an F or GM warranty without third-party backing. It’s interesting to ponder whether a FICA-style guarantor of car warranties would help.

    And all this is a reminder that buying stock in F or GM is a short-term speculation, not a long-term investment. A high-cost producer cannot survive in a price-competitive environment.

  • avatar
    Pch101

    A high-cost producer cannot survive in a price-competitive environment.

    That’s actually not the problem. The major automakers that are successful in GMNA’s territory — Toyota and Honda — and the successful niche players — most notably, Porsche and BMW, do not compete on price.

    The winners compete on quality, customer confidence and satisfaction. They work to create a reputation that precedes them and fosters repeat business. (The best customer is a repeat customer, because the “customer acquisition cost” — the expense required to motivate them to buy — is much lower than it is for a new customer.)

    Among the automakers, it is actually GM that attempts to compete on price, which is precisely why they are in such trouble. Instead of building cars people want, they squeeze labor and suppliers and continue to build mediocre also-ran products in the belief that going cheap will lead to profits.

    Except it won’t. At the end of the day, every business needs customers for it to prosper, and GM is steadily losing its customers to rivals that do a better job. Many of those customers won’t be coming back, because many left out of anger and don’t see a reason to come back.

    In this situation, cost cutting won’t create profits and won’t come close to saving the company, it will only slow the bleeding. If I was a worker there, I wouldn’t take a pay cut, either, because the company’s doomed to hit the wall, no matter what. May as well get while the gettin’s good (or kinda sorta OK.)

  • avatar
    KatiePuckrik

    Toyota and Honda (Toyota especially) also have a key premise as to why their plants are so efficient and why the profitability of their products are much higher than those of Ford and GM. Lean manufacturing. In a Toyota plant, there is 100% efficiency. You’re standing around doing nothing? Go and help Tim put the wheels on. Go and help out distribute parts to the lines. Everyone is always working. This in itself keeps cost low and the need to hire anyone new. On paper, at least, this will improve GM’s profitability and may instill some confidence in their products. I’m willing to bet that many people (not ALL, but quite a few) aren’t buying from GM and Ford because they’ve heard about their problems and don’t want to buy an orphan.

    So what does this have to do with the UAW? I say give the UAW job security and the pay they already have, but in return, they must allow GM to utilise the staff as they see fit. If an panel sprayer hasn’t got anything to do, he’s got to go and help some who needs help. No filed grievences, no more “That’s not my job, bub!”. Total flexibility.

    But what am I saying? GM is in perfect health! Car quality is on par with the transplants, their products are winning awards worth winning and they have a healthy relationship with their suppliers. Rabid Rick says that so it must be true, right……?

  • avatar
    Pch101

    So what does this have to do with the UAW? I say give the UAW job security and the pay they already have, but in return, they must allow GM to utilise the staff as they see fit.

    Again, this is a symptom of the problem. The core problem in respect to this issue is that GM doesn’t really believe in lean production, and does a poor job of implementing its second-rate version of it.

    Toyota invented lean production, and companies such as GM just don’t get it. They thought (and continue to think) that is is all about changing the assembly line sequence and eliminating job classifications, when this doesn’t even begin to address how lean production really works.

    The core value of lean production is eliminating the divide between labor and management, not just eliminating blue collar job classifications. A lean production system empowers workers to do whatever is needed to build quality into the product, even if it lowers the volume of output.

    The traditional automakers try to gut the job classifications system (that they invented to facilitate the operation of the traditional assembly line) while simultaneously maintaining their traditional top-heavy management hierarchy. This is utterly contrary to the goals and methods of a true lean production system. Deming implored that fear had to be eliminated from the workplace in order for quality management to prevail, but this hasn’t happened in Detroit. As usual, the Big 2.8 management teams want to have their cake and eat it too, but all they end up with are crumbs.

    In a Toyota plant, there is 100% efficiency.

    That’s actually not true. A lean production system is never 100% efficient — the traditional assembly line can actually be more efficient — but that sort of efficiency isn’t even the goal of lean production.

    Lean production aspires to zero defects, even at the expense of efficiency, and while some level of efficiency is considered to be necessary, full capacity utilization is neither desirable, necessary nor even possible. (Otherwise, you could never stop the line if you needed to. In traditional assembly, the line needs to keep moving, and the workers are supposed to work at the pace of the line, not the other way around.)

  • avatar
    KatiePuckrik

    I did mean “100% efficiency” qualitatively, but I see your point.

    My point was simply, that GM could have been making savings elsewhere before the thorny issue of the UAW. How can the UAW even consider concessions to GM when GM have done very little to show there’s a problem? Like Mr Farago said, as far as the managers are concerned “The company is in trouble and need your help, but we’re not so bad that we can give up OUR perks and benefits!” And GM’s management wonder where this millitant attitude of the UAW’s came from!

    Maybe 95% efficiency! ;O)

  • avatar
    Dynamic88

    1. Unions have a narrow focus (arguably too narrow) – get as much for the membership as possible. No reason to look at negotiated contracts that one thinks are too generous to workers as being the fault of the union. Management could – in theory- hang tough and negotiate lower pay. The fact that management doesn’t do this suggest to me that a) they are semi-competent, and b) labor costs aren’t really the problem – and management knows it even if they won’t say it.

    2. As pch101 and others (myself included) have repeatedly been saying on every thread about union contracts, the winners are not competing on price, but rather on quality and owner satisfaction.

    3. IMO, chapter 11 will be avoided because of the PR problem It would damage an already ailing brand.

    4. pch101 mentioned some aspects of lean production and the Deming philosophy. Toyota and Honda are years ahead on following the philosophy. The big 3 need to rediscover Deming (they first “discovered” him in the ’80s – you know, the last time they were about to go belly up) and stick with it.

    5. For GM to survive, they simply have to face the fact of being a much smaller player in the market. They have half the market share they had when I got my drivers license. They are going to continue to loose share for some time. It’s best they face it now, and start to spend the time figuring out how to make world class cars, even at the expense of short term profit. They might even have to get out of some market segments (small cars) for a while instead of continually tarnishing their rep with crap products that don’t begin to measure up to the competition.

  • avatar
    50merc

    Pch101, there’s actually no disagreement between us regarding the effect of price competition. I said F and GM are in a price-competitive environment due to factors widely recognized: dependence on penny-pinching fleet buyers, reliance on incentives to move the product, and the need to undersell Camcordimas by enough to persuade buyers Detroit’s cars are an acceptable alternative. When Americans were learning about Datsun, Toyota and Honda, attractive pricing brought shoppers in the door but now most folks think–correctly–Japan’s best justify their higher prices. (And considering depreciation, the life-cycle cost might even be lower.)
    We also agree that building more appealing cars would help Detroit–and that it’d be hard for them to do, and not just because management is dumb and/or shortsighted. They’d have to add content, which would further lower gross margins while the public slowly changed perceptions. Bankruptcy would likely intervene much sooner than that.
    Detroit’s success was built upon a sheltered market and the ability to pass on higher costs. Both are gone. I think F and GM can survive in North America, but only in a very different form.

  • avatar
    Bill Wade

    A little off topic but what are the ramifications for GM if Ford and Chrysler fold?

    I disagree with Sid over Cerberus. These guys only care about one thing, financial performance. It’s a purely analytical decision, Chrysler will either be an asset as it sits or a more valuable asset with it’s bits and pieces sold off. I’m not sure the UAW understands this, it’s not a business model they’ve ever been exposed to. I believe Cerberus will step up to the plate.

    Pch101:
    The winners compete on quality, customer confidence and satisfaction. They work to create a reputation that precedes them and fosters repeat business.

    How can a company be a winner when management, employees, retirees, dealers , suppliers and customers are unhappy? Maybe the only salvation for GM will be the folding of Ford and Chrysler.

  • avatar

    pch101:

    In order to win (or win back) customers, automakers have usually used price. This is how Toyota and Honda entered the US. This is how Hyundai and Kia entered the US. This will be how China and India will enter the US.

    What is important is that once price has acted as the lure, the customers must be retained not by price again but through superb customer levels of satisfaction.

    Lexus – which once used price to undercut Mercedes and BMW – will go pick your car at your house to service it. Chevrolet will try to get out of warranty work because you drove your Corvette on a race track (where else would you drive a Corvette!). Some companies get it, some don’t.

  • avatar
    Pch101

    What is important is that once price has acted as the lure, the customers must be retained not by price again but through superb customer levels of satisfaction.

    That’s absolutely right. But unfortunately, when you design cars to be profitable at a low price point, instead of designing them to be desirable, you end up with cars that are neither profitable nor desirable.

  • avatar
    Luther

    What will the $400M-$500M annual payments to Delphi be used for? RF? Anybody?

    What is the ratio of active UAW to inactive (retired) UAW members (Benefit producers to Benefit receivers)? RF? Anybody?

    I think a good discussion would be “What would you do as CEO of GM?”…(”Resign” is not a viable option which counts me out)

    Selling Allison has got to hurt…Musta made Rick’s stomach turn. I hear rumors of GM wanting to sell their medium-truck business as well. GM payed more to settle Delphi than they got for selling Allison…Wow!Ouch!

    Continuing to move offshore is GM’s only viable option…Seems to me.

  • avatar
    AGR

    RF,

    All major companies have a corporate aircraft, or a fleet of them, its a seldom talked about reality.

    From the perspective an unionised hourly rate employee sure I would like to keep my pay and benefit package unaltered.

    From the perspective of a shareholder I would like to see the shares at 93.

    All the transplants established themselves in areas where its very challenging to unionise the employees.

    Company A manufactures in partnership with the Union, company B manufactures in partnership with its employees(non unionised).

    An alternative would be to do like Germany and have the Union represented on the board of directors of the company.

    Did the union ever go to GM management and voice their concerns “We don’t like the way you are running this company, and some of the product you are out with” we don’t want our members the suffer the consequences of your decisions.

  • avatar
    mikey

    Agr The union has aproached GM many times with product questions, quality concerns,and my pet peeve,arogant car dealers.
    GM has told them in ,shall we say in plain language to go away.Sort of like F.O and MYOB.
    Luther I think in the US its 2.8 retired to1 active ratio.
    In Canada its 1.2 to 1,and the gap is widening fast
    Scary huh?Yeah my co workers are allways asking,Mikey how come ya don’t retire?
    Limited education and all, I got some basic math skills and those numbers scare the crap outa me

  • avatar
    50merc

    Mikey, I sure hope things work out well for you.

    That startling retiree-to-active member ratio for the UAW in the US is why legacy health care expenses are such a crushing burden for a company that’s shrinking.

    I recall from the book “Car,” about the ’96 Taurus, that engineering and assembly had to make bad compromises to accommodate styling dictates. It’d be interesting if you can give us an example of a problem your colleagues on the line reported but couldn’t get GM to fix.

  • avatar
    jthorner

    “IMO, chapter 11 will be avoided because of the PR problem It would damage an already ailing brand.”

    This is an example of misunderstanding the situation. Rarely does a company enter chapter 11 because the management wants to, and the stock holders NEVER want to. Typically the entire common stock value goes to ZERO in a chapter 11 reorganization. Companies only do this when the only other choice is to turn out the lights and liquidate.

    Many workers seem to think that chapter 11 reorganizations are a management technique which is used at will to stick it to them. It might look this way from a limited perspective, but it really isn’t the case.

    The circular firing squad of top managers and union leadership continues to clean and prepare their weapons.

  • avatar
    mikey

    50 merc
    I could write a book on my experiences at the motors.
    If I went into detail at this time I would be in violation of both my personal,and my employment code of conduct.
    I havn’t worked on an assembly line for 10 yrs I still have a chance to look at finished product though.
    The improvements are dramatic.Fit and finish are top notch.
    The biggest issue at hand is the generation or two that we lost in the 70s and 80s.
    I ‘m sure the unions would do or say anything if we could win some of those folks back to the showroom.
    The us and them culture has been promoted and condoned
    by management as much as it has by the unions.
    I’m confident that things will work out for most of us.I do fear for the guys that have blindly gone into retirement.
    If and when the shit storm hits I fear that the retired guys are gonna take a hit.Remember,they don’t have a vote.
    If your a union leader who you gonna hang out to dry?
    The guy that votes or the guy that don’t have a say.
    At 53 I’m gonna stick around to see what happens next.
    I worked on the line once and I can do it again

  • avatar
    Matt51

    National health care, if implemented early in 2009, could save the big 3, if the UAW agrees to drop the private health care package. Start writing your congressman now. Even without national health care, forcing hourly and salaried retirees onto Medicare at age 65 is a no-brainer.
    Same way 30 and out has to go. Otherwise GM and Ford are going to be like the airlines. Ask anyone who worked for United, they lost their pensions, the value of their stock went to 0, they essentially started over, if they had a job.

    GM is so brand damaged, I am beginning to think they should kill the Chevy nameplate and market the trucks through GMC. I meet zero young people who want a Chevy car. Out of the big three, GM has to be in the worst shape image wise.

  • avatar
    IC Turbo

    Conventional business wisdom is Cost + Profit = Price.

    Toyota philosophy is Profit = Price – Cost.

    These look similar, but in fact are quite different. The first equation assumes you can control profit and therefore price. This works great when you can control price as the former Big 3 did many years ago.

    Toyota’s equation allows the market to set a price, so to increase profit, you must decrease cost. Lean manufacturing, standardization, and continuous improvement are what Toyota uses to reduce cost. The semi-large 2.8 see this reasoning and hammer suppliers to reduce cost without understanding the implications (ex: supplier bankruptcies). Toyota analyzes suppliers processes and improves them to reduce cost.

    Now onto the situation at hand. As part of continuous improvement at the transplants facilities, work rules and assignments can be changed. The UAW does not allow this because it could mean the elimination of someone’s job despite the fact that in practice, this doesn’t happen at the transplants as jobs are reduced through natural attrition.

    I find it hilarious that the UAW claims to grabbing a foothold at Toyota’s Kentucky facility because they are holding organization meetings there. How many workers show up at these? The reports I see number these from 20-100 out of about 5000. Well, can’t please everyone I guess. BTW, 2 members that were reported to have shown up at these meetings were fired for distributing internal documents. What did they think was going to happen?

    RE: Smoke and mirrors…
    I work with a former GM employee, and he claims the same things, but you can’t smoke and mirror your way out of a SEC 10k filing.

  • avatar

    Matt51

    I’m sorry but while national health care coverage would save GMs bacon, I am not sure if most of the people advocating that realize that while the cost factor would be alleviated the actual healthcare recieved would suck in comparison.

    I for one don’t want to lose my good private healthcare for a crappy nationalized one simply because GM gives their retirees a gold plated healthcare plan for free.

    Your other point is the answer, the retirees should be enroled in Medicare and they can simply purchase their own supplement. That would virtually solve GMs cost disadvantage

  • avatar
    Bill Wade

    mikey
    The improvements are dramatic.Fit and finish are top notch.
    The biggest issue at hand is the generation or two that we lost in the 70s and 80s.
    While I somewhat agree with this statement, the cost cutting the suppliers are being forced to absorb shows. I purchased 9 2004 Silverados for my business. Every single one of them has suffered from faulty intake gaskets (I thought this was no longer an issue), rear brake issues, leaking pinion and t-case seals, a number of instrument consoles, etc.

    I replaced Nissan Frontier trucks because the deal on the Chevys was very good and I thought I was doing my employees a favour by getting them a little nicer vehicle. Needless to say the downtime and dollar cost was totally unacceptable. Also the trucks were virtually worthless at an average of 140k miles on trade in. My guys are back in Nissan Frontiers again.

    I’m willing to put up with the minor hassles on union job sites with the “foreign” trucks. It’s not near the problem it was even 4 years ago. I’d rather deal with this minor problem versus the thieving dealer I purchased the vehicles from. The dealer is a piranha compared to the union guys.

    In summary your premise doesn’t hold water, at least with me. GM only reinforced what they have before-junk. The only difference is it’s now beautifully assembled junk.

  • avatar
    Bill Wade

    Oops, forgot the after mikey
    The improvements are dramatic.Fit and finish are top notch.
    The biggest issue at hand is the generation or two that we lost in the 70s and 80s.”.

    We really need an edit function for the challenged people like me. ;)

    Bill.

  • avatar
    Steven Lang

    “Lean manufacturing, standardization, and continuous improvement are what Toyota uses to reduce cost. The semi-large 2.8 see this reasoning and hammer suppliers to reduce cost without understanding the implications (ex: supplier bankruptcies). Toyota analyzes suppliers processes and improves them to reduce cost.”

    Not true anymore. Toyota was able to get into their current price position over the past ten years primarily through ‘decontenting’. They are using fewer and less expensive parts to build given components (front fenders, dashboards, seats) and their durability levels have also changed as well.

    This was done largely because of the pricing issues they faced during the early to mid- 1990’s. When I bought a two-door Toyota Camry LE back in 1994, I paid $19,300. At the same time domestic nameplates (Ford was the strongest at it) were continually undercutting Toyota by $1000 to $2000. Toyota had trouble building marketshare specifically because the price premium wasn’t seen as justified.

    So Toyota made the same vehicle to be MUCH cheaper. The 1997 redesign of the Camry became the new best seller not because of it’s market leading performance (the Passat and Accord were far better vehicles) but it finally met the price point that a lot of people wanted to see when they shopped for a Toyota Camry. Interesting enough, the redesign of the Corolla right around the same time was an enormous flop.

    The factory practices have also changed as well, and I would argue that Toyota’s quality issues today have absolutely nothing to do with their workers. Toyota is facing increasing labor costs in the US, and unlike their reaction to the same issue in Japan during the 1990’s they’re not willing to stomach those costs.

    Toyota has changed the work of many of their employees so that they can easily be fired and another one take it’s place. It’s the same philosophy that every automaker uses to control the production line and labor costs. But in Toyota’s case they’re gradually taking away freedoms and minimizing benefits and pay raises in much the same way as everyone else. There is a big tsunami in this industry known as Chinese automakers and even though the first-wave of exporters are not world class as of yet, it won’t take them too long for them to get to that point.

    If you think the trade deficit is bad, wait until you have chinese automakers bringing vehicles to market at about 70% of the current market price. THAT’S what is motivating Toyota to go in their current direction. The pricing pressures of this business are about to get a lot more intense, and the only way Toyota can counteract that is to find that soft spot where the future car buyer will prefer the Toyota over the ever cheaper competition.

  • avatar
    Dynamic88

    “This is an example of misunderstanding the situation. Rarely does a company enter chapter 11 because the management wants to, and the stock holders NEVER want to. Typically the entire common stock value goes to ZERO in a chapter 11 reorganization. Companies only do this when the only other choice is to turn out the lights and liquidate.”

    I don’t mind the suggestion that I misunderstand – because that is always a very real possibility. However, I don’t see where we are in disagreement. I’m not suggesting management wants Chapter 11 – in fact, just the oppossite, and for the reasons youve sited, as well as others.

    Management doesn’t want the stock to go down anymore than shareholders (and top management tend to be large holders themselves) Additionally, we see people on this thread claiming they wouldn’t trust the warranty w/o third party backing. Most people won’t reach this level of mistrust until Chapt. 11 filing becomes reality – but most people will draw the same conclusion at that point.

    The Big 3 can’t afford more loss of revenue (well, they’re going to continue to loose share, and therefore revenue – but it’s in their interest to minimize that) so avoiding 11 makes sense. The PR problem will cause a sharp drop in sales.

  • avatar
    Rastus

    Bill,

    You obviously back up your preference for a Nissan Frontier w/ cash…so that’s a good thing. I’m interested in the Nissan myself. Would you please elaborate on how well/poor they’ve been? I’ve heard of cracked flywheels, etc. I like the Nissan myself, I do…but would like to hear your Point of View re. owning a fleet of them. Thank you.

    Back on topic: As far as the Trade Deficit, we as average citizens don’t need to worry about that. Our entire Federal Reserve System ensures that our “engineered” economy continues down a certain path…and the massive trade deficit is all according to plan.

    Not to sound like a New World Order wacko, but there is a great deal of truth in what I say.

    Delphi is bankrupt because that was one of the acceptable prices to pay for globalization. When GM and Ford file for bankrupty, that too is all according to plan.

    You see, there are winners, and there are losers. It doesn’t matter if the losers are of a certain national origin, ….national origin means nothing (absolutely Nothing!) from a “global” perspective.

    Those people who are literally clinging onto their jobs in Ohio, etc…it doesn’t matter. Apple pie, Forth of July, vintage small-town auto runs down Main Street….oh, how quaint. The NWO doesn’t not care.

    Happy 4th of July to every American out there!!

  • avatar
    Pch101

    National health care, if implemented early in 2009, could save the big 3, if the UAW agrees to drop the private health care package.

    I won’t debate the merits and flaws of nationalized health care here, but I would argue that eliminating the health care costs will not save GM, just delay the inevitable.

    Let’s step back — GM has no viable plan to turn around its North American business with products that American and Canadian customers want. Look at the cars that it sells, and you can see how unable that they are to compete.

    Lower costs do not ensure desirable products. GM benefits from low labor costs in building the Aveo, yet the Aveo remains a second-rate car that only sells as many copies as it does because of fleet sales, rebates and the fact that its retail street price is thousands of dollars below that of its rivals.

    Even though the Yaris costs a fair bit more, its retail sales for the first half of the 2007 model year were 50% above those of the Aveo. Meanwhile, the Honda Fit sells at sticker price, even though it has sales volumes close to those of the Aveo, because Honda does not have sufficient capacity to build any more than they do.

    When GM dominated the market and had virtually no competition (and when its competitors were just as poorly managed as it was), it did well. Its costs are only a problem now because the company can’t compete against the likes of Toyota and Honda, which are better managed and more customer focused.

    We have to differentiate symptoms from problems. The cost structure is symptomatic of GM’s failure to plan ahead for a future in which the American consumer would have more and better choices than it used to, and which would cause the consumer to buy their vehicles from the competition. If GM had been forward thinking by making products that were good enough to retain market share, Toyota would still be a small discount backwater niche brand, and nobody at GM would be talking about “legacy costs” — workers would be busy, and the dollars would be coming in the door.

    Costs become a concern when the business is shrinking, and the guys at the helm don’t have the vision to know what to do about it. The fact that this company would respond to this crisis by selling Malibus and Cobalts with a straight face should tell you that they really don’t have a clue about what needs to be done.

  • avatar
    Rastus

    When I read stories like this, I think of that old movie with Sissy Spacek, “Coal Miner’s Daughter”:

    http://detnews.com/apps/pbcs.dll/article?AID=/20070629/AUTO01/706290415/1148

    An entire TOWN whose lives revolve around the Chevy Cobalt…now THAT’S sad!!

    Stay in school people, learn Java programing or better yet, Corporate Finance! You TOO can earn millions running a company into the ground.

  • avatar
    Dynamic88

    “Costs become a concern when the business is shrinking, and the guys at the helm don’t have the vision to know what to do about it. The fact that this company would respond to this crisis by selling Malibus and Cobalts with a straight face should tell you that they really don’t have a clue about what needs to be done.”

    I wonder if GM shouldn’t just get out of small cars – not forever, but for several years. They could concentrate on core competencies (if any). They spend a lot of money redeveloping the small car, but never with a view to being world class. As far as I can tell the Corvair was their last serious attempt.

  • avatar
    dean

    Pch101 – I’m impressed with your analyses. I hadn’t thought of the union holding out for as many $ as they can in advance of a Ch11 filing and the inevitable contract shredding. Makes excellent sense if you think the company is going to file regardless.

    As for product, I think GM did so much to give people a sour taste in their mouth that their product offering needs to be so compelling that people will take a leap because they just have to have that car. Sure, many will buy on price and that probably explains the success of the Impala as it offers a good value proposition. But with a few notable exceptions (Solstice, Sky, ‘vette, pickups for the so inclined) there are no vehicles in their lineup that inspire that feeling. Why would the average Camcord shopper take a chance on Malibu to save a couple grand (what, $50 a month?) when the Camry or Accord are better looking, with nicer interiors, and a solid quality reputation?

  • avatar
    Bill Wade

    Rastus
    You obviously back up your preference for a Nissan Frontier w/ cash…so that’s a good thing. I’m interested in the Nissan myself. Would you please elaborate on how well/poor they’ve been? I’ve heard of cracked flywheels, etc. I like the Nissan myself, I do…but would like to hear your Point of View re. owning a fleet of them. Thank you.

    I really had no preference until I purchased the Chevys. The Chevys drove nicely, are better appointed, larger and decent mileage for a full sized truck. All major pluses over the Nissans. The sole downside was the amount of time the vehicles were in the shop.

    Regardless of whether the trucks were under warranty or not , the cost of downtime which involved taking the vehicle to the dealer, unloading all the gear and loading into another vehicle, then doing the reverse when picking it up was unacceptable.

    GM has made incredible progress on the fit and finish. No longer do doors not fit, screws missing all over the place, water running in through the windows and dozens of other annoyances. I just sincerely believe that they are squeezing their suppliers so tightly that they are barely able to make parts to minimum specifications.

    I may be wrong but I think we’re in an odd situation where the UAW members really are building a better product but with more marginal parts. GM really hurt themselves after 9/11 with their huge discounts. Now they’ve created a monster for not only themselves but for Ford and Chrysler too.

    I wouldn’t be buying the Nissans since they give me less for the money, but at least they stay out of the shop. When they do wind up there the dealer experience is vastly better than the thieves at the Chevy store.

  • avatar
    Pch101

    I wonder if GM shouldn’t just get out of small cars – not forever, but for several years. They could concentrate on core competencies (if any).

    They’ve tried that, and it isn’t working. The problem here is that GM’s core competencies are in dying segments — large pickups, large SUV’s and the old-fashioned frumpy large sedan. Oil prices are killing the first two segments, while the aging population and changing tastes of the younger generations are killing the latter.

    So they need to develop new core competencies, business as usual won’t be good enough. If they don’t get new skills soon, they are going to be left behind.

    In any case, Detroit’s laissez faire attitude toward smaller cars was a huge mistake. Even if the margins of small cars are lower, they serve a valuable purpose — they bring younger people to your brand. One of the reasons that Lexus has become successful is that it raised a generation of kids who grew to like (or at least trust) Corollas and Celicas, and then gave them cars to move up to.

    If Toyota had fixated on margins, instead of customer satisfaction, it would have gunned for the top of the market, been squeezed by the big boys of the time, and gotten killed. They had to work decades to earn that market, but they earned it.

    The Big 2.8 have lost the youth of America, which makes their prospects bleak. As Dean above notes, there just is no reason to switch — $50 per month isn’t a good reason to switch.

    If this is going to work, the Big 2.8 have to do what Ford did back in the early eighties when it was staring at the abyss — do something radical and noteworthy in order to earn attention and respect. That was the Taurus, and although they may not seem like much today, at the time it was a huge step forward and simply wowed the market in a way that it hadn’t been in quite some time.

    I look at the upcoming 2008 Malibu, which will be based on the failing Aura, and have to shake my head. Yes, it certainly seems better than the current car, and the interior has moved up a few notches from the current version, but it just isn’t enough. It simply isn’t unique or different enough from what the big names already offer, so there are few reasons why buyers should roll the dice and choose it over something else, such as an Accord, that they know will work straight out of the box.

    Instead of benchmarking the 2005 Accord, they should be benchmarking the quality mid sized sedan that no one has yet built. But that would require a vision that they clearly lack.

  • avatar
    Dynamic88

    “If this is going to work, the Big 2.8 have to do what Ford did back in the early eighties when it was staring at the abyss — do something radical and noteworthy in order to earn attention and respect. That was the Taurus, and although they may not seem like much today, at the time it was a huge step forward and simply wowed the market in a way that it hadn’t been in quite some time.”

    The other thing Ford did at that time -roughly that time- was get deming in to teach them the philosophy. I don’t know what went wrong there, but obviously then didn’t get as much from it as they should have. The Taurus was a WOW car when introduced, but it died an undignified death, while Camcords march merrily along gaining a little more market share every year.

  • avatar
    Luther

    “If you think the trade deficit is bad, wait until you have chinese automakers bringing vehicles to market at about 70% of the current market price. THAT’S what is motivating Toyota to go in their current direction.”

    Yes. 2.801 are not the reason for Toyota cost-cutting. The Chinese, Koreans, Indians and other [former] third-world countries are *rapidly* moving up the value chain…At an amazing pace! (The Koreans are “blowing-my-mind” with their rapid accent in advanced technologies).

    Yes National Health Care will help save 2.801 for a little while, but what/who will save us all from Gov’t-provided health care? There are great reasons why the majority of cars in the Buffalo General Hospital parking lots have Canadian tags.
    If you get even a remotely life-threatening disease/injury in a country with a Govt health care system, you WILL die…Waiting for “care”.
    Do you really think the scum in DC can do better than Canada? Imagine a Hospital Emergency Room with the sense of “Urgency” of your local DMV or Post Office.

  • avatar
    Robbie

    As an economist, cold shivers run down my spine when I hear talk about nationalized health care as a possible bail-out for the big 3. We are talking about many thousands of dollars in taxpayer money from every American family in order to keep GM producing Impalas, and pay UAW workers their small fortunes. Such a bailout would be the economic equivalent of opening a series of state-owned Lada plants in Manhattan.

  • avatar
    jthorner

    My point several posts up is that Chapter 11 filings don’t happen by choice, but by necessity. The idea that GM or Ford will not go that route because of PR problems is that they may well be forced to go that way even with the PR problems!

  • avatar
    Dynamic88

    jthorner

    Sorry, I misunderstood you. Fair point.

  • avatar

    Robbie the only talk of adopting a national health plan as a means of saving GM or Ford is coming from the employees of GM and Ford.

    Nobody else thinks the world revolves around GM or Ford. Here is a simpler solution. Simply have the retirees recieve medicare.

    The workers of Toyota in america have health insurance and it can’t be that more expensice then GM or Fords. Its the retirees health insurance that is killing GM and Ford.

  • avatar
    rtz

    What will be interesting is Chrysler’s new owners during the contract negotiations. They haven’t played these union games before. They come from a financial background. It’s all money, and the bottom line. They don’t know car manufacturing. But I bet they can hard bargain a good deal.

    I can’t imagine them not coming in with guns loaded, ready for WW3. They aren’t about to get burnt. They come from a place where the stakes and pressures are much higher.

  • avatar
    fallout11

    Well said, Matt51 and Pch101 regarding most of GM’s product lines being irrelevant and ‘damaged brands’ in the minds of purchasers.
    GM might consider dropping all its current brand names (which overlap so badly and merely rob sales from each other, see previous TTAC articles on the subject), and market future designs under the “GM” brand. No more orphans. No more overlap. No more badge engineered clones. No more internal competition for resources or designs. Take platform sharing to its logical conclusion. Trim the bloated dealer network via aggregate attrition (since they will all be “GM” dealerships now). Stop making known poor sellers for niche markets (i.e. most Buick and Pontiac products) and cut the number of offerings, allowing shorter product refresh timetables on the good ones (4-5 years, rather than 7). Concentrate on core competencies and known strengths instead of watered down beancounting milquetoast.
    Now that would truly be “An American Revolution.”

  • avatar
    geeber

    Dynamic88: The other thing Ford did at that time -roughly that time- was get deming in to teach them the philosophy. I don’t know what went wrong there, but obviously then didn’t get as much from it as they should have. The Taurus was a WOW car when introduced, but it died an undignified death, while Camcords march merrily along gaining a little more market share every year.

    Ford was in very bad shape in the early 1980s. Chrysler’s struggle at that time stole the headlines, primarly because it went to the government for loan guarantees to stay in business.

    But people forget that Ford was also nearly broke by 1981. The company was in desperate shape, and its desperation forced it to “think outside the box.”

    Read The Reckoning by David Halberstam to get a vivid picture of just how bad it was for Ford by the early 1980s.

    It negotiated new cost-saving agreements with the UAW (which did include wage reductions), closed many plants (no Jobs Banks or bans on plant closures in the UAW contract at that time – the workers were basically put out on the street if they were not eligible for retirement) and tore apart its product development process.

    Also, more money was invested in the remaining plants to improve quality and efficiency, even with the company gushing red ink.

    The result was:

    1. Greatly improved quality (check out original condition 1980s Ford products if you have the chance – they have very good build quality and paintwork);
    2. The best plant efficiency among the domestics;
    3. A renewed product offensive that included the the handsome “aero” Thunderbird/Cougar/Mark VII, the first Ranger (a very good compact truck for the time, with a basic design that would last for years), and a continually improving Escort. This effort culminated in the Taurus/Sable in 1986.

    The result was record profits – by 1987, Ford was outearning a much larger GM!

    And, with the record profits came that dreaded Detroit disease – complacency and arrogance. The bean counters were also able to reassert themselves.

    Thus, the wonderful Taurus was not given the ohc engine and improved transmission it needed by 1990 to stay competitive with an evolving Camry and Accord. Lincoln relied too much on Ford-based cars. Ford preferred to spend the money on Jaguar, and while Ford DID make many improvements to the moribound company and saved it from oblivion (that may turn out to be temporary), it should have spent that money on domestic product.

    The new Explorer gave the company a boost throughout the 1990s, along with continuing strong sales of the Town Car and F-Series. But by the mid-1990s, the success of its trucks caused it to ignore cars, and the flop of the 1996 Taurus and 1995 Contour only further encouraged management to pursue this market orientation. (The Contour was a decent car that should have had its flaws – tight backseat, automatic transmission problems – corrected, while the very competent chassis and decent engines were further developed). The result is where Ford is today.

    At least Mullaly is not from Detroit, and he is asking the right questions, and not rejecting “We can’t” or “We’ve always done it this way,” as answers. Despite the gloomy headlines, this gives me more hope for Ford than the others (along with the fact that GM’s much-touted product offensive hasn’t been all that overwhelming in my view).

    Another bonus is that Ford has used both Mazda and Volvo expertise (Volvo in safety; Mazda in quality processes) to improve its products, and hasn’t been too proud to use platforms from those companies for its own products. At least those acquisitions are bringing benefits to the company. Imagine Ford without the Mazda-based products it now sells in showrooms. It’s pretty frightening…

  • avatar
    brettc

    fallout11: They might as well market vehicles as “GM” branded and nothing else. It seems they’re trying to do that on new models. I see new Impalas and Tahoes with “GM” badges on the fenders, along with the bowtie on the front. I don’t know why GM feels the need to put two separate manufacturer badges on their cars. It might actually be hurting them too. If I see any sort of GM product, I immediately think “crap” based on previous experiences. They could be building the greatest cars in the world now (but they’re not), but myself and many others won’t give them the time of day based on our past dealings. I always thought it was funny that they felt the need to put a “Celebrity” badge on the passenger side dashboard in our ’87 Celebrity. Like I somehow was going to forget the name of the POS I was in. Fast forward about 15 years later, and I’m looking at an Equinox at a Chevy dealer. Same thing, a cheesy silver “Equinox” badge in the same location on the dashboard. It’s minor, but I’ve never seen such a thing in an Accord or a Jetta. Obviously, GM needs to completely rethink their vehicle lineup, and build cars that people will flock to the dealerships to buy. Otherwise, it’ll just continue on its slow path of death.

  • avatar
    Lumbergh21

    Pch101
    Let’s step back — GM has no viable plan to turn around its North American business with products that American and Canadian customers want. Look at the cars that it sells, and you can see how unable that they are to compete.

    I totally agree with you on the cars that GM has to offer. About the only car they have that stands out in a positive way is their “halo” car, the Corvette. Even the Solstice/Sky has major problems that you can avoid with a Miata or if you want to go upscale, just get a base Porsche Boxster. Even though it’s trunk space is small, it’s still twice the space you get in a Solstice/Sky and a much better ride. As far as I’m concerned, the rest of the GM line-up aside from the Corvette could disappear, and I wouldn’t notice the next time I go to buy a car. Though they may be in worse shape financially, at least I can say that Ford has some decent cars to offer, both under the Ford nameplate as well as from Mazda. I truly would hate to lose Ford from a personal selfish standpoint. IMO, the worst offerings come from Chrysler. I saw a Dodge Nitro in the parking lot the other day and just shook my head. How can you even see out that back window?

    Regardless of whether the trucks were under warranty or not , the cost of downtime which involved taking the vehicle to the dealer, unloading all the gear and loading into another vehicle, then doing the reverse when picking it up was unacceptable.

    This is the big problem I had with the Saturn Vue that I bought in its first model year. While they were fixed under warrantee, things kept breaking on it. Add to that the small number of Saturn dealers and you’ve got a lot of unneasiness whenever your out of town on vacation. I checked, and GM dealers are not allowed to perform warrantee work on Saturns, no matter the situation. Add to the major warrantee issues the other small problems I had with the Saturn, and I became convinced that there is no price that would make me want to buy a GM product (other than a Corvette). I have a “prejudice” against GM products born not of cars built in the 80’s, but based on cars built since 2000. In my personal experience, I didn’t see any of this “we build them as good as Toyota and Honda” quality.

  • avatar
    shiney

    I want to thank PCH101 for his excellent analysis of GM and the Union position!

    While I’m not sure nationalized healthcare can save the big 2.8, if it had existed in the past, it may have prevented them from getting in such desperate shape. When Sherman Lin wrote “I for one don’t want to lose my good private healthcare for a crappy nationalized one simply because GM gives their retirees a gold plated healthcare plan for free”, he got right to the point of the issue.

    Our system works great IF you have good private healthcare. As someone who KNOWS he has to forgo health insurance for as long as two years so I can afford to launch my own business (the cost of insuring myself or continuing my current corporate coverage is simply outrageous) I’m all for some nationalized health care. I once worked as an agent for one of the countries largest health insurance firms, and eventually quit in disgust. It was the most inefficient and corrupt workplace I have ever experienced – with older agents pulling in six figure incomes on residuals with their only actual work being a Monday morning meeting, and whole staffs doing nothing but looking for ways out of previously signed coverage on customers that had become “risk positive”. When I took the position, they flew me and seven other new agents to a city on the other side of the country, and put us up in a relatively expensive hotel for a week of training in what we were told would be health care issues and applicable regulations. It was actually a one day cursory introduction to the US health insurance system, followed by four more days of intensive sales training so pushy and sneaky it would do the worst GM dealer proud.

    I would much prefer to have a Washington bureaucrat make decisions about my healthcare than a bunch of capricious clowns with a clear profit motive that goes against giving me care!

  • avatar
    Pch101

    Its the retirees health insurance that is killing GM and Ford.

    I doubt that there is a single person in America who would run out and buy a Cobalt tomorrow if GM reduced its health care costs today. At the end of the day, it’s still a Cobalt, an inferior, second-rate also-ran that competes with the Civic, Corolla, 3, etc. based only upon price, and not based upon quality, service or desirability.

    Consumers are indifferent to the internal costs of the business. They just care about the product, its service, reputation and image.

    The greatest bleeding faced by GM is the erosion of its customer base, including many defections that may be permanent due to products like this. If you don’t fix the product and its branding, the company is still going to suffer. The fact that GM has consistently required average incentives approaching $3,000 per vehicle, as compared to less than $1,000 for Toyota, tells you how severe the gap between GM and the consumer really is.

    While cutting expenses would be a necessary part of a turnaround plan — you have to pay for it somehow — the whole discussion becomes academic if there is no actual turnaround plan to implement.

    Right now, there is effectively no plan. The so-called plan du jour has been based upon (a) upgrading the trucks and SUV’s and (b) repackaging the Euro cars, but this plan isn’t working. If there is a better plan on the horizon, they sure seem awfully quiet about it…

  • avatar
    geeber

    shiney,

    If you don’t think that bureaucrats aren’t capricious clowns, too…

    When people talk about nationalized health care, what they don’t realize is that in virtually every European country, the national plan provides a basic level of care.

    If you want BETTER care, or want to skip the waiting lines for certain services, or need care that is really out of the norm, then private health insurance is a necessity.

    So private insurance isn’t going to go away under a nationalized health care system. Nor would discrepencies in care based on income, because not everyone would be able to afford private insurance. There would be a two-tiered system – those who stay with the nationalized system, and those who are willing (and can afford to) purchase supplemental insurance.

    (Actually, private insurance did go away in Canada, because the government banned it, and Quebec residents unhappy with their nationalized health care sued for the right to purchase it, and won.)

    There is no way that a nationalized health plan could provide the same level of benefits and lack of co-payments enjoyed by UAW members. The country could not afford it.

    The UAW members would either have to accept a reduced level of care, or they would demand that their employers pick up the slack (by either providing private insurance, or paying them money to purchase it themselves).

    Guess which scenario would occur?

    The Big 2.5 would be back in the same boat, albeit with a smaller gap between their costs and the costs of the transplants.

  • avatar
    geeber

    Pch101: Right now, there is effectively no plan. The so-called plan du jour has been based upon (a) upgrading the trucks and SUV’s and (b) repackaging the Euro cars, but this plan isn’t working. If there is a better plan on the horizon, they sure seem awfully quiet about it…

    Well, at Ford Mullaly and Fields are: (1) attempting to gain economies of scale by share components that customers can’t see (the new 3.5 V-6 was designed to use a common mounting system in several vehicle lines); (2) if a vehicle needs improved, try to improve it instead of abandoning it (changes to old Five Hundred and Freestyle that go beyond name changes and facelifts – in the past these vehicles would have languished as the company pursued the “next big thing”); (3) incorporate changes suggested by customers as soon as possible, instead of waiting until the next redesign; (4) go to each plant and have workers approve a competitive operating agreement that streamlines work rules, without crowing about it in the press, to avoid putting the UAW on the defensive; (5) change the company’s bylaws to reduce power of the internal Finance Committee over new vehicle development, to give product people more say.

    Will this plan work? It better – they don’t have any other options left, aside from bankruptcy, or selling the company.

    But it sounds better to me than wailing about labor costs in the press, crowing about the latest new car that only brings the parent company to near parity with the outgoing generation of the segment’s leaders, and thinking that new trucks and SUVs are going to save the day with a collapsing housing market and volatile gasoline prices.

  • avatar
    Lumbergh21

    geeber has it right on regarding health care. We would still have a two tier system, as Europeans do adn as we already do-state health care plans for the poor and elderly versus private health care plans. The difference would be that a much larger number of people would be covered by the state health care plans and the medical service provided would be diluted even more. If other government social programs are an indication (and why would national healthcare be any different?), then nearly 50% of the money would be spent on government overhead. Say all yoou want about the greed of private health care insurers, I bet they pay out more than 50% of the incoming premiums as a whole. A worst case scenario would be something like the VA healthcare system, which would happen if private insurance and private health care weren’t allowed in the name of equality or “fairness”. How would you like to be forced to receive treatment at a VA type hospital? I don’t see union members standing for a healthcare plan, if they have a choice, with coverage that is significantly reduced from what they are used to.

    Is there any way to get more off topic?

  • avatar
    Matt51

    PCH – I agree, GM needs to work three related fronts – they need to be more profitable (have to dump health care costs one way or another), they need better product (cobalt is light years ahead of cavalier, but probably not quite where it needs to be, although not as bad as some are making it out to be) and they need a more logical organization (they cannot fill the product pipeline for 5 car divisions). Ultimately they have to go Chapter 11 to dump their debt, but that could work out very well for them. The airlines who file for Chapter 11 have an advantage over those who do not.

  • avatar
    tigersfamily

    All,

    Much fascinating reading over the many past months.

    IMHO, there are two gentlemen, both capable of turning things around, who might be brought in to shake up the General: Mr. Sergio Marchionne of Fiat, or Carlos Ghosn of Renault / Nissan…

    Neither has limiting GM DNA and both have come from outside to revitalize extremely challenged auto companies. It’s time for a sea change at GM – at senior management levels and at the board level as well. Leadership starts at the top, whether with regard to products or performance.

    For 15 years I have heard that a major benefit to GM’s turnaround-around-the-corner is a reduction in fleet sales. And, “we’ve got a great line-up in the works…” Also, “health care costs are killing our competitive ability…”

    Enough is enough.

    It’s time for real change.

  • avatar
    Pch101

    IMHO, there are two gentlemen, both capable of turning things around, who might be brought in to shake up the General: Mr. Sergio Marchionne of Fiat, or Carlos Ghosn of Renault / Nissan…

    I’m sure that everyone reading this site knows that Kirk Kerkorian tried unsuccesfully to bring Ghosn into GM. As expected, Wagoner danced the dance and killed the deal.

    I think that we have to accept that at least in the case of GM, the present leadership is determined to stay put. For the good of the company, the GM “leadership” should be handing over the reins to new people who know how to lead turnarounds, but as we can see from Wagoner’s stand against Kerkorian’s velvet coup attempt, they won’t budge unless they’re shoved out.

  • avatar
    jolo

    GM is probably waiting for Delphi to come out of bankruptcy so they can hire Steve Miller just in time for the union negotiations…

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