UAW Hopes For Swift Southern Unionization Victory 'Overly Optimistic'

In the auto business it was not the hourly wages workers earned, so much as the entitlement liabilities of lifetime income and health care after "30 years and out" that created effective labor costs of $73/hour vs. today's, post 2007 UAW contract, $48 or so, a competitive rate. Work rules were a big problem in ways that hampered both productivity, and quality. A former Firestone Steel (out of business) union worker, who at the time, was a committee man for hourly employees in the GM BOC Group Process development center told me of his experience at Firestone. He told me his machine shut down and he was appalled when the electrician who came to fix it made the whole plant sit idle while he waited for another electrician to hold the ladder for him! The machine operator offered, and certainly could have done it, but the electrician informed him, "It is not your work". A book could be written about the ways this attitude hampered assuring quality and solving quality issues that did surface.

@doctor olds At GM, they really propagandized you to believe that everything was a cost problem. Prior to the bankruptcy, GM had a **revenue** problem. The excessive badge engineering and poor quality had turned GM into the K-mart of the auto business. Of course, the costs seem high when the vehicles are being effectively given away. Prior to the BK, GM would have been losing money even if it had no benefits to fund. The situation was that dire; I suppose that everyone was too busy complaining about the workforce and the government (that would eventually bail it out) to bother to read the financial statements.

@Pch101 Of course they had a revenue problem. Their labor costs absorbed more than all of it! As always, you are entitled to your misinformed opinion. ;)

@doctor olds I posted this here five years ago. Odd how none of the GM alumni seem to be able to do this math: _______________ Below are 2007 fiscal year figures for GM and Toyota. These make it quite clear that revenue is the real problem here. ($ X 1000) Toyota - Revenue from vehicles sold: $241,305,000 Other revenue: $21,079,000 Total Revenue: $262,394,000 Operating Expenses: $239,733,000 Operating Income: $22,661,000 GM – Revenues from vehicles sold: $178,199,000 Other revenue: $2,923,000 Total revenue: $181,122,000 Operating Expenses: $185,512,000 Operating Loss: -$4,390,000 Notice two things from the above: The revenue gap is enormous, and it is Toyota that had the higher operating expenses. Listening to Wagoner, Lutz, etc., you’d think that it was the opposite, but run the numbers, and you can see that Toyota has far higher operating costs than GM does. Here are number of units sold for the same period: Toyota – 8.913 million units GM – 9.370 million units Divide the revenue from vehicle sales by the number of vehicles sold, and you get average revenues per unit: Toyota – $27,071/ unit GM – $19,018/ unit The difference: $8,053/ unit, or about 42%. For every $1.00 that GM takes in from selling a car, Toyota takes in $1.42. Now, let’s see what would have happened to Toyota in 2007 if it had sold the same number of vehicles and had the same expenses that it did, but if it had sold its vehicles at GM prices. You guessed it — Toyota would have been a huge money loser: Revenue from vehicles: $169,525,615 Other revenue: $21,079,000 Total revenue: $190,604,615 Expenses: $239,733,000 Operating Loss: $(49,128,385) Next, look at how GM would have done had it kept all of its expenses and sold the same number of vehicles that it did, but was able to get the $27,000+ per vehicle that Toyota did: Revenue from vehicles: $253,661,322 Other revenue: $2,923,000 Total revenue: $256,584,322 Expenses: $185,512,000 Operating Income: $71,072,322 Strip away the political BS and get to the numbers. This problem is very, very obvious if you just look at the financial statements. Sell Toyotas at GM prices, and Toyota becomes a basketcase. Sell GM vehicles at Toyota prices, and GM is doing quite well. The obvious question to ask is why GM can’t sell cars for the same amount of money. This was obviously an issue before the economy melted down — these are 2007 figures — so you can’t blame the credit crunch. Cutting operating costs is obviously not going to be the saving grace here. In theory, GM is already more productive — its operating costs per vehicle are lower. But nobody wants to pay for that sort of productivity. It’s more lucrative to make better cars, and to sell them for more money.

@doctor olds I have one question for you, 101: What would GM's sales have done had GM chosen to up their prices by that average $7K? Do you still think they would have sold that same 9.370 million units? I don't. GM's lack of income wasn't just due to poor revenue--their poor revenue was due to leaving customers with poor choices across the board. They ended up killing two of their three brands shortly after because the brands no longer represented their customer base. Oldsmobile went from being an excellent mid-range luxury brand to econoboxes with almost no appeal for younger OR older clientele. The marque that was the most popular in the late '60s through the mid-'70s--The Cutlass--lost its "personal luxury" appeal and became no better than Chrylser's own K-cars. When they finally came out of their 'boxy' era, not one model could easily relate to its ancestor. This problem went across the board for GM through all of its lines with the exception of the Fox body (Camaro/Firebird), the Corvette and their trucks. Buick survived because it continued to cater to the seniors through that period, though now it's trying to appeal to the younger Oldsmobile crowd. Even so, I'm not sure it's working as well as they'd like. Every time GM has tried to change some aspect of their product line, they've antagonized more customers than they've attracted. The SST was an attempt to appeal to the "sporty, mid-sized pickup with legacy appeal" crowd and priced it out of reach of the people they wanted. I wanted an SST, but I certainly wasn't going to pay $37K for it. Even now, I won't willingly pay $37K for a pickup truck that's simply too big and too clumsy for everyday driving. With bringing the Colorado back, even if it IS still too big for all that it's smaller than full-size, they're making a move in the right direction--but only if they don't overprice them. My point is that Waggoner and his immediate predecessors made some horrendous mistakes which effectively destroyed GM's product lines and as such their customer base. EVERY SINGLE MODEL lost sales over a 20-year period to the point that they had to keep low prices just to maintain any sales. However, that doesn't absolve the unions from fault. During that period most models were very cheaply built and seemed quite flimsy compared to their predecessors and their descendants. Construction quality fell while prices continued to rise. UAW laborers were making three times that of almost any other labor force outside of Unions. GM, in their effort to cut other costs, chose to build relatively cheap cars as a result. Yes, they did still build some good cars, but it's like they chose one or two models from each product line to put their best effort into and let the rest atrophy. In other words, the Unions were still partially at fault by driving costs up. Toyota? Let me ask you one question about them? How did they average that supposed $27K per unit when the typical Toyota marque sold for less than $25K at the time? Only the Camry and the Avalon (and the Tundra) sold over that mark. Simple answer? Lexus. The average sale price of a Lexus was well over $30K and makes up almost half of Toyotas overall sales, even though the Camry is their most popular model in the US (and by extension the most popular CAR in the US). GM's most popular brand--Chevrolet--simply didn't have a model to compete (Please don't mention the Impala--even now it doesn't live up to its ancestral name) and Cadillac sales have never been huge because they appealed almost exclusively to the wealthy. Toyota simply did things smarter than GM and I think still is, though I'm hoping that since the bankruptcy and with their new CEO they'll show some intelligence. Again, I feel the C-twins are a step in the right direction.

@doctor olds Genaral Motors reported over $200B in annual sales prior to the divestiture of GMAC, for example. Look it up and compare to Toyota at the time. Doesn't Toyota have a captive finance company as well as extensive ownership in suppliers, all included in the bottom line numbers you use.GM sure commands more money than Toyota for their cars in NA these days. You presume far more than you understand as shown by your simple-minded analysis.

@doctor olds Doc, you don't win any prizes for showing your contempt for business sense. Let's remember that your former employer filed bankruptcy and was reorganized only because of government largess. Had your former managers not been aided by the taxpayer, the company would have liquidated, the ultimate reward for bad business decisions. "What would GM’s sales have done had GM chosen to up their prices by that average $7K?" GM could not have possibly raised its prices to Toyota levels, because GM cars sucked. GM had a revenue problem because it had product and branding problems. The lack of profits was the byproduct of consumers being unwilling to pay the kinds of prices that they were willing to pay for other, superior vehicles.

@Pch101 PCH- Business sense? My disgust is for presumptuous ignorance. GM's NA transaction prices are much higher than Toyota's with higher sales volumes as well. This is a far cry from the conclusions you reached with the simple arithmetic you did based on flawed understanding of the two company's revenue streams and cost structures.

@doctor olds I'm sorry that you can't understand a financial statement. That was a problem at GM generally, which is ironic when you consider the finance orientation of the company. It's pretty obvious that Toyota had higher costs per unit, but offset those higher costs with substantially greater revenue. It's also obvious that your bosses never told you this, but then again, GM provides a case study of how not to run a company.

@doctor olds Thank you for reading my entire argument, Pch101; you just reiterated what I said in fewer words--without explanation as to the whys.

@doctor olds I understand financial statements in a much more comprehensive way than your simple analysis suggests you do.

@doctor olds If you could understand a financial statement, then you wouldn't be attempting to argue with what is simply a factual presentation of real data. You can't explain the disparity between GM management rhetoric and the numbers in the annual report. GM kept lamenting its high cost structure, when it had lower costs than Toyota. GM is proof that it's not possible to cut ones way to prosperity. There has to be a viable revenue model, and selling second-rate cars at a steep discount to fleets while the competition conquers the retail market is not a sustainable business model.

@doctor olds You are right. It is a simple presentation, with an incorrect conclusion about how much of the revenue is from vehicle sales and how much from other sources. GM has much higher transaction prices than Toyota today. Did they just magically jump to a new paradigm? They had higher transaction prices in the time frame you cite as well, I will wager. Toyota assuredly did not have the advantage your arithmetic draws you to conclude. Gross revenue is much more than vehicle sales. Once again, note GM's $50B reduction in sales with the GMAC spinoff as an easily understandable example. Your analysis is simple and wrong. Besides, regardless of the reasons for GM's market share slide, the reason they went broke is because they had no way to stop ever rising labor costs in spite of that reality. That is my point. I've repeatedly explained the $8B/year elephant in the room that Toyota didn't have to carry.

@doctor olds You're repeating the same rhetoric that was coming out of GM before the bankruptcy, at a time that it denied that it could possibly file BK. Again, GM was a failed company. Were it not for the taxpayer, it wouldn't exist today. The old guard is not in any position to pretend that it has any insights to offer about the ship that it ran aground. They can only teach about failure, not about the right way to do business. You can thank the government task force for the improvements that have helped the new GM.

@doctor olds I lay out the facts. Sorry you can't or choose not to understand.

@doctor olds Hubris shouldn't be confused with wisdom. GM was a failed business, with failed leadership and a lack of self-awareness that produced bad product and branding. I can only hope that the new company has better people to guide it than did the old company.