Ninety billion dollars is the amount reported in the Wall Street Journal this morning that the Big 3 US auto manufacturers owe their current retirees in future health benefits. Now, the auto industry is on the eve of arriving at an agreement with the UAW to shift this obligation to some off balance sheet trust; GM is the first one up. On the surface, this looks better than the one way ticket to liquidation that GM, Ford and Chrysler seem to be headed. However, it will take much more than this to turn these companies around.
The US auto industry is a case study on how not to run businesses. Once holding a virtual monopoly on the domestic auto market, now 1 in every 2 new vehicles sold in the US is produced by foreign manufacturer. The positive thing here is that a large percentage of those "foreign" cars are actually built in the US (and Canada, which is considered a domestically produced car due to the 40+ year old auto free trade agreement between the two countries). Big 3 employment has dropped by over 40% since 2003, exacerbating the retiree situation. The truly sad thing is that it didn't have to be that way. Most of the innovations in auto industry over the past 30 years came out of the Big 3. This is evident in the fact that most auto manufacturers worldwide have design operations in the US. The Big 3's costs and fairly rigid structures did not allow, however, the "nimbleness" necessary to capitalize on them over the long term. GM. for example, has and had different divisions selling basically the same vehicle to the same customer.
So, the $90 billion dollar question is: Does this move finally help them turn the corner? Well, yes and no. This agreement does nothing to get buyers into showrooms, which is the real problem now with the not so Big 3. If they can convince buyers that there product is competitive (which isn't the case currently on price, as any recent shopper will attest to) and reinvent themselves as smaller, leaner companies, then this agreement will help to some degree. The more likely scenario on how this will help is that it will make it easier, from a public relations standpoint if no other, to file Chapter 11 to force renegotiation of contracts and a restructuring of operations.
Subscribe to:
Post Comments (Atom)
1 comment:
As an automobile aficienado and a student of history, I can go on for hours about the misteps, mishaps and blunders of Detroit, both management and labor. It is truly amazing. Ask any engineer about the logic of an electronic carburetor instead of fule injection. The Big Three tried to go in that direction. Or how the 1980 Cadillac Seville was built on the same frame of the 1968 Chevy Nova. The stories go on and on. As long as life for the Big Three existed in a vacuum, they could lay whatever crap they wanted on the public. Foreign competition changed that.
The best comparison to the plight of the automakers is Ancient Rome.
Rome was once a dominant empire. It conquered all which stood before it. As it dominated the known world it becoame lazy and corrupt. when the barbarians came knocking Rome tried to buy them off. That worked for awhile until the barbarians crashed the gates.
Fast Forward 1600 years.
Detroit dominated. All bowed before it. The foreign automakers came on the scene. The Big Three tried to buy them off by having comapacts made overseas to be sold as their own vehicles. Then there were joint ventures like NUMMI (Toyota & GM) and Diamond Star (Chrysler and Mitsubishi). Finally the foreign manufacturers stormed the gates and build their vehicles here. We all know what happens next.
Post a Comment