I'm opinionated... all of my regular readers know that. And I am a car guy... all of my regular readers know that. So, it isn't a leap to think I would have an opinion about what is going on with the American auto companies.
Here it is...
All three of the American companies are in trouble. I think that Chryselr is in the least trouble... and it still isn't good. GM is in the most trouble, and for them it could be catastrophic.
To start with, the auto executives... and Congress need to examine the root causes for why the Big 3 (B3) are in trouble. This needs to be done honestly, and not through partisan glasses... or through politically correct glasses. I think this is going to be harder for Congress than it will be for the auto executives. Democrats in Congress don't want to admit that the unions could be part of the problem, and they also don't actually know what the facts are, just perceptions.
- Labor costs at the B3 are out of hand. They range from $70 to $76 per hour. Honda, Nissan and Toyota in the US are between $42 and $48. Average in the manufacturing sector is $25.36. When times are fat for the auto industry, they are pushed to "share the wealth" with labor. When times are lean, labor doesn't wish to give any concessions. The UAW needs to give up some money. Or the B3 are going to go away and the UAW will give up all of their jobs. Here is my offer:
- Increase profit sharing. When times are fat, the workers get more money... not as salary or wage, but as profit sharing. When times are lean, workers don't.
- Decrease wages. The B3 are paying 50% more than the companies that are eating their lunch... labor costs need to drop to $50/hour for the B3. When they are profitable, some of this would be made up with profit sharing.
- Automate. Sorry, but robots don't whine about making only $100,000/year. They don't get overtime.
- Increase profit sharing. When times are fat, the workers get more money... not as salary or wage, but as profit sharing. When times are lean, workers don't.
- Leadership at the B3 HAS to change. Sorry, but these guys drove the bus off of the bridge. Tossing them the keys to a new bus is a bad idea. Would they be standing there on the tarmac next to the corporate jet with their hat in hand and their tin cups if they knew that their jobs would go away if they were successful at getting the cash?
- Rick Wagoner at GM has an MBA and a BA in Economics. He has been CEO since 1998 and Chairman since 2003. But, he comes from the finance area... not the sales or engineering area. That is a problem.
- Alan Mulally at Ford has a background in aeronautics and aerospace engineering. He has only been the CEO of Ford since 2006. At least he comes from an engineering background, but he isn't from a car background, he is from Boeing. That is a problem.
- Robert Nardelli at Chrysler has a management background... but he is also not a car focused guy, having come from GE by way of Home Depot (where he screwed up pretty good according to a lot of accounts). Again, he is a problem.
- Rick Wagoner at GM has an MBA and a BA in Economics. He has been CEO since 1998 and Chairman since 2003. But, he comes from the finance area... not the sales or engineering area. That is a problem.
- A car company should be run by a car parson. It should be someone that can talk to a race car driver and not look like an idiot. It should be someone that could actually talk with a consumer on the floor of a dealership and not look like an idiot. And it should be someone that can complete a sentence without saying: synergistic, economies of scale, product or Jeeves get my private jet warmed up.
- Products are NOT coming out fast enough. I love knowing that Chrysler will have a category busting hybrid minivan coming out in a year and a half, GM will have the Volt out at the same time and Ford will have their hybrid offerings expanded at the same time. But that stuff needs to be in the dealers NOW. In a year or a year and a half, Toyota and Honda could design and roll out their competing products. You've been walking towards this goal for as long as I can remember.
Now, all is not gloom. Some is perception that isn't in line with reality.
- Quality at the B3 is on par with... and in many cases exceeding the European and Japanese makes. In general they are wasting the Korean and other makes.
- The B3 ARE making fuel efficient cars... and selling them at pretty good prices.
- Despite the constant whine from Congress that the B3 weren't making cars that people wanted... they were busy making SUVs... they were making SUVs because THAT IS WHAT CONSUMERS WANTED! The market changed. But look around. EVERYBODY wanted to have more SUVs in their line-up.
- Ford and GM actually have some cars that they could roll out VERY fast if the government let them. Chrysler doesn't have the foreign operations of the other two... but they are in the least trouble.
So, here is what I would do.
- UAW, we are going to renegotiate your contracts. We will do it now, or we will do it after we go into bankruptcy. You will accept $50/hour in total labor costs or we will replace your workers with people that will. If you try to shut down the factories, we will have your members arrested. Blackwater Security (that earned such a bad name in Iraq) won't have as much to do under an Obama administration... they will be running our security.
- Those cars that we said would be out in 18 months or so... will be out next spring. That's right... SPRING. We have had the things driving around for the magazines to test for a year. It is time to put them out on the street.
- We are going to spend some time actually telling consumers that we DO have cool products that people want. We have fuel efficient cars. We have hybrids. We have diesels that get 40mpg.
- GM and Ford will be pressuring the government to streamline bringing in some of our international vehicles. In Europe we are going head to head with all comers with high mileage and smaller cars... we have them ready to go RIGHT NOW. They will be on the shores by spring. This spring.
- Bonuses and performance based pay is actually going to be based on long term profitability... not on tweaking the books to make it look good for a moment.
The American car companies are making some really cool cars and trucks both here and overseas. They have some cool stuff on the drawing board and more that is actually almost ready to hit the dealers. But they also have legacy costs that are killing them and terribly inefficient dealer networks and other structures. All of that needs to be addressed.
It isn't something that can be knocked out in the next season... this isn't a reality TV show. It is actual reality. And these are GIANT companies and take a little time to turn. But the basic fact is that they have ALL strayed from their purpose. They have ceased being car companies and become "product manufacturers."
There should be car people at the helm. The people that become leaders of a category aren't those that come out of business school with a generic degree... they are people with a passion for something specific. There are a few exceptions, but look at the people that have been the most successful at building companies... Bill Gates, Henry Ford, Michael Dell, Lee Iacocca... these weren't business school wonks. They were people that loved something.
And for God's sake... Congress has NO business running a company. They can't run their own business. We don't need them doing more broad based damage.
Unless otherwise noted, all content of this blog is the property of Lane Bailey, ©2012 Lane Bailey.
I'd love to hear from you...
Hi Lane,
Yes, it will be interesting to see what happens with this huge issue...
Best Regards,
Michael
Lane: Very excellent post... you really know your stuff. Question: I heard on the news that the B3 have like four or five times the number of dealerships that Toyota or Honda has... but they sell about the same number of cars through them. If this is correct... how about paring down the number of dealerships to make things more cost-effective in the delivery of these vehicles to the car-buying public. Any thoughts on that ??
Michael - Yes it will.
Karen - They do have more dealers... at least I know that GM has about 7500... and toyota has about 1500. But GM also has Chevy, GMC, Pontiac, Cadillac, Buick and Hummer. Of course, many of those are multi-line stores. But they need to cut down... and there are state laws that get in the way of the B3 firing dealers.
Lane - I like most of these ideas, and I agree 100 percent that car guys need to run car companies. I don't believe that the unions should be allowed to participate. I believe that they are 75 percent of the problem. They conrol what happens, and because of that, it takes forever to get anything done. One reason the competition can move so fast is because they don't have to get a union on board. I know how non-union car companies work, because i have some customers who work for the nissan plant, or corporate office. They move fast, and they get things done, and they hate unions. That's why they located in the south, we don't really like unions here, or democrats for that matter.
A far as the SUV problem, I think congress had a hand in that when they were giving tax breaks to self employed people who bought SUV's over 5000 lbs. I know a lot of realtors who bought into that scam. How did that happen, the lobbyist convinced congress that it would give the big 2 an advantage because toyota and Nissan didn't have anything to compete at that time. What a dumb idea, but it sold a lot of SUV's that in turn sold a lot of gas. Now it's time to pay the piper. But does congress think that nobody remembers why the SUV sales were so good.
I read your post with great interest. Why? Because I have lived and worked in Oshawa, Ontario all my life. As you will know, Oshawa has had the largest GM work force in Canada. Many people I know personally have made their living working for GM. Not only are wages a concern, there needs to be some thought put into benefits and pensions. The word is that these two items are major cash drains that won't go away. I am the first person to support pensions as a reward for all the years of service but 35 cents to fill a prescription? I believe that unions and management need to work together toward a common goal of saving the industry and many people's jobs duing this critical time. And it needs to be worked on now.
Lane, I agree with what you wrote, it is well thought out. I also think that Merle Haggard had it right in 1980 ............."lets build a ford and a chevy that'll last 10 years like they should...." It isn't often that I get to quote the Hag in Real Estate, but that is the crux of the problem for me. I had been a GM fan all my life, but I got tired of having to have things fixed even when I religiously kept the maintenance up on them. They just don't build them like they should. The other part that you're absolutely right on, an automotive person should be running these plants, and labor needs to realize that a smaller piece of the pie is better than no piece at all!
Lane: So, if you ruled GM... what lines would you do away with ? Would it make sense to go over all six lines... cherry-pick the most sales-producing models, and then cut the dealers from the six you mentioned... to two... or three... and have those models you choose sold thru those two or three "named" dealerships.
Not sure what to do here. What would you do... dealership/store wise... and models to keep... and duplicate or poor sellers to cut ? I will be interested in what your suggestions are.
Larry - The accelerated depreciation on SUVs (and trucks) was not really the driver of SUV sales... it was the last gasp. But that was largely done for business to buy capital equipment. But those unintended consequences...
Bob - Employees pay $10 month for personal health insurance and $21 month for family coverage. That is INSANE. Employees need to pay realistic costs for their benefits.
Tony & Darcy - I have a Jeep made in 1992... ok, I have most of a Jeep made in 1992. It went well over 100k before major work... and that wasn't needed, but mods I wanted to do. I have a 2000 F-350 with over 100k. It runs like a top. My father in law has an Oldsmobile that is 15 years old and has over 100k on it and runs great. Back in 1980, Hag was close to the truth... not anymore.
Karen - GMC would go... they are the same trucks as Chevy. Buick would likely go... they are mostly boring. And there isn't a reason for that line.
I guess the only brand I would do away with is Buick... in the US. I might consider killing overseas brands. But the bigger thing would be to focus the remaining brands. Ford has managed that in Making Lincoln = Luxury and Mercury = near luxury. Sterling is medium trucks.
I think that each brand should target a lifestyle. Maybe the trucks should ALL go to the Hummer stores.. but there isn't a reason to build clones in all of the lines. Badge engineering is dead.
Well said.
Lane they are so far down that they may not be able to react fast enough to save themselves. I think the union think about how hard they fought to get the wages up to accept this in the short run but if they don't they will give it all up. Thanks for your analysis.
Ok so keep government out of the car business and dont bail out the car companies until they get their sh&t together! What a coincidence that the Big 3 who have been failing for years behind the foreign car makers are looking for a handout now?!
Lane,
Congratulations on being featured here on Celebrating Free Enterprise. I love your solutions and your general perception of the issues. :)
Steve
Lane, I would agree with this for the foremost. I am not about splitting hairs over the small issues or looking at it politically. I think that the way the CEOs approached Congress the first time was childish thinking that they would just hand them the money. Imagine what a bank would do to you if you walked in and asked for a sizable loan without a business plan.
Lane whatever happened back to 8 to 10 years ago (Clinton Administration) before SUV's were being built when we had mpg restrictions on cars, then all of a sudden Bush came into office and the Republicans free enterprise and less restrictions kicked in and Detroit started building all these 12 to 15 mpg SUV's that they made a bundle on! Look at them now?!
Dean - Thanks.
Terry - it isn't good... but I think they could turn. The question is whether they have the guts and the fortitude to do it.
Stephen - I'm not in favor of a bailout... but your Democrat friends are. They don't want to see the Big 3 go to bankruptcy court... they owe the union too much. Next up... ALL of the automakers except Mercedes and Toyota have recieved some sort of government aid from their own government... and Mercedes has benefited from not having to pay health care and pension costs anywhere near the American makes. While not paying substantially more in taxes. Toyota on the other hand actually benefited from the terrible Japanese economy a few years ago to borrow loads of cash at almost no interest... While it wasn't direct aid, I would say that free credit to build international infrastructure WAS something that the Big 3 weren't getting...
Steve - Thanks.
Danny - Hang on a moment... What if you walked into a bank and asked for a loan. But you were married to the Bank President's daughter? And the board that decided the loan was half related to her? The Congressional Democrats WANT to do the bailout as payback to the UAW for election assistance. The CEOs were stupid to think that there wasn't going to be a show, though.
Stephen - Those rules are still there... but didn't apply to trucks. And the SUVs were trucks. And those SUVs were what the buyers wanted. Just so you know, the King of the SUVs... the Excursion... came out in 1999... Is that Bush's fault too? The Suburban came out in the 1930s... Want to blame that on Bush? Seriously, you are in a fight you can't win.
Lane, you see this as black and white, democrat vs republic. Actually I think that is a crock of shit. It goes deeper than that. The issue for the bailouts have nothing to do with political ties. It deals with 3 very poorly ran companies. Personally, I could care less if they go bankrupt. Maybe then someone can and will buy them that has the business sense to run them. What gets me is the people that make everything a political platform.
BTW, no need to respond to the comment. I already know what you think.
Lane,
I think that you have laid out a very good plan now all you have to do is get the government to at least listen to it. Good luck sir.
Danny - I'm not for the bail-out... And the companies HAVE been poorly run. Part of it is because of the law. GM, Ford and Chrysler haven't been allowed to fire the unions when they go on strike. They should be! But, to say they weren't building cars people wanted is wrong... What they did was to fail to have a contingency plan.
And come on... are you going to say that after the UAW pumped millions of dollars of ads and provided thousand of campaign workers for Democrats from Obama on down... and NOTHING for Republicans, that the Democrats don't feel that they need to pay them back? Really?
And what it comes down to is that if the B3 declare bankruptcy, one of two things will happen... the union contracts will be revisited by a bankruptcy judge... and likely those contracts will get renegotiated. Or, the companies will shut down and the UAW workers will be SOL. in either case, the UAW is the loser. And the Democrats in Congress and the Senate... and Obama... CAN'T let that happen. They would be losing too big and strong of a political supporter.
Sorry that you consider the actions of Congress to be political...
Don - No chance. They wouldn't like what I have to say... not management. Not the union. Not Congress. Consumers? Maybe they would... but they don't count.
Lane, you nailed it.
Darla - Thank you...
Karen - I keep forgetting that GM owns Saab... They need to sell it to raise cash. Saturn might also be on the sale block...
Lane ... thanks for this article from The Car Guy. We agree the government has no business running a motor vehicle company. But I think that Mulally has done a good job and has a great future there ... and to support the industry.
By the way, my wife and I bought a new Ford Explorer Eddie Bauer 2008 in December. It's great, and I intend to write a blog article about that positive consumer experience.
Harrison
Harrison - There are some KILLER deals right now. BTW, Toyota just announced losses, and Honda has more than twice as much inventory as they want... and they are cutting prices to try to get rid of it. It isn't just that American car companies aren't doing well... it is that car companies in general are facing tough choices.