After the enormous success of the Employee Discount Plan of GM, Ford and Chrysler, the auto industry is now forced to come to grips with the new model year in which the first month, Spetember, looks none too promising.GM and Ford’s sales are down by a precipitous 25% on the average.Their product lines, heavily tilted toward gas guzzlers, are becoming a hard sell.Compounding this problem,because of their legacy costs, GM and Ford are unable to make any money on the small fuel efficient cars.
All these problems have forced the credit rating agencies to downgrade both GM and Ford to junk status so their borrowing costs are increasing.
The parts manufacturing divisions of GM (Delphi) and Ford (Visteon) are also on life support.Delphi, especially looks like it is close to bankruptcy and may declare it as early as next week. That would burden GM with additional legacy costs.
What concerns me the most is that the collapse of either GM or Ford or both would have massive repurcussions throughout our economy.Unless some sort of aid package is put together for these companies, the entire Midwest would be turned into a ghost land.
The suffering of people already being let go by the auto industry and its suppliers will be multiplied by many times across all our states.
Where is our Emperor at this critical time, you ask?Just like his AWOL status in Vietnam,9/11, New Orleans he will have one more chance to completely miss the signs of impending disaster and have his spin meisters say things that would not amount to a hill of beans to the people who are the victims of his policies. Remember, his Iraq invasion begat $3 a gallon gas that begat the collapse of GM/Ford’s markets.As the growing deficits make interest rate hikes all but inevitable, GM and Ford will drown in red ink like the people of New Orleans.
This is a major concern for my area and family. To be honest I’m afraid to face it.
We’ll survive it. I know it isn’t going to be pleasant. But if we stay together, help each other. We’ll make it through, and come out the other side with something better, I bet.
I am certain we will all survive in one way or other but the auto industry that has provided livelihood for many generations in my family and others is not going to be ever the same again. It is increasingly going to be replaced by the Japanese, German, Korean and in the not too distant future, the Chinese and the Indian auto makers.That will certainly keep many of us employed but not to the extent of the old days.
I know. I know it is going to suck for auto-families, and all of us in this region, and in the country. But, maybe we will wise up — start making wind turbines and solar shingles and computer systems to help houses run off the grid, etc. In the long run. If we are going to still manufacture — and not just serve each other lunches which few will be able to afford — we need to start making smart products for a sustainable world.
This is why I’m afraid.
All of this leading to a massive pension default on the part of GM, Ford and/or Delphi.
Expect Delta and Northwest to do the same in the near future.
Just heard another PBGC story on radio yesterday. It assumed Huffy Bike pension plan liabilities. The company’s pension plan was $80 million in the red. And the report quoted Senators concerned that the PBGC would need taxpayer dollars to remain solvent.
80 million is nothing.
There are pensions that are underfunded to the tune of 10+ billion.
Yeah. Dwarfed by the numbers we were talking yesterday. It’s like the difference between a bicycle and a pick-up truck, huh?
“Unless some sort of aid package is put together for these companies, the entire Midwest would be turned into a ghost land.”
No worries. They’ll file bankruptcy, and the process will get about as far as scrapping their unions and bailing on their pensions and other benefits. Then the government will step in, give Ford + GM a bunch of free money, and they will soon recover as a business, but this time without the unnecessary burden of things like wages and benefits.
Ford + GM are too big to really go under. They spent a lot of money buying up influence in DC, and now its time to cash in.
But that doesn’t mean that their employees won’t get screwed. After all, why the hell would the government bail THEM out?
What the government should say:
What they will say:
Don’t you mean Chinese loans will bail them out?
chinese money, taxpayer money, whatever. its all free to them.
Compounding this problem, because of their legacy costs, GM and Ford are unable to make any money on the small fuel efficient cars.
Can you elaborate on this? I’m not sure I understand. What are “legacy costs”?
Legacy costs are the costs to meet the health and retirement benefits of retirees.These are solemn promises that were made by the corporations to the employees when times wre good.Currently it is estimated that those costs are running at $1500 per vehicle for GM/Ford.Bceuase this is usually the margin they have in small cars, it makes small cars unattractive for the big three. The Japanese and the Germans on the other hand do not have these costs and can make money on small cars.
I thought there had to be an economic reason they weren’t making more hybrids available, even though they are so popular.
Hybrids are under priced at the moment, not even toyota is really making money on them (at least last time I had data available). Hence the limited supply. The Prius plant in Japan could have run all hybrids, 300k+ a year, yet Toyota limited production.
Isn’t it weird they don’t just raise the prices? They could obviously get more for them.
Does someone care to comment on why automation of automobile plants has not become good/cheap enough to price out cheap foreign labor?
My dad, a former worker in the U.S. auto industry, seems to believe that the American auto industry will eventually come back this way and have little need for foreign (or indeed, American) workers. I don’t share his view, it seems like he’s missing something.
I read somewhere that the robots on the assembly lines that all automakers use are good with most of the tasks on the outside of the auto.For example, robots can weld the bodies, paint them etc. But it is the precise positioning of the interior subassemblies that makes human intervention necessary.The robots lack tactile feel for such tasks.When that feel is developed, you will see that human labor could be a thing of the past in the auto industry.It is my understanding that there are some robotic developments in Japan that promise to do just that.
I spent the last decade designing and building automation for the big 3 & others. Every feasible and in many cases marginal operation that can be automated has been in the US. The bodyshop area has gone from around 300 direct operators a shift in 94 to 75 in 04. Paint area is all automated except for a couple of inspection and repair workers, final assemblyworkers have been cut by 30-40%.
As far as new technologies, every couple of years a few more operations can be automated, but there is always a tradeoff.
Cost, Flexibility, Reliability.
Compared to Japan, the US is actually more automated. Mexico is becoming more automated to stay ahead of the Koreans and Chinese, its about at 50% of the US.
JUst to give you a comparison. To build the same quanity of the same vehicle in the US and India. US about 500 workers/shift, India 4-5k.
Sorry for the ramble.
In addition, automation is available worldwide, anything feasible in the US become feasible in other countries as soon as the labor rates justify it.
Remember, his Iraq invasion begat $3 a gallon gas that begat the collapse of GM/Ford’s markets.
I think that’s a tremendously simplistic way of looking at it. GM and Ford’s heavy SUV gas-guzzlers should have been legislated out of existence before they were even manufactured. War or no war, what would become of the SUV market as we hit peak oil (maybe already, maybe any minute now, maybe in a couple of years)? What happens when the global warming engendered to a substantial degree by automobile exhaust emissions makes the greater NYC area look like NOLA?
The auto industry in general and the American auto industry in particular are based on such a vast assortment of untenable assumptions that it is little short of amazing that they have survived to the present day.
The government should move in this case, but it should move to provide, firstly, a social safety net, and secondly, job training and economic development incentives to replace the auto industry with industries that are both sustainable and generally beneficial. By all means, yes, we ought to bail out the workers, but how many times are we going to bail out their employers? The American auto industry has been a corporate welfare case for decades now. It’s time to stop throwing good money after bad.
For better or worse, Clinton let the light truck mileage rules slip through to save Detroit and the Midwest, but 10 years later, the inevitable is happening anyway. 10 years of illusions . . . Ah, America.