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Topic: GM and Ford in need of a big overhaul
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Boom Boom
rabble-rouser
Babbler # 7791
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posted 21 October 2005 01:46 PM
Quote: However necessary are the cuts Detroit's big carmakers must make, they would do nothing to tackle their other main problem: Americans are increasingly reluctant to buy their models. In the past year GM's sales in America have fallen by almost 25% and Ford’s by more than 20%. Car buyers have continued to turn to Japanese makes: Toyota is likely to overtake GM as the world’s largest carmaker in the next few years. Honda and Nissan have also continued to gain at the expense of GM and Ford. GM already has some kind of deal with Toyota, and Ford owns a controlling share of Mazda. Chrysler and Mercedes (best in overall quality) have some kind of union. It's not like the US car companies aren't making an effort. I think there's a mindset that says "Japanese is automatically better" that probably has to be overcome. edited to add: Honda, Mazda, Nissan, and Toyota also build large SUVs and trucks. Are their sales of these vehicles also down? [ 21 October 2005: Message edited by: Boom Boom ]
From: Make the rich pay! | Registered: Dec 2004
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Cougyr
rabble-rouser
Babbler # 3336
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posted 21 October 2005 02:08 PM
quote: Originally posted by Boom Boom: Honda, Mazda, Nissan, and Toyota also build large SUVs and trucks. Are their sales of these vehicles also down?
I've been wondering that, too. I'm sure they are better built. Pound for pound, I suspect that the Japanese built SUV's are marginally more fuel efficient. The monster, luxury SUV is not just an American problem. You should see these things trying to negotiate Hong Kong. That's why I think that the problem is deeper than fuel efficiency or manufacture or health care costs. The whole American (I include Canada in this) manufacturing style is out of date. The biggest problem may be the 90 day balance sheet. My previous employers had a terrible time with long range goals. There was constant moaning about Japanese competition having "five year plans". When a company has to show maximum profit every quarter, the long range takes a very back seat.
From: over the mountain | Registered: Nov 2002
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cogito ergo sum
rabble-rouser
Babbler # 10610
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posted 21 October 2005 05:36 PM
Ironically, GM and Ford are partly paying the price for being good guys in auto manufacturing. GM's costs for paying the health care premiums of 1 million retired employees and their dependents really are very large and there are also pension costs. If GM's and Ford's legacy costs do amount to $1500 per vehicle then is it any wonder that they would focus more on high-margin vehicles (read trucks and SUVs)? Sadly, competitively priced small and mid-size cars just don't have the profit margin to cover $1500 in legacy costs and generate a profit.GM and Ford do also have a product problem in that they don't make cars that people want to buy. That part of their problem is their own doing. However it is understanble that with their legacy costs they don't have the ressources to develop new models the way Toyota, Nissan, and Honda do. Also keep in mind that a lot of the Japanese companies now produce cars in North America but their plants are either in Mexico, in southern states such as Mississippi, Alabama, and Tenessee which are staunchly anti-union, or in Canada. That means that those companies do not have to pay out the sort of benefits to their employees that GM and Ford do. Now, I'm not advocating letting GM and Ford get a pass out of their pension and health care obligations but there should be some understanding that some of their problems are due to issues other than just bad product planning.
From: not behind you, honest! | Registered: Oct 2005
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cogito ergo sum
rabble-rouser
Babbler # 10610
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posted 21 October 2005 06:22 PM
quote: Originally posted by Boom Boom: I'm curious as to what kind of solutions we could brainstorm here. The Japanese have heavily invested in manufacturing plants in North America, and I think even German companies BMW and Mercedes have done likewise.
Well, it seems to me that most of these lagacy costs that GM and Ford have to deal with are due to having unionized plants in the US where GM and Ford have to pay for their workers' pensions and health care. Part of the reason for this is that the US government (as opposed to the Canadian one) does not take care of these things. Also keep in mind that most, if not all, of the European and Japanese owned plants in the US are non-unionized and don't provide those benefits to their workers.I think that a good solution would be for the US to become more like Canada and have government-run health care and a better pension plan. Maybe a compromise solution would be for the US government to mandate that all auto manufacturers must pay into a pool for benefits that will go to all auto workers. That way more US auto workers will have benefits and GM and Ford won't be at a competitive disadvantage because they actually do provide benefits to their workers. Do I realistically think either of these ideas would fly in the US? (this probably belongs in the rhetorical questions thread ) [ 21 October 2005: Message edited by: cogito ergo sum ]
From: not behind you, honest! | Registered: Oct 2005
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abnormal
rabble-rouser
Babbler # 1245
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posted 21 October 2005 09:10 PM
Where to start. In no particular order of importance:posted by cogito ergo sum: quote: a compromise solution would be for the US government to mandate that all auto manufacturers must pay into a pool for benefits that will go to all auto workers. That way more US auto workers will have benefits and GM and Ford won't be at a competitive disadvantage because they actually do provide benefits to their workers.
When you say GM & Ford won't be at a competitive disadvantage the question is to whom? The third member of the Big Three, other US auto manufacturers, other companies in the world? You're not going to get a Korean, Brazilian, or whatever company to pay into a US pool, so all you've done is say that entities with domestic manufacturing operations will share each others problems. I also doubt that you'll find more US auto workers with benefits since they're all pretty well off at this point. quote: government-run health care and a better pension plan
You actually think that the CPP is better than the deal the UAW has? quote: Also keep in mind that most, if not all, of the European and Japanese owned plants in the US are non-unionized and don't provide those benefits to their workers.
On this you're correct, the UAW has had very bad luck when they've tried to unionize the other car manufacturers in the US (or Canada for that matter). I've always found that a little surprising given the pay scales that the UAW has managed to extract. I can't help but wonder why. Posted by Fidel: quote: I think the uncompetitiveness of the big three is made worse by having to carry big health insurance companies on their backs.
Absolutely correct (sort of). The Big Three are not automobile companies. They are first and foremost retiree benefit companies. Their pension and retiree health care obligations completely swamp their manufacturing operations. In short, they are retiree benefit companies that manufacture cars on the side. Moving to my "sort of" comment: quote: Japanese, German and Chinese car makers aren't in the business of providing group health insurance for workers first and making cars as a sideline. They just make cars period. They need socialized medicine in the states. It's cheaper all the way around.
While we can debate the real cost of socialized medicine till the cows come home (and I'll happily do so on another thread) but even if you cut medical costs in half the fact remains that the US auto manufacturers have to pay for medical coverage (current, retiree, etc.) whenever they sell a car. It's not legacy cost. It's current cost. Simply put, it takes X man hours to build a car and that accrues $Y in costs now and in the future. [The only way you can potentially deem it legacy is if you relate those costs to union contracts signed in the past.] One thing you have to understand. It doesn't matter whether the manufacturer is European, Japanese, American, or Canadian. Whenever you employ someone that expects lifetime medical, someone has to pay. In the US it's the employer. In the rest of the list it's the government. The biggest difference is that when an employer guarantees those benefits (the $1,500 in the US for example) he has to figure out how to pay for it. There is only one way. Build it into the price of a car. If things are provided by the government the manufacturer doesn't care anymore. He pays his current tax bill and society picks up the tab. That includes all taxpayers, not just the auto company. From the point of view of the manufacturer, if he goes out of business tomorrow, he doesn't have to pay another cent. While that's good for the employee, you can argue if it's good for society since the entity the corporate entity has just passed those costs on to the rest of the country, including people that weren't even born when all this happened. Boom Boom - does the US need socialized medicine? Very good question. However, Medicare is a multi-trillion dollar problem headed into meltdown in the very immediate future. Makes Social Security look like chump change - that's scheduled for collapse but it won't go over the cliff for about fifty years (and by then it'll be too late to fix) - but Medicare is a multiple of the problem (double digit multiple at that according to many) and it's due to crash in the very immediate future. If the US can't fix that how they can be expected to take on the rest I don't know.
From: far, far away | Registered: Aug 2001
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abnormal
rabble-rouser
Babbler # 1245
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posted 21 October 2005 10:18 PM
quote: Medical insurance in the US can cost way more than that.
Of course. The $1,500 is not for any one individual's medical coverage. It's for a relatively few hours work on a single car. I don't know how many man hours actually go into building a car today - probably not a lot given that much of the assembly line is automated - but this expense amount is huge. Note that the big part of it is not covering one employee for one week or whatever, it's the accrued benefit that comes out of the system. The thing I don't understand is why people that flog a socialized system refuse to recognize that the same thing happens there. It's just a different group of people that end up paying. And the US does have a limited socialized medical system in the form of Medicare and Medicaid. If that's due to collapse what makes you think that the government can make a universal system work any better?
From: far, far away | Registered: Aug 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 21 October 2005 11:04 PM
quote: Originally posted by abnormal: And the US does have a limited socialized medical system in the form of Medicare and Medicaid. If that's due to collapse what makes you think that the government can make a universal system work any better?
Before I tackle this I would like to tackle your apparent dismissal of the benefits of socialized medicine. The problem that insurance companies have which the government doesn't is that they have to make a profit after peeking at the actuarial tables to see how the numbers go for or against them. As a result, the natural tendency is to cherry-pick clients that either can afford the premiums, or who won't (statistically) be much of a risk for an insurance payout. As a result the insurance companies narrow their risk pool (I believe this is the term) in exchange for a better profit margin. Expanding the pool of risk to cover the entire population would, paradoxically, increase the overall profit and efficiency of the system because of a phenomenon similar to creating very dilute solutions. You effectively bury the small portion of the high-risk people in the overwhelmingly average-to-low risk people that make up the majority. (The analogy here is that the small amount of solute alters very little the bulk properties of the liquid) This is what the government in Canada does, and apparently does so quite well all things considered, with less overhead administration costs. Tackling your quote now. The United States' system is precisely in trouble precisely because it's "limited". It suffers the same defects as the cherry-picking problem, being the inefficiency that comes from a relatively small number of clients in comparison to the whole population, in competition with others that want to provide a similar service. The effect is compounded because both members of Medicare and Medicaid aren't even the most desirable clients from a statistical-risk standpoint. Besides, abnormal, people have been busting out tables showing that Medicare has been "going broke" every year since the 1960s. The defect in reasoning is treating Medicare like a mutual fund instead of the Canada Pension Plan which (aside from the mutuals it uses) is run on a pay-in, pay-out basis. As a result any attempt to apply actuarial soundness runs smack into the nonsense you get from trying to apply accrual and stock analysis to something run on the cash basis of accounting. It'd be like me claiming I'm rich because of the stream of income I'll have in ten years. On an accrual or life-cycle basis that might make some kind of sense, but that's nonsense in terms of my personal situation, because we individuals generally run our lives on the cash basis of accounting as well. The Medicaid system in particular is also due to collapse not because of anything fundamentally wrong with government insurance but because of the high degree of fraud in the system, and it's not from the patients, it's from the doctors that are used to socking anybody with an incomprehensible listing of fees and getting a check without much in the way of follow-up auditing and controls. It may surprise you to realize that the irony in all this is that the fraud problem is due to the ingrained ideological bias in the United States that nothing run by the government is run very well, and so Medicaid suffers from all the usual bullshine routine of slovenly administration and people who get hired and aren't required to do a very stellar job.
From: You shall not side with the great against the powerless. | Registered: May 2001
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Fidel
rabble-rouser
Babbler # 5594
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posted 22 October 2005 07:05 AM
quote: Originally posted by DrConway:
Expanding the pool of risk to cover the entire population would, paradoxically, increase the overall profit and efficiency of the system because of a phenomenon similar to creating very dilute solutions. You effectively bury the small portion of the high-risk people in the overwhelmingly average-to-low risk people that make up the majority. (The analogy here is that the small amount of solute alters very little the bulk properties of the liquid) This is what the government in Canada does, and apparently does so quite well all things considered, with less overhead administration costs.
Exactly, errrr ya. What doc said about solute and solvent. And it tastes good, too!. I've always explained it to myself and others with the beginnings of the telephone system. The orginal idea behind the public telephone system in North America was that everyone should have access to a telephone. The public telephone system infrastructure was expensive to build, and access to telephones was made affordable for everyone by distributing the costs equally by implementing a rate system. As distribution networks to outlying areas where fewer people lived became more expensive, the costs were distributed. Rural areas became more populated and orginal costs recovered as more rate payers join the system. Too, large pools of money are superior to many small ones. If managed even by half-wits, a large national pool of capital will outgrow smaller, less efficient ones when expanding at compound interest and other finance rates of return on investment - Ralph Klein's stagnant Heritage Fund notwithstanding. Theoretically, private enterprise should not be able to compete with a nationalized entitity on a cost basis. The most expensive, most privatized health care system in the world is producing inferior national health statistics compared with 30 some countries with more socialized medicine than in the USA. Finally, the cold war proved that a well-funded, publicly-run military was more menacing, and more convincing a threat to the world than any of those other wannabe war mongering nations. When the hawks wanted it done right, they let the taxpayers own the end of the cow that needed feeding while private enterprise got the hind tit with ordinary American's footing the bills. Machiavelli never died.
From: Viva La Revolución | Registered: Apr 2004
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abnormal
rabble-rouser
Babbler # 1245
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posted 22 October 2005 09:06 AM
Posted by DrC: quote: Before I tackle this I would like to tackle your apparent dismissal of the benefits of socialized medicine.
I'm not dismissing any benefits of socialized medicine. I don't worship at the altar of national health care but for the purposes of this discussion, that doesn't really matter.For the purposes of argument let's assume that socialized medicine costs half as much as private care. That would mean that instead of $1,500 per car retiree medical would cost $750 per car. And you're right, the cost would be spread over a bigger base - it would end up getting picked up not just by GM or Ford, but by all taxpayers including those who not only don't work for an auto manufacturer and those that don't own a car and even those that never will. Under the private system the person that ultimately picks up the cost of the benefits associated with manufacturing a car is the individual that decides to purchase a car. One of the big differences however is that under the socialized system the manufacturer (and the employee if there are separate health taxes) pays for this year's costs. If he goes out of business tomorrow he pays no more. By contrast, with the private system, the employer pays not only for this but all future post retirement costs and has to build them into the cost of that car he sells today. That's where the $1,500 comes from - it's primarily the added cost to the system for future benefits resulting from the amount of time employees spend working on a car. If the employer doesn't charge this today he's not only fooling himself as to how much money he's making but is heading for disaster down the road when those medical bills come due. If he doesn't build that cost into the price of a car today he's got to come up with the money from someplace else. With a socialized system this is not true - the cost of paying those benefits is not the employers and he doesn't have to accrue for them. That's government's problem. If the government of the day actually does fund for those costs that's fine - as noted all taxpayers pick up the tab, not just the purchaser of the car. By the way, if the government of the day doesn't charge enough in current taxes to fund all those future benefits the costs will fall on future generations.
From: far, far away | Registered: Aug 2001
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abnormal
rabble-rouser
Babbler # 1245
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posted 23 October 2005 06:42 PM
DrC,I am not missing that. I'm well aware that you are paying for the autoworker and vice versa. The point is that under the private system the $1,500 number has to be factored into the cost of today's car. In effect, GM has promised their workers that, if they build a car the company will contribute that much to their post retirement medical. Under a national system they make no such promise. That doesn't mean the costs go away (even if they are less - a different discussion) it just means someone else pays them. If we use my hypothetical $750 the government of the day is promising to pay that amount. Whether or not GM Canada ever builds another car or is even in business down the road is immaterial since "society" will pay, not GM Canada. End result is GM Canada doesn't have to build that cost into the price of a car. It's someone else's problem, not theirs. My point is simply that the cost of those retiree benefits is ultimately born by someone. If it's not the manufacturer, and by extension the purchaser, it's going to be society in the form of the taxpayer. In somewhat different terminology: In the US model, the cost of a car is increased by, among other things, the cost of providing retiree health care benefits to their employees. In the national health care model, the cost of a car doesn't have to be increased to reflect those costs since the take home pay of workers at all levels is decreased because government has to pay for them.
From: far, far away | Registered: Aug 2001
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Fidel
rabble-rouser
Babbler # 5594
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posted 24 October 2005 07:07 PM
I think that national health is something that just should not be left to for-profit private enterprise and "market solutions." Should 40 other countries with universal health care aim lower so that the one country without it can afford cheaper cars and to prop-up big insurance companies ?. Shit on that. How many more full-time worker's could Ford and GM afford to hire without having to prop-up overbloated CEO and CFO salaries and duplicated healthcare mini-bureaucracies, over and over ?. What's unsustainable is American workers and taxpayers forking out over $2.5 trillion dollars every year so that corporate America can earn a half trillion dollars after social and environmental costs are calculated. [ 24 October 2005: Message edited by: Fidel ]
From: Viva La Revolución | Registered: Apr 2004
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Fidel
rabble-rouser
Babbler # 5594
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posted 24 October 2005 08:12 PM
BB and Cougyr, you can say that again. Is it time for a quote from Ralph Nader? quote: If I utter the following words, what images come to mind: crime, violence, welfare and addictors? What comes to mind is street crime; people lining up to get their welfare cheques; violence in the streets; and drug dealers - the addictors.And yet, by any yardstick, there is far more crime, and far more violence, and far more welfare disbursement (and there are far more addictors) in the corporate world than in the impoverished street arena. The federal government's corporate welfare programmes number over 120. They are so varied and embedded that we actually grow up thinking that the government interferes with the free enterprise system, rather than subsidising it.
From: Viva La Revolución | Registered: Apr 2004
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