A Portrait of the Industry
12/7/05, 06:36 AM
#1
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from . . autoextremist.com
Makes A LOT of sense to me . . . .
Rick Wagoner, GM. In an Op/Ed commentary piece entitled, "A Portrait of My Industry," which first appeared in The Wall Street Journal yesterday, GM Chairman and CEO Rick Wagoner gave a blunt assessment of where GM is with its recent cutbacks, what it needs to do going forward and more important, how Detroit's role in the nation's economy cannot be underestimated. There were many important points made in the piece, but we offer a select few worth noting. On global competition and manufacturing: "But competition and marketplace performance are not the whole story. To fully understand why GM and the U.S. auto industry are struggling right now, we have to understand some of the fundamental challenges facing American manufacturing in general -- challenges well beyond the control of any single company. There are those who ask if manufacturing is still relevant for America. My view: You bet it is! Manufacturing generates two-thirds of America's R&D investment, accounts for three-fourths of our exports, and creates about 15 million American jobs. And the auto industry is a big part of that, accounting for 11 percent of American manufacturing, and nearly 4 percent of U.S. GDP. Together, GM, Ford and DaimlerChrysler invest more than $16 billion in research and development every year -- more than any other U.S. industry. And GM, alone, supports more than one million American jobs." On health care: "So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents Â* a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs." On legacy costs: "Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed going unpunished. That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago." On the abuse of the American legal system: "Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That's more than 2 percent of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties." On unfair trade: "Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese auto maker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate. No wonder Japanese auto makers have noted their recent record profits were aided by exchange rates. And no wonder the U.S. trade-balance deficit continues to grow by leaps and bounds." And his conclusion: "Some say we're looking for a bailout. Baloney -- we at GM do not want a bailout. What we want -- after we take the actions we are taking, in product, technology, cost and every area we're working in our business today -- is the chance to compete on a level playing field. It's critical that government leaders, supported by business, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness. We can do this. And we need to do it now." We have said repeatedly in the last few months that these same issues delineated by Rick Wagoner would become the focal point of the national political discussion in this country in 2006 - just in time for the mid-term elections. Anyone who thinks the issues facing Detroit are isolated and "won't affect me" is simply refusing to acknowledge reality. This country's lawmakers have been cruising along ignoring these fundamental issues for far too long now - and time is running out. As to be expected, Washington politicos are slow on the uptake and are just now realizing that the dire straits facing Detroit are inexorably linked to the overall well-being of the country and its manufacturing base. Yes, Detroit has contributed mightily to its problems in the last 20 years, but there's no denying that the playing field is far from level. As a matter of fact, it continues to be luridly skewed in favor of the import competition at almost every turn. You can expect Rick Wagoner and Bill Ford to speak out forcefully and repeatedly about these issues over the next 18 months, and you can expect this to become the dominant domestic policy discussion in this country. It's no longer just the future of the U.S. auto industry that's at stake here, folks - it's about how this country wants to configure itself for the future. The U.S. will either continue to be a vital producer of goods and services and a manufacturing force to be reckoned with in the world, or we'll be relegated to becoming one giant consumer nation with little or no control over the vagaries of the global economy - or our economic destiny.
Makes A LOT of sense to me . . . .
Rick Wagoner, GM. In an Op/Ed commentary piece entitled, "A Portrait of My Industry," which first appeared in The Wall Street Journal yesterday, GM Chairman and CEO Rick Wagoner gave a blunt assessment of where GM is with its recent cutbacks, what it needs to do going forward and more important, how Detroit's role in the nation's economy cannot be underestimated. There were many important points made in the piece, but we offer a select few worth noting. On global competition and manufacturing: "But competition and marketplace performance are not the whole story. To fully understand why GM and the U.S. auto industry are struggling right now, we have to understand some of the fundamental challenges facing American manufacturing in general -- challenges well beyond the control of any single company. There are those who ask if manufacturing is still relevant for America. My view: You bet it is! Manufacturing generates two-thirds of America's R&D investment, accounts for three-fourths of our exports, and creates about 15 million American jobs. And the auto industry is a big part of that, accounting for 11 percent of American manufacturing, and nearly 4 percent of U.S. GDP. Together, GM, Ford and DaimlerChrysler invest more than $16 billion in research and development every year -- more than any other U.S. industry. And GM, alone, supports more than one million American jobs." On health care: "So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents Â* a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs." On legacy costs: "Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed going unpunished. That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago." On the abuse of the American legal system: "Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That's more than 2 percent of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties." On unfair trade: "Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese auto maker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate. No wonder Japanese auto makers have noted their recent record profits were aided by exchange rates. And no wonder the U.S. trade-balance deficit continues to grow by leaps and bounds." And his conclusion: "Some say we're looking for a bailout. Baloney -- we at GM do not want a bailout. What we want -- after we take the actions we are taking, in product, technology, cost and every area we're working in our business today -- is the chance to compete on a level playing field. It's critical that government leaders, supported by business, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness. We can do this. And we need to do it now." We have said repeatedly in the last few months that these same issues delineated by Rick Wagoner would become the focal point of the national political discussion in this country in 2006 - just in time for the mid-term elections. Anyone who thinks the issues facing Detroit are isolated and "won't affect me" is simply refusing to acknowledge reality. This country's lawmakers have been cruising along ignoring these fundamental issues for far too long now - and time is running out. As to be expected, Washington politicos are slow on the uptake and are just now realizing that the dire straits facing Detroit are inexorably linked to the overall well-being of the country and its manufacturing base. Yes, Detroit has contributed mightily to its problems in the last 20 years, but there's no denying that the playing field is far from level. As a matter of fact, it continues to be luridly skewed in favor of the import competition at almost every turn. You can expect Rick Wagoner and Bill Ford to speak out forcefully and repeatedly about these issues over the next 18 months, and you can expect this to become the dominant domestic policy discussion in this country. It's no longer just the future of the U.S. auto industry that's at stake here, folks - it's about how this country wants to configure itself for the future. The U.S. will either continue to be a vital producer of goods and services and a manufacturing force to be reckoned with in the world, or we'll be relegated to becoming one giant consumer nation with little or no control over the vagaries of the global economy - or our economic destiny.
12/7/05, 07:21 AM
#2
GTR Member
I agree with some of the points, but you can't keep doing what you were doing 40 years ago. Also, I'd be more concerned with the chinese going forward, they are playing the same game with their currency. Face it, american manufacturing is in some pretty dire straits right now, and I don't see it getting any better. If the japanese or chinese do something to favor themselves, its nationalism, and needs to be respected, but if americans do it, its protectionism, and unfair. Bull. Other counties are taking advatage of us, and we need to take a long hard look at what is being done to reverse this ballooning trade deficit, otherwise we will be nation of consumers with service jobs.
:rant off:
:rant off:
12/7/05, 10:00 AM
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Originally posted by TomServo92@December 7, 2005, 10:27 AM
Good read! He makes some very interesting and compelling points.
Good read! He makes some very interesting and compelling points.
Those points are pretty solid. A very good read indeed. I for one agree that the playing field is very skewed.
12/7/05, 10:21 AM
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Originally posted by mr-mstng@December 7, 2005, 8:24 AM
I agree with some of the points, but you can't keep doing what you were doing 40 years ago. Also, I'd be more concerned with the chinese going forward, they are playing the same game with their currency. Face it, american manufacturing is in some pretty dire straits right now, and I don't see it getting any better. If the japanese or chinese do something to favor themselves, its nationalism, and needs to be respected, but if americans do it, its protectionism, and unfair. Bull. Other counties are taking advatage of us, and we need to take a long hard look at what is being done to reverse this ballooning trade deficit, otherwise we will be nation of consumers with service jobs.
:rant off:
I agree with some of the points, but you can't keep doing what you were doing 40 years ago. Also, I'd be more concerned with the chinese going forward, they are playing the same game with their currency. Face it, american manufacturing is in some pretty dire straits right now, and I don't see it getting any better. If the japanese or chinese do something to favor themselves, its nationalism, and needs to be respected, but if americans do it, its protectionism, and unfair. Bull. Other counties are taking advatage of us, and we need to take a long hard look at what is being done to reverse this ballooning trade deficit, otherwise we will be nation of consumers with service jobs.
:rant off:
Rob, what you stated isn't a rant but the truth. We have to stop viewing it as protectionism because all the other countries are going to take advantage of the skewed playing field to our own detriment.
12/7/05, 06:41 PM
#6
Rick makes some good points... I do believe that trade practices in the US favour countries that set up shop overseas. Basically the shareholders make money, but the manufacturing industry is slowly eroding in north america.
12/8/05, 01:06 AM
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Some good point are made there, particularly the fact that what's happening to the US auto industry is endemic of a larger problem characterized by outsourcing of jobs, manufacturing and technology, and a $600 billion (yep, billion) trade deficit. Yet there is an apparent unwillingness on the part of the US government to do much about it as they continue to spend money on things like an unnecessary war that's costing $1 billion per day and further crippling the U.S. economy; with no proof that it's done ANYTHING to stop terrorism...terrorism that kills less people in America per year than traffic accidents or smoking.
Meanwhile, the REAL threat - Communist China - continues to gain an economic foothold on the US...fixes its currency against WTO rules...and rapidly builds its military with technology stolen from the United States.
The Chinese (and to a lesser extent Japan) already own an enormous chunk of America, their investment held in government bonds.
So many of this guy's points are valid, though this public plea really does reek of "please help poor us" desperation. It tells me they are in T-R-O-U-B-L-E...
And I'M troubled by their continued unwillingness to accept the fact that for the past 30 years they've been building cars that people don't want to buy - with subpar quality and reliability. Where was this guy's statement on THAT?
Or the big $4 million fat-cat payout that what's-his-face just got?
What GM needs is a strong Leadership Strategy of the kind Carlos Gosen brought to Nissan a few years ago; it worked wonders. Unless they adopt that IMMEDIATELY, all the cuts in the world won't help, and GM truly will be filing for bankruptcy in two years.
They've GOT to weed out the inefficiency. Read below from BusinessEdge.ca:
Meanwhile, the REAL threat - Communist China - continues to gain an economic foothold on the US...fixes its currency against WTO rules...and rapidly builds its military with technology stolen from the United States.
The Chinese (and to a lesser extent Japan) already own an enormous chunk of America, their investment held in government bonds.
So many of this guy's points are valid, though this public plea really does reek of "please help poor us" desperation. It tells me they are in T-R-O-U-B-L-E...
And I'M troubled by their continued unwillingness to accept the fact that for the past 30 years they've been building cars that people don't want to buy - with subpar quality and reliability. Where was this guy's statement on THAT?
Or the big $4 million fat-cat payout that what's-his-face just got?
What GM needs is a strong Leadership Strategy of the kind Carlos Gosen brought to Nissan a few years ago; it worked wonders. Unless they adopt that IMMEDIATELY, all the cuts in the world won't help, and GM truly will be filing for bankruptcy in two years.
They've GOT to weed out the inefficiency. Read below from BusinessEdge.ca:
GM author of own financial misfortune
It just doesn't make sense ... This will be a ghost town. It will be another Flint, Michigan ... I don't know what's going to happen ... I just bought a house. Mortgaged up. Got a new vehicle ... I work here. My younger brother works here. And my father works here ...
These were the comments of autoworkers in Oshawa interviewed by journalists outside a General Motors of Canada assembly plant as they left work on Nov. 21. That day the Detroit-based parent, General Motors Corp., announced it was closing 10 North American plants, including one in Oshawa, and laying off 30,000 workers, some 3,600 of them in Canada.
The GM restructuring will likely cost a lot of other people their jobs as well.
Parts manufacturers in Ontario predicted that 5,000 positions, and maybe as many as 11,000, could disappear from their industry.
And one local newspaper estimated that seven other workers depend on every auto assembly job, meaning 25,000 people could find their employment in jeopardy.
Politicians and economists were reassuring, of course. "There's going to be a little bit of contraction, no doubt about it," Ontario Premier Dalton McGuinty said, "but overall this is the fastest-growing jurisdiction in North America when it comes to the auto industry."
Bank of Montreal assistant chief economist Paul Ferley said: "There are likely going to be offsets elsewhere, even within the transportation sector."
Maybe they're right. Maybe you see the world more clearly if you're sitting in the premier's office or behind a desk way up in one of the bank towers in downtown Toronto.
But let's look at some of the problems besetting GM, whose share of the North American market has fallen to 26 per cent from 51 per cent in 1962.
Start with those nervous and bewildered workers at the Oshawa plants. Their facilities are rated among the best in North America in terms of efficiency and productivity, but that doesn't help much if your wages and benefits put you at a competitive disadvantage. Unskilled, hourly GM employees typically earn $65 an hour when benefits and overtime bonuses are included.
One man, a 28-year veteran, told reporters he makes $70,000 a year for driving cars from the end of the assembly line to a parking lot outside.
Another, presumably with less seniority, grosses $50,000 annually in the paint shop.
They also have a very good benefits package that includes company-paid top-up provisions to ensure that they will earn 90 per cent of their salary should they be laid off.
GM Canada does not have to cover health insurance costs for its workers, thanks to this country's public medical system, but its parent is the largest private buyer of health care in the United States. The company spends $5.2 billion annually on 1.1 million active and retired workers, which comes to about $3,500 per vehicle manufactured, and the employees do not pay anything.
"When you buy a Hyundai, you get a satellite radio as your option," says Robert Miller, chief executive of Delphi Corp., the parts manufacturer that GM used to own and which recently sought bankruptcy protection. "If you buy a Chevrolet, you get social welfare as your option. Long term, the customer is going to desert you if you try to price your social welfare costs."
Miller also contends that to be competitive globally, U.S. autoworkers ought to be compensated at a total hourly rate of about $20, including all health-care benefits and pension costs, which would lead to an hourly wage of about $10 per hour.
GM is also facing some other mammoth problems.
The company has an estimated $31 billion in unfunded pension obligations. It lost $4.8 billion in the third quarter of this year. Some analysts say it produces too many models and that its vehicles are not designed or manufactured as well as the competitors from Asia.
They also maintain that this pillar of the North American economy eventually may be forced to seek protection from its creditors in bankruptcy.
It is tempting to think that GM's difficulties are its own. Or that they are peculiar to the domestic auto industry. But that may be wishful thinking. High wages, generous benefits packages and rich pension plans are making many North American industries uncompetitive and jeopardizing our future prosperity.
It is not realistic to think that we can roll compensation packages back to the levels of emerging economies.
But something is fundamentally wrong and needs to be changed when unskilled labour earns $65 an hour plus benefits. And when someone performing the equivalent of a McJob - driving vehicles from the assembly line to the parking lot - earns $70,000 a year.
It just doesn't make sense ... This will be a ghost town. It will be another Flint, Michigan ... I don't know what's going to happen ... I just bought a house. Mortgaged up. Got a new vehicle ... I work here. My younger brother works here. And my father works here ...
These were the comments of autoworkers in Oshawa interviewed by journalists outside a General Motors of Canada assembly plant as they left work on Nov. 21. That day the Detroit-based parent, General Motors Corp., announced it was closing 10 North American plants, including one in Oshawa, and laying off 30,000 workers, some 3,600 of them in Canada.
The GM restructuring will likely cost a lot of other people their jobs as well.
Parts manufacturers in Ontario predicted that 5,000 positions, and maybe as many as 11,000, could disappear from their industry.
And one local newspaper estimated that seven other workers depend on every auto assembly job, meaning 25,000 people could find their employment in jeopardy.
Politicians and economists were reassuring, of course. "There's going to be a little bit of contraction, no doubt about it," Ontario Premier Dalton McGuinty said, "but overall this is the fastest-growing jurisdiction in North America when it comes to the auto industry."
Bank of Montreal assistant chief economist Paul Ferley said: "There are likely going to be offsets elsewhere, even within the transportation sector."
Maybe they're right. Maybe you see the world more clearly if you're sitting in the premier's office or behind a desk way up in one of the bank towers in downtown Toronto.
But let's look at some of the problems besetting GM, whose share of the North American market has fallen to 26 per cent from 51 per cent in 1962.
Start with those nervous and bewildered workers at the Oshawa plants. Their facilities are rated among the best in North America in terms of efficiency and productivity, but that doesn't help much if your wages and benefits put you at a competitive disadvantage. Unskilled, hourly GM employees typically earn $65 an hour when benefits and overtime bonuses are included.
One man, a 28-year veteran, told reporters he makes $70,000 a year for driving cars from the end of the assembly line to a parking lot outside.
Another, presumably with less seniority, grosses $50,000 annually in the paint shop.
They also have a very good benefits package that includes company-paid top-up provisions to ensure that they will earn 90 per cent of their salary should they be laid off.
GM Canada does not have to cover health insurance costs for its workers, thanks to this country's public medical system, but its parent is the largest private buyer of health care in the United States. The company spends $5.2 billion annually on 1.1 million active and retired workers, which comes to about $3,500 per vehicle manufactured, and the employees do not pay anything.
"When you buy a Hyundai, you get a satellite radio as your option," says Robert Miller, chief executive of Delphi Corp., the parts manufacturer that GM used to own and which recently sought bankruptcy protection. "If you buy a Chevrolet, you get social welfare as your option. Long term, the customer is going to desert you if you try to price your social welfare costs."
Miller also contends that to be competitive globally, U.S. autoworkers ought to be compensated at a total hourly rate of about $20, including all health-care benefits and pension costs, which would lead to an hourly wage of about $10 per hour.
GM is also facing some other mammoth problems.
The company has an estimated $31 billion in unfunded pension obligations. It lost $4.8 billion in the third quarter of this year. Some analysts say it produces too many models and that its vehicles are not designed or manufactured as well as the competitors from Asia.
They also maintain that this pillar of the North American economy eventually may be forced to seek protection from its creditors in bankruptcy.
It is tempting to think that GM's difficulties are its own. Or that they are peculiar to the domestic auto industry. But that may be wishful thinking. High wages, generous benefits packages and rich pension plans are making many North American industries uncompetitive and jeopardizing our future prosperity.
It is not realistic to think that we can roll compensation packages back to the levels of emerging economies.
But something is fundamentally wrong and needs to be changed when unskilled labour earns $65 an hour plus benefits. And when someone performing the equivalent of a McJob - driving vehicles from the assembly line to the parking lot - earns $70,000 a year.
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