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Jim Mateja
GM may be just a vehicle away


Published April 22, 2005


The trouble with some of the suggested cures for what's ailing General Motors and Ford are the side effects.

GM this week reported a $1.1 billion loss in the first quarter and Ford a $1.2 billion profit, though the joy was tempered when Ford said it probably will lose money in the second quarter.

Both cite slowing sales of large--and high-profit--sport-utility vehicles.

They also kept up the drumbeat that health-care costs are too high. Those costs will total about $10 billion this year and add up to $1,500 to the price of every vehicle produced.

This sent a message not only to Wall Street but also to the United Auto Workers that benefit concessions are inevitable.

There are those who say GM should be left to get in such deep trouble that it files for bankruptcy protection and the government takes over its debts while it reorganizes.

But how could a government that can't figure out how to fund Social Security take on $5.6 billion in GM health-care costs, not to mention pension liabilities?

Others suggest GM drop Pontiac or Buick and Ford lose Jaguar and both close more plants to reduce worker rolls.

If dropping a division helps, GM would have reported a profit in the quarter because it killed Oldsmobile in 2000. That, however, took 4 1/2 years and millions in compensation before the last dealership closed. GM financial statements show at least $930 million in charges to accomplish this.

By the time the suggestions get down to simply closing several plants operating below capacity and getting rid of workers, we're back to the union.

The automakers would still have to pay the idled UAW members up to 95 percent of their base wages and benefits for the life of the contract, which expires in 2007.

"So how much does that help when you still have to give workers 95 percent of their pay?" says Peter Morici, a business professor at the University of Maryland.

Morici suggests the key to financial health lies in GM, Ford and Chrysler paying the UAW members what non-union workers get at Toyota, Nissan and Honda plants in the U.S.

"The automakers need to sit down with the UAW and say, `We can't afford to make cars at this pay scale,'" he says. That scale averages $46 an hour in wages and benefits at UAW plants, $28 an hour at the non-union factories.

It's difficult to fathom UAW workers saying, "Yup, we make too much, take some back," especially when you consider that in their current contract UAW members got a $5,000 bump, to $15,000, in the payment to a surviving spouse if the worker is killed in an accident while wearing a safety belt.

GM and Ford could, of course, use product to dig their way out of the hole they are in.

Pontiac may have helped GM take a step in that direction with the Solstice. The two-seater due out this summer drew hundreds of thousands of inquiries and the first 1,000 sales after being featured on a recent episode of "The Apprentice."

Though GM is following Solstice with a limited-edition (20,000 units) Saturn Sky roadster for 2007, Morici says: "What they need now is a high-volume vehicle to perform like Solstice to sustain the company."

He points to the Chrysler 300 in regular and performance versions.

"The 300 shows how much an aggressive design helps," Morici says.

Good point. Chrysler went from a $637 million loss in 2003 to a $1.9 billion profit in 2004 after introducing the 300 and its Dodge counterpart, the Magnum. Chrysler proved that, rather than knee-jerk overreaction, sometimes all it takes is one vehicle to turn things around.
 

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I really think GM needs both unfortunately. A high production vehicle and health benefit changes. It's really either change the health care issue, or as the article says GM will end up having to let people go to compensate if they're not making a profit off of their car sales. Doesn't help they had the entire FIAT health care issue too.
 

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Average UAW at GM makes $99,840/year?!?!?!

Yes, Unions had their place, but this is ridiculous.

When I lived in DE, my neighbor was a UAW member from the Chrysler/Dodge plant in Newark, DE. When they switched to making the Durango ((1998?)) he was "laid off" during retooling. He pulled in 95% of his pay for about 9 months without lifting a finger!

Another twist...he complained that he still had to pay taxes on that income!

The UAW really needs an attitude adjustment. The UAW is not alone...many Unions are cripling their parent company. However, in the defense of the Unions, why do CEO's make $20MM/year? Both need to be fixed.

Yes, Healthcare needs to be fixed too...so GM, file bancruptcy, let the Feds take your debt (Yes, you and I taxpayer) and make some more cars! Maybe this will be what the US needs to convert to a National Health Care System like other industrialized nations.

As a manufacturer of products that compete with foreign manufactures, I have a problem with foreign governments subsidizing their homeland companies! How can they drop product on America at prices LOWER than they manufacture it for? I could go on and on.

RadRiv
 

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GM could follow the trail blazed by Lee Iacocca when he took over the helm of Chrysler. But I'm afraid the government wouldn't step up with loan guarantees this time for mighty GM as it did for "Mr. Mustang". Andrew Carnegie once siad that the unions had their place, because without them neither he or JP Morgan had the financial incentives to improve working conditions and increase pay. He also predicted that there would come a time when the unions would have outlived their usefulness. (and this was over 100 years ago!)
 

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I hope when we discuss the pay of the auto workers, that we don't get in a "race to the bottom " mentality. All workers should get good pay for what they do, but to say one makes to much, is the same as saying one makes to little. After all we are not in the middle ages of serfdom or are we? :confused: :confused:
 

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nighttripper said:
I hope when we discuss the pay of the auto workers, that we don't get in a "race to the bottom " mentality. All workers should get good pay for what they do, but to say one makes to much, is the same as saying one makes to little. After all we are not in the middle ages of serfdom or are we? :confused: :confused:
No, I just think we are pointing out some of the most obvious of GM's financial woes at present. They would NOT be the first company in the US to cut health benefits and retirement comp for current and retired workers, just the largest. A lot of GM's woes are due to overproduction and stockpiling units that have trouble selling in current climate. With $4000 US in incentives on a $15000 Sunfire who do you think is making any money? One of the points is that due to the nature of the UAW contract it would cost GM more per unit produced to lay off workers than to continue overproducing. The "right to work" states and non-union plants have helped the foreignmanufacturers gain a strong foothold in production on our shores and quite frankly GM, Ford, and DCX are in a bind. How are you going to put tarriffs on a 100% American content Toyota when GM is selling Korean and will be selling Chinese cars here that are to make up the bread and butter of the line (Chevy Aveo)? If GM can't cut costs then to equalize the playing field GM has to infiltrate the non-union plants on behalf of UAW and get things done, which BTW will raise the costs of over 50% of the cars sold here.
 

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Globalization is having a leveling affect on the whole world. Our standard of living has been so high in comparison to the rest of the world, but now due to information and transportaion break throughs, we are coming down and they are coming up. Of coarse this doesn't really affect the upper class.

Anyhow, the unions will have to make consessions just to keep the privilage of making cars in America. It would be nice if the CEOs could do the same, but it's not likely. It seems that Wall Street requires corporate officers to be extremely high paid ivy leagers or the stock is dumped. Afterall, they would only give saleries like that to only the most qualified wouldn't they??

Of coarse, the real problem at GM is the product. Until very recently, the best they could manage was average, and the worst... well we won't go there. I agree with the artical, the Solstice is nice, but now they have to work that magic on the bread and butter products, the sedans and wagons. I personaly would have thought that they would have done them first, and then go for the niche markets. I guess they thought the G6 and LaCross were good enough. :yawn:
 

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I read an article recently that talked about the fact that GM has to cover tremendous pension and health care benefits for retired workers that Honda and other non-unionized manufacturers don't have to pay - something on the order of $1500 per car per year.
 
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