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.
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.