Filed under: Japan, Plants/Manufacturing, Ford, Earnings/Financials
The other shovel that helped dig the domestics' hole
So how exactly can a company with the heritage and scope of Ford Motor Company manage to lose $12.7 billion in one year? Or, for that matter, how could GM lose $10.6 billion last year? All while Toyota continues to soldier on, racking up profits and closing in on number one. Well, it's more involved than most people realize. Sure we can gripe about product and quality all day long, but as CNN tells us, there's a lot more to it than that. Using a report by the Detroit consulting firm of Harbour-Felax, they paint a pretty bleak picture for the domestics. Some of the numbers in the findings are staggering. Domestics trail the Japanese by $2900 in per vehicle profit. The main reason there's such disparity is labor costs. Sure we've been hearing that line for a while, but check out the data supporting it. Health care alone accounts for $1,635 per vehicle for GM. That's how much they spend on every active AND retired worker. Toyota on the other hand doesn't have many retired workers, doesn't spend a dime on them, and only pays about $215 for health care for active workers. Add to that the $630 per vehicle GM spends on other union related costs like work rules, line relief and holiday pay, plus the $350 per vehicle pay UAW workers get for not working when plants are shut, and you start to see where part of the problem lies.
We highly recommend reading the whole fascinating story on the other side of the read link.
Thanks for the tip, Stedwoo!
[Source: CNN Money]
Reader Comments (Page 1 of 6)
M. 2:20PM (1/27/2007)
So how can French and German manufacturers with even higher labour costs make profits?
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Viv 2:30PM (1/27/2007)
Are the Germans and the frenchies of all people mass producers? GM producers nearly 10 million cars and BMW & co have less than 2. How can you even compare the two cases?
It's import lovers like this who do not understand the business side of car companies and come harp here.
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Petey 2:35PM (1/27/2007)
So, how were GM and Ford able to rake in so much profit during the peak of SUV craze... they basically had the same number of retirees, labour costs, etc. Oh, yea, they had a product (SUVs) that they could make money off of, now they dont. End of story. Stop making lame excuses.
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theo 2:36PM (1/27/2007)
Viv, don't be an ass.
"import lovers?" M. spelled labor with a u, which means he probably DOESN'T LIVE IN THE U.S. Can you wrap your head around that? And he asked a simple question. Get off your high horse.
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jumby 2:43PM (1/27/2007)
So how can French and German manufacturers with even higher labour costs make profits?
VERY EASY ANSWER... SOCIALIZED HEALTH CARE IN EUROPE!!!
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GK 2:43PM (1/27/2007)
While labor costs are one part of the reason domestic manufacturers aren't doing so well, it isn't the whole problem.
If domestics were comparable in quality to imports and cost a bit more, I imagine that most people would be willing to pay the difference. The problem is, they are almost always inferior products. This isn't because of high labor costs, it's the result of poor design and manufacturing processes.
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matt 2:51PM (1/27/2007)
jumby, socialized health care isnt free. Its paid for by high taxes on the automakers and their employees.
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Big Rocket 2:57PM (1/27/2007)
#1 (M.): "So how can French and German manufacturers with even higher labour costs make profits?"
Do you have any facts and figures to support your claims, perhaps an article on the web somewhere? I would like to find out from you what kinds of profit margins and labor costs the French and German automakers enjoy.
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hitbyastick 2:59PM (1/27/2007)
Petey- agreed.
M. - agreed.
It's the product, stupid.
If GM and Ford had been making the hottest and highest quality cars on the road like they should have been, they would not be in this situation. There simply is no justification for shitty product; blaming the UAW for crap design is wrong. Blame the backward management.
You can blame the UAW all day long for the fact that they cost way too much but that's the auto companies' fault also.
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iQuack 3:02PM (1/27/2007)
Lousy GM and Ford managements are culpable because they made deals with the Devil (UAW) 20 years ago and now those promises can't be kept.
But the UAW's strike threats forced GM and Ford to yield, so the union must also share much of the blame.
Unions are parasites that eventually kill their hosts--the only hope for both Ford and GM is to reduce the choke hold the union has on these companies.
I'd rather buy a car made in the U.S. by non-union Americans than buy a car made by people living in a dream world who think they work for the UAW instead of the companies that pay them.
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BOB 3:02PM (1/27/2007)
NOT SO EASY..............
It would be a big stretch to expect a domestic to, say split the difference, and add $1000 worth of value, and charge $500 more for it (they could not get $1000).
Only ways around it..
A-- bust the unions, screw the retirees -- unlikely
B-- go bankrupt -- not so unlikely
c-- for now, make interesting cars which survive quality comparisons because of their appeal -- examples: Dodge Calibre, Mustang
Long term: they are already toast. Too bad!
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LaughingTooHard 3:06PM (1/27/2007)
Be still my heart, a major news agency actually reporting facts? What is next? Congress will adopt an actual work schedule?
All kidding aside a universal health care plan will help but Ford and GM need to make what people want. GM is doing an excellent job of shifting focus and improving products. Ford has 2-3 years before they can stop holding their breath. When Toyota can no longer hold off the Unions, their fortunes in the US will change. Now all we need is WTO and IMF to force Japan to adjust the Yen down the 20% it should be and everyone will be back on even playing field. Then the cars and not the stock valuation will speak for themselves.
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rohman 3:11PM (1/27/2007)
Perhaps German, French, Japanese and non-employed by the 2.5 American workers are better trained, more motivated and better managed. As a parent, I know that if I spoil my kids, pretty soon they become useless to anybody including themselves. It is better to show them how to do things themselves, set a good example, encourage their abilities, reward initiative, communicate with them often and honestly and reward good behaviour with trust. No one can deny unions were needed at one time because of abuses by management. However, smart companies have come to realize success is the result of collaboration between labor and management. The UAW is a relic which, in order to preserve its power, stands between labor and management to prevent the evolution of the big 2.5 into modern corporations. It has become as corrupt and abusive as the corporations it once fought.
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david 3:12PM (1/27/2007)
$2000 of content in a car is huge!! If you take any product and before you even begin to place it in the market you have that much of a price advantage it is not a level playing field. Also, favorable exchange rates as the money transfers back to Japan does not hurt their financial statements. Has the Japanesse gov't change the prime rate yet? The prime rate has not been above 4% for over 10 years, makes borrowing cheap. I think in 1950 the Leadership of Japan stated that they had lost the military war but they were going to win the economic war, steel, cars, electronics, etc and with the governments support they are doing so. Dark days continue for American manufactoring and all of us that are dependent on it to make a living. roar
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Big Rocket 3:17PM (1/27/2007)
#3 (Petey): "they had a product (SUVs) that they could make money off of, now they dont. End of story. Stop making lame excuses."
There's nothing lame in placing blame where blame is due. There's nothing lame in efforts to level the playing field. For far too long, the UAW has strangled American competitiveness at the tune of $67 an hour for each union member. And when resources are squandered to feed the UAW, there are less resources left to hire the engineering and marketing talent needed to come up with the next big idea, the next cash cow.
http://www.nytimes.com/2006/03/23/business/23auto.html?ex=1300770000&en=57ea081b0a798618&ei=5088&partner=rssnyt&emc=rss
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Rastus 3:19PM (1/27/2007)
30+ years ago a gentleman named Deming made a rather startling observation, that being:
Quality is FREE!!!
The Domestics poo-pooed that logic smug in THEIR understanding of how business operates.
Well, here come the Rooster!
Don't believe Quality is Free? Ask Ford how much they are paying for POOR QUALITY?
Ans: $12,700,000,000.00 last year alone! Add up the cost of poor quality over the past two decades and you will see that SMUG / ARROGANCE had INDEED BEEN COSTLY!!!
Quality has many definitions. Today, GM and Ford are BIG on "defects per 1000 vehicles", etc. But here's yet ANOTHER simple definition of quality:
Give the customer what HE / SHE WANTS!
SUV? Screw all of you morons at GM and Ford!
Costly arrogance is the downfall of the US auto industry.
And my oh MY what a Duzzie it has become! :D
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mrbill 3:30PM (1/27/2007)
The medical thing is due to the Toyotas of the world not paying for workers medical. They have socialist medicine in the entire rest of the world. Toyota therefore have no retiree meds or much current med costs. For Gods sake, GM has something like 400,000 retirees its paying for. Along with the "job bank" where people sit in a room for years and get paid full wages until they are called back in stead of being booted out the door as they should be.
As for the Euro crapweasels, many do NOT make profit. They are susbidized continually by their governments simply to provide jobs. Otherwise there would be a Euro native revolt. Unless the native are kept fed and clothed there would be more of the car-b-ques we see on the news.
Look at the AirBus scam. They have never made a dime and never will. Their new 380 will never fly into a profit. Its solely to provide jobs. Just like the Concorde, it was a loser from the day it started...never made a dime. Lost billions, but it provided jobs...that all it was, a giant Works Project Administration diddle.
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L3 3:41PM (1/27/2007)
Perception of Ford's quality has not caught up with it's reality. JD Power has found it. The quality of the new Lincolns, the Fusion, the new SuperDuty, the AWD offerings...
Consumer Reports gave Ford 21 'Recommended Buys.'
"Car and Driver" magazine gave its subscribers a chance to ride and drive Fusion, Accord, and Camry. Read it: www.FusionChallenge.com
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Rastus 3:44PM (1/27/2007)
Your "perception gap" is ALSO a "COST" of poor quality!
Glad you're catching on as to how the world operates.
It's oh...only about 30 years too late!!!
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rrr 3:49PM (1/27/2007)
Well is UAW to blame for GM entering such important market as CrossOvers with Pontiac AZTEK. Toyota had Rav4, Honda had CR-V and GM had Aztek. Who's fault was it Managments or UAW? GM entered a KEY market with a JOKE, Escape is nothing compared to CR-V or RAV4. The managment aproved those cars.
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