Skip to comments.Then and Now
Posted on 06/08/2005 6:34:44 AM PDT by harpu
Not only is the world different now, but what we know of whats past is often wrong
"It is unfair for us to complain about American jobs in the automotive industry being outsourced to other countries when Japanese, German and Korean automakers are outsourcing their formerly home-done jobs to the United States. There are now 23 foreign-owned car and parts plants operating in North America, and more are coming."
The biggest drain on GMs profitability is their welfare system. It is their health care obligations and their pension obligations. The SUV is not killing them, and dont let the media tell you that and dont let a bunch of knucklehead, numbskull, ignoramus activists in the media tell you this because thats not whats causing General Motors or Fords or Chryslers problem. Rush Limbaugh, earlier this month
It is unfair to discuss whats said by brethren in radio, without saying that on many issues Ive agreed with the positions Rush has taken. I could say the same thing about Al Franken or anyone else on talk radio. No one is right all the time, nor are they wrong all the time.
All that said, in the discussion excerpted about the problems facing Detroit, Rush also quoted a column by George Will, whom Rush agreed with, saying that Will had postulated it is only the exorbitant costs for health care and retirement plans that are breaking the banks in Michigan, not lost market share or a reduction of the high gross profits associated with sport utility vehicles. Rush later added that Social Security should be dumped and replaced by the pre-Great Depression plan: self-saved retirement.
Well, the problem with that is history. It tells us that in that period few individuals managed to save a strong nest egg for their retirement, and then they watched it be completely broken and emptied by the Depression. And in the period before 1929, the American middle class was nowhere near as large as it is today. Only a few jobs paid so well that a person could enjoy a reasonable lifestyle and still have enough left of their weekly paycheck to fund retirement.
I would also take exception to anyones classifying people who work full-time and receive payment that includes benefits, such as health care and some form of retirement package, as welfare recipients. That being said, lets discuss what truly ails Detroit.
Rebirth or Reincarnation?
Paul Ingrassia, president of Dow Jones Newswire, wrote in a May 17th Wall Street Journal article that what we are witnessing today is not the death of the American automobile industry, but its rebirth. Ingrassia added that it is unfair for us to complain about American jobs in the automotive industry being outsourced to other countries when Japanese, German and Korean automakers are outsourcing their formerly home-done jobs to the United States. There are now 23 foreign-owned car and parts plants operating in North America, and more are coming.
First, lets take up the issue of Mr. Wills column and Rushs quotes from his show, and why they are inaccurate. Last year General Motors earned $3.9 billion and GM predicted that its health care costs would rise as much as $1 billion in 2005. Government reimbursement for the new Medicare prescription drug benefits would offset much of this premium increase, so the net effect to GMs bottom line would be far less than $900 million. Under this simple equation, all other things being equal, General Motors should still be well on the way to earning $3 billion in this fiscal year. Of course, GM posted a $1.1 billion loss in the first quarter. So something else is obviously eating at their profits.
Daimler lost about the same amount of money during that period, but I have yet to see anyone claiming that Mercedes could possibly go out of business. No, in the American press, possible Armageddon scenarios are published daily only because Kirk Kerkorian offered to buy 28 million shares of GMs outstanding stock. But, when Daimler CDO Bodo Uebber admitted a week ago Saturday that outside and possibly unfriendly hedge fund operators have managed to acquire up to 15% of Daimlers outstanding shares, not a word was said, no punditry quoted.
Now, lets talk reality. Many of the Japanese importers of automobiles have sold their cars for years without ever once posting a profit on their North American operations. In Mitsubishis case, for the period of 1982 to 1997, the company accumulated losses from North American operations totaling $1.7 billion for having had the pleasure of selling their automobiles to you and your neighbors. Acura went over a decade with once turning a net profit here. In fairness, neither of these two firms had but few legacy costs such as employment benefits factored into their bottom line. And certainly both companies had huge automotive hits during this period; but selling in North America didnt make them any money.
So, why did Japanese and Korean automakers decide to enter our market, in many cases knowing that business would be done at a loss for years? Its the magic of volume production. Because the more cars and trucks any company manufactures, the less each vehicle costs. Last year, when General Motors was running its large SUV plants on overtime, theoretically the cost to produce each vehicle was less than its been this year; many SUV plants have been on extended downtime, forcing GM to pay primary earnings to workers while no production was being done. That seriously hurts the gross profit on each vehicle produced.
Additionally, we continue to hear that GMs costs for health insurance and pension plans are in the neighborhood of $1,500 per car. Again, that figure varies, based on how many cars and trucks GM manufactures in one year. Obviously, if General Motors came up with four new solid-hit vehicles (with volumes in the 250,000 range) in the next couple of years, then GM could amortize its legacy costs over another million units annually, reducing the cost per vehicle dramatically. So, the Japanese in many cases were willing to lose money selling cars here because it increased their overall production, lowering the cost of each vehicle built, which improves the corporations bottom line in the long run.
A Million Missing Customers
Also hurting automakers are a couple of other factors, which have apparently escaped those discussing Detroits current financial problems. One is the loss of Americas blue-collar middle class; the other is the wage structure of entry-level jobs against the price of new cars today. Over the last 25 years, the United Autoworkers have lost right at one million well-paid members. Its no stretch of the imagination to believe that most of those members purchased GM, Ford or Chrysler products, which today likely loses those companies at least 200,000 250,000 sales a year.
Throw in the loss of jobs in the American parts industry, and in steel or glass manufacturing, and one could easily claim that Detroit, while saving billions in labor costs, has also intentionally eliminated the careers of well over a million former loyal customers.
Finally, for those of us in the Baby Boom generation, lets take a walk back to 1969, when we were listening to KFJZs Larry Shannon spinning the Youngbloods Get Together, while our younger siblings were driving us nuts with Sugar, Sugar by the Archies. We worked at local businesses after school at minimum-wage jobs that earned us $3,380 that year. If that sounds horrible today, one should also remember that a brand-new 1969 Ford Mustang convertible listed for just $2,832. Yes, with no overtime whatsoever, if you worked at a minimum-wage job for 12 months in 1969, you could pay cash for a brand-new car a Mustang convertible, no less.
Today, working the same 40-hour week at minimum wage, one would earn $10,712 or about $13,853 short of what youd need to cruise Camp Bowie in your new ragtop Mustang. (As a point of reference, in 1969 a minimum-wage job amounted to 34.02% of the average familys income; today a minimum-wage job is just 20.6%.) This alone explains the success of low-cost imports such as Hyundai and Kia.
Get Real, Rush
No one disputes that health care and the costs of the pending Baby Boom retirement are a huge drag on every corporations bottom line. But theyre no more costly to GM, Ford and Chrysler than to any other large and long term American corporation who employs people with decent wages and a pre-defined retirement package.
Most assuredly, no one working today would agree that being compensated makes you a welfare recipient. Nevertheless, Detroits automakers have lost millions of their former customers, some of whom were their own employees, as our blue-collar middle class has shrunk. Meanwhile, the foreign automakers who own factories here have watched their customer bases expand with their own American employees.
At the same time, no one has considered the fact that as minimum-wage workers in the sixties, our purchasing power was infinitely better than that of those bottom wage earners today, which was the biggest incentive for us to become another generation of car lovers. In the end, we still purchase more cars and trucks today, per family, than we have at any time in American history, save the period of 1973 1977. So, all is not lost. Detroit simply needs to create more new product that appeals to the new and more upscale demographic of todays car buyer.
As for Rush: I admire his accomplishments; and if I made $20 million a year, I wouldnt need health insurance or Social Security either. But most of those reading this column today do.
And TAXES were a whole lot lower then too...funny how that never figures into the equation...
An nearly all these new factories were build in non-union areas of the country...
ding ding ding ding
That was my thought as well. Back in 1969 and minimum-wage worker probably would not have paid any income tax. In Ontario today, a minimum-wage worker with no dependents pays ~$2k/year (and that is after federal tax was cut by 10% and the provincial tax was cut in half- in 1992 I earned $20k and paid $4k).
More accurately, I would say that the workers at those factories chose to remain union-free. Two Japanese automakers expanded their manufacturing operations in Ontario during an era when the governing party and the Ministry of Labour were bought and paid for by trade union bosses. Their workers managed to remain union-free in spite of laws that allow the Minister to certify unions after they were rejected in a secret ballot, severely curtails the free speech of managers during unionization campaigns, does not respect employees' privacy and did not guarantee a secret ballot in matters of contracts, union finances or union officers.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.