Posted on 12/06/2005 5:43:21 AM PST by bullseye1911
Rick Wagoner
Chairman and CEO
General Motors Corporation
Op-ed submission to The Wall Street Journal
December 1, 2005
Since mid-October, General Motors has announced plans to close 12 North American manufacturing facilities and eliminate 30,000 jobs by 2008; trim $1 billion in net material costs in 2006; and, in cooperation with the United Automobile Workers, reduce GM’s retiree health-care liabilities by $15 billion, or about 25 percent, for an annualized expense reduction of $3 billion.
The reason for these dramatic actions is no secret: GM has lost a lot of money in 2005, due to rapidly increasing health-care and raw-material costs, lower sales volumes, and a weaker sales mix – essentially, we’ve sold fewer high-profit SUVs, and more lower-profit cars.
What is less clear is why things turned sour so fast for GM, as well as for other American automakers and suppliers. Put another way, why are so many foreign automakers and suppliers doing well in the United States, while so many U.S.-based auto companies are not?
Despite public perception, the answer is not that foreign automakers are more productive or offer better-quality or more fuel-efficient vehicles. In this year’s Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place. In the latest J.D. Power Initial Quality Study, GM’s Buick and Cadillac ranked among the top five vehicle brands sold in America, ahead of nameplates like Toyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz. And GM offers more models that get over 30 miles-per-gallon highway than any other automaker.
In fact, this kind of operating performance makes GM’s recent financial performance all the more frustrating. The fact is, we’re building the best cars and trucks we’ve ever built at GM, our products are receiving excellent reviews, and we’re running the business in a globally competitive manner. Outside of North America, we’re setting sales records. In fact, for the first time in our history, we will sell more cars and trucks this year outside the United States than inside, aided in no small part by our market-leading performance in China.
So why, fundamentally, are GM and the U.S. auto industry struggling right now?
Intense competition, for one. The global auto business grows tougher every year, and we accept that. Our ability to compete has made us the world’s number one automaker now for 74 consecutive years, and we’re fighting hard to stay on top.
Beyond that, our performance in the marketplace has not been what we’ve wanted it to be. While we’ve been strong in truck sales, we’ve been weaker in cars, and yes, the recent surge in gas prices hurt sales. While we’ve led in technologies like OnStar, we’ve lagged in others, like hybrid vehicles. Rest assured, we’re working hard to address the areas where we lag. Simply put, we are committed to doing a better job of designing, building and selling high-quality, high-value cars and trucks that consumers can’t wait to buy. No excuses. We will step up our performance in this regard.
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 any single company’s ability to control.
By the way, 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 1 million American jobs.
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 – a staggering $1,525 for every car and truck we produced. And it’s going up again this year. Foreign automakers 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.
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 about no good deed going unpunished. While appealing to some, that argument ignores the fact that American automakers 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 in 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.
Another factor beyond our control is lawsuit abuse. 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 gross domestic product. 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 the injured parties.
Another major concern is unfair trading practices, especially Japan’s long-term initiatives to artificially weaken the yen. A leading Japanese automaker reports that for each movement of 1 yen against the dollar, it gains 20 billion yen in additional profitability, or nearly $170 million at today’s exchange rate. No wonder Japanese automakers have noted that 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.
There are other issues, but my point is this: We at GM have a number of tough challenges that we must and will address on our own… but we also carry some huge costs that our foreign competitors do not share.
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 and 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.
I enjoyed it. Thanks for posting it :-)
I watched my mom take her Chevy to the shop THREE times for the same recalled part when I was 12 and have not bought a GM product since. Ford lied about the cruise control problem on my F-150 and when they finally did the recall, the recalled part went from being availble two months (November) after the recall was announced to 'we might have it in February'. I know 'bad parts happen' but geez Detroit, do not rub my nose in it.
Wagoner is dead wrong when he claims that GM is not responsible for it's own problems. I seem to remember about 20 years ago one H Ross Perot told the GM Board of Directors that they had to start makeing drastic changes to their labor contracts to compete in the long run.
I'm no "Perotista", but the guy had a head for business and for his warning GM bought him out to shut him up.
Turns out he was right.
By the way, GM's cost troubles were created when they hired one "Antonio Lopez" to run their purchasing several years ago, all he did was to destroy GM's outsourced supplier base by demanding give backs and other consessions.
Now, due to the horrible relations, suppliers to GM don't even buy GM products because of the lousy treatment by GM purchasing. I know I was at a GM supplier 8 years ago and remember all too well the bad treatment I received.
I'll never buy GM again!
BTY I thank God I'm out of the automotive business all together.
Would that be the same Delphi GM was being hammered to dump in 1999 because it's not their "core" business and didn't provide shareholder value?
Point well taken. Perot did take the money though, didn't he? So much for strongly held beliefs. And we know how he treated EDS employees, or maybe you don't.
Yup. Spin off your internal supply arm, make them sign a contract to sell what you need below the cost to make those parts, and proclaim it a victory. GM and Wagoner were playing Russian Roulette with a pump action shotgun.
Mike
Kept the stockholders and Wall Street happy. The same ones now clamoring for bankruptcy and shedding "legacy costs." By the way, Didn't I just read how GM is not pursuing cost reductions (for the time being) from Delphi when every other supplier is being approached? Can't have it both ways. Either GM must get costs under control, or they have to treat their suppliers better. Which is it?
Hope he's got the guts to print his email address.
What, like putting their economy in the toilet for the last 16 years?
They did that intentionally, eh Ricky?
This is a bunch of self-serving tripe from the man whose job is guaranteed by a board of directors staffed with a significant number of men who've been cut loose by other failed companies that THEY drove into the ground.
Point the blame arrow where it belongs: toward the management that failed to bring more than couple desirable cars to market in the past 3 decades!
While GM has some successes its bread and butter lines like Chevy are in deep trouble. Compare a Mazda 3 with a comparably priced and equipped Chevy Cobalt ...just slamming the doors tells you the difference. What GM vehicle offers a 10 year/100,000 mile warranty? Let's not forget... Pontiac Aztec. I drove Chevys for 35 years, but am far more satisfied with my 2005 Hyundai.
Yes it would be... But you have to remember who was doing the hammering - investment bankers trying to drum up big $$$ for their Wall Street firms. These bankers will recommend and do almost anything (acquisitions, mergers, divestitures, buy-backs - heck they'll even come up with a 10 year plan to do all four for you) in order to generate the extremely high fees they get paid. You can be assured that when an investment banker comes to you pitching a deal, the ONLY thing he cares about is how much money it's going to put in his pocket. He couldn't care less whether it's a good or bad thing for you.
So fast? GM nearly went bankrupt in the early 1990's. They and the other members of the "Big Three" have been losing market share in cars for decades. There is a simple reason for this, Rick: Your cars stink.
Despite public perception, the answer is not that foreign automakers are more productive or offer better-quality or more fuel-efficient vehicles.
GM and the rest have defined "quality" as elimination of defects. That's ridiculous. GM hasn't had a product competitive to the Camry or Accord for over twenty years -- and mid-sized cars were their bread-and-butter. The problem isn't in the factory or with the Union -- the problem is this, Rick: Your cars stink.
Simply put, we are committed to doing a better job of designing, building and selling high-quality, high-value cars and trucks that consumers can’t wait to buy. No excuses.
It's been over twenty years since the Camry was introduced. Oldsmobile was destroyed by Toyota and Honda because the Cutlass Supreme / Ciera was awful. Oh, but NOW you are going to make cars competitive with Toyota & Honda? What's taken so long? Does anyone really believe you have suddenly develpoed a design and engineering process that can make a mid-sized car people want to buy?
Foreign automakers have just a fraction of these costs, because they have few, if any, U.S. retirees
You didn't fund your retiree medical expenses while they were working, and that's not your fault? Toyota and Honda in Kentucky and Ohio should pay for YOUR bad contracts from decades ago?
American automakers 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 in the 20th century.
"Social Contract"????? So now we have an alleged exponent of American Capitalism using Socialist formulations? Rick, the only reason your company paid those benefits is because you and the UAW agreed on contracts. The UAW earned a fortune for their members; that was perfectly OK when your cars were selling for large profits, but now your cars STINK and the value added isn't there. After DECADES of making fabulous profits and the highest wages in the country, now you have the crass nerve to whine about a "social contract"?????? Poor Baby!!
Another factor beyond our control is lawsuit abuse. 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 gross domestic product. 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 the injured parties.
A fair point, but your competitors face this problem too -- including Toyota and Honda.
Another major concern is unfair trading practices, especially Japan’s long-term initiatives to artificially weaken the yen. A leading Japanese automaker reports that for each movement of 1 yen against the dollar, it gains 20 billion yen in additional profitability, or nearly $170 million at today’s exchange rate. No wonder Japanese automakers have noted that their recent record profits were aided by exchange rates.
When all else fails, open the Iacocca playbook and blame the Yen exchange rate. Last time I checked, Rick, Toyota and Honda do not pay their North American suppliers and workers in Yen -- it's done in dollars. They also don't collect Yen for cars sold in the United States, either. Toyota is not a "Japanese" company any more -- just as GM is not an "American" company. They are both GLOBAL companies with hugh and series investments around the world. That's why, as you said, GM now sells more cars outside of the USA than inside. The Yen has NOTHING to do woth the FACT that Honda and Toyota's plants in the United States are selling cars and making large profits in US Dollars while your crummy plants lose money because your cars STINK.
It’s critical that government leaders, supported by business, unions, and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness.
Instead of looking to the Federal Government to fix your Social Contract, Rick, try driving down I-75 and visiting Honda in Ohio and Toyota in Kentucky. They can show you how companies headquartered in JAPAN do a far better job designing, assembling and selling cars IN AMERICA FOR AMERICANS than your fossilized company.
Running to the Federal Government when you got your butt kicked in the marketplace is really lame, Rick. You and your company have a great future together with the 'Rat Party -- going NOWHERE FAST. Buh-Bye!!
Good thing for the both of you -- that's one of the few areas of GM in this country that's any good. It's amazing how a car company can be successful in the marketplace with good product, isn't it?
There's a good reason for that. Delphi was going to ask the bankruptcy judge to void it's union contracts on Dec 16 (which the judge would have done.) Then Delphi was going to try to impose its pay cuts on its workers (less likely that the judge would have allowed the full cuts, but likely very substantial ones.) GM's pushing off Delphi's price reductions gives Delphi more time to try to come to an agreement with the unions thus avoiding what would likely be a devastating strike (for GM) on Delphi.
G.M.'s problem stems from weak management and aggressive and corrupt unions who can't see beyond tomorrow.
G.M. through poor management is saddling the American taxpayer with the burden of their weakness as is stupidy in union misrepresentation of the workers. That malfeasance will result in the greatest disaster in the U.S. business world since the Great Depression.
Don't forget the last part -- profess to be shocked when the supply arm goes bankrupt.
GM needed turnaround executives years ago and all they got were deck chair rearrangers.
As I said, I'm no "Perotista".
And yes, I'm familiar with what happened at EDS.
Just one of the many reasons that I was opposed to the big eared one in the 1992 election.
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.