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Opinion |
18 Nov. 08 |
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Since congress passed the law promising to spend 700 billion dollars to bail out the largest commercial banks, everyone else has lined up hoping for a share of the swag. General Motors is begging for $25 billion in federal loan guarantees, threatening bankruptcy as the alternative. It isn’t as though the current economic meltdown is the cause of their current financial problems. They reported a $38.7 billion loss in 2007, its largest ever. In an article recently, senior writer Chris Isidore of CNNMoney.com wrote, “The company's problems have been building for many years. It has not made money on its core North American auto operations since 2004, and since that time it has run up $72 billion in net losses, including this latest period.” But since the federal government is handing out taxpayer money, it wants a piece of the pie. GM isn’t the only Detroit automaker having money problems. Ford lost $2.7 billion in 2007, which was considerably less than the $12.6 billion lost in 2006. “Ford reported a $3 billion quarterly operating loss for the 2008 3rd quarter and said it would reduce staff and capital spending in order to preserve its dwindling cash.” Chrysler lost $400 million last quarter, but Chrysler CEO Bob Nardelli reportedly told dealers that the losses came in spite of large-scale cost cutting. He said too that 2008 sales were down 24% compared with last year. It’s clear from the numbers that Detroit carmakers have had financial troubles for several years. But their difficulties are not just because of this year’s downturn. The main reason they are all losing money is because of being unionized in a high tax state. I don’t know much about banking, but if I was running a bank and a business owner came in looking for a loan and said, “I need some money to keep me afloat. We’ve been losing money for several years because the union forces us to pay the employees more than they are worth and provide generous retirement benefits until they die. And also, I don’t know when I can pay you back.” I don’t think I’d agree to loan that business a dime. It would be foolish to pour money into a losing concern that had no prospects of ever turning a profit. Yet, this is what the so-called Big Three in Detroit and the United Auto Workers are asking the government to do with the taxpayers’ money. There’s no point in giving them money if they are just going to spend it then turn around and come back for more. They need to fix their own problems first. In an article by Morgan Housel he wrote, “Detroit's hemorrhaging, you see, isn't caused by a one-off event that will be contained with a blank check from Uncle Sam. It's driven by factors that have been brewing for decades. Mainly:
The first issue could probably dropkick auto giants into oblivion all by itself. GM's health-care costs tack on $1,500 per vehicle. Toyota and Honda spend a mere $400 per vehicle at their U.S. production plants -- in Japan; it's as low as $150 per vehicle. In recent years, GM had a staggering 2.5 retirees per current employee. The rough reality of globalization is that the country with higher labor costs -- us -- gets the shaft when it comes to manufacturing. Unless a bailout entails permanently subsidizing labor costs, Detroit will probably never be competitive. The second issue -- a reliance on SUVs and trucks -- is really the 800-pound gorilla here. The profits Detroit gushed in years past didn't come from selling small, fuel-efficient cars, but from SUVs with downright stupendous profit margins.
In some cases, Detroit could pull down five-figure profits per SUV
sold, while accepting slight losses on small cars. Selling small
cars at a loss probably didn't seem like a bad idea, because it
built a stable customer base and enabled manufacturers to meet
fleetwide gas-mileage requirements. Ford, for example, made as much
as $18,000 profit on every Excursion SUV, while losing money on its
Focus compact car.” Once gas hit $4 a gallon, the demand for SUVs
dropped and so did what little profit they were making. I hope the lame duck Bush administration refuses to send any money to Detroit, because when it doesn’t solve the problem, the Democrats will beat the GOP over the head with it. Let the incoming president deal with Detroit. From what I’ve heard, he’s all for it.
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