…. they’re done.
I’m speaking of their plan to cut 30,000 – yes, that’s a 3 with four zeros – more jobs in the next year or two, added to the 10,000 they shed
this year.
Why? Well, mostly because their share of the market has dropped an astounding 30 percentage points. Fewer sales means fewer people can be kept on the payroll. This is simple economics.
What’s not so simple is
why this happened.
See, Ford, along with GM and Chrysler, have counted on extremely profitable truck and SUV sales for the last few years to prop up their bottom line. A Suburban, you see, doesn’t count four times what a Nova does to build – but it sells for four times as much.
In real-profit terms there is almost no point to selling the inexpensive – and fuel efficient – vehicle at all. All the money is being made in the truck and SUV sales.
Then along came high gas prices, and the game unraveled. Sales of trucks and SUVs tanked, as the market shifted to smaller, more fuel-efficient vehicles. Along with it went the US Automaker’s profits.
They knew this was coming, by the way. And what’s even worse, they were basically robbing the American Public for the last decade with their big-vehicle pricing. Consider this – when you bought that truck or SUV, you deposited a cool 10 grand or more into the pocket of the automaker – compared with perhaps a thousand dollars on that Neon.
Why did this all come about? Thank the UAW. See, labor unions have made the cost of doing business for these automakers astronomical. Among other things their pension and health-care costs for retirees are literally crushing the life out of the automakers.
There is roughly $1,000 worth of health care costs
alone embedded in every single American automobile produced! And that ignores the pension costs, which, with a flat to normal (instead of skyrocketing) stock market, suddenly winds up being unaffordable as well.
Rather than deal with this as management – telling the UAW that this is simply not affordable and will not be agreed to – shut us down for a while if you must, eventually you will come back when your strike fund runs out and your refrigerators are empty – the automakers instead priced their trucks and SUVs in a fashion that effectively raped the American Public in order to pay off Big Labor!
This looks good to the shareholders – until the bill comes due for the retirees and a market shift happens.
Then you’re dead.
Well, the shift happened, and the pension and health care load is here.
The Japanese, on the other hand, have priced
their small cars such that they make money on all of them. As a consequence they can just shrug their shoulders. How? They don’t have the union problem – there is no defined benefit pension for them to worry about (they do 401ks instead), and no “my wallet is your ATM machine” retiree health care issue for them. They never made that mistake originally, so they don’t have to absorb that cost now. The Japanese correctly figured out that accurately predicting the cost of benefits for an aging workforce is impossible and out of their control, and thus left it in the hands of the individual workers – who suddenly have an incentive to manage their retirement costs (since it now comes out of their pocket!)
GM, Ford and Chrysler, on the other hand, not only made that mistake originally but didn’t learn a damn thing in the 1970s when their teeth got kicked in by the Japanese.
Their contention was that the problem was “all about the quality.” Well, they were right that there was a quality problem, but that wasn’t the end of it.
The rest was the cost problem, which they dutifully ignored.
Now the chickens have come home to roost and it’s not pretty.
Its also not over – Ford is just the first domino…..
If you live somewhere like Michigan, you might want to rethink your state of residence. See, you’re fixing to have this little tax problem up there, as all these plants close and the tax base disappears. Not to mention the people who will all be looking for work – at once. While the nation as a whole is doing just fine economically, you’re about to not be.
This isn’t the first time, by the way. I lived there during the last “big bust” and it was
bad throughout the entire state. Why? Well, because of course the tentacles of the auto industry reach
everywhere. So when they’re in trouble, suddenly so is everyone else.
So what do we do about it?
Well,
we can’t fix this. GM, Ford and Daimler-Chrysler have to. The UAW is simply going to have to go. They bear responsibility for this as much as the automakers do – the latter will be punished appropriately by the financial markets, and at least one of them may actually end up bankrupt. So be it. I have zero sympathy for the automakers as they brought this on themselves with bad business decisions, and the financial markets will deal with them appropriately. That’s just and proper.
The UAW is not blameless here, and needs to be held to account. By effectively forcing these firms into untenable labor agreements they have cost their own workforce their jobs – and the economy billions of dollars. It is not beyond the pale to think that this could, over the next decade or so, slice a
trillion off the GDP. To let the labor unions off without bearing any of the cost and responsibility would be a travesty of justice.
There is no direct means for the markets – or us as citizens, or for that matter the government – to punish them directly. We are left with indirect means of punishment – a refusal to buy union-made goods and services where we can – until and unless these organizations take financial responsibility for their share of this mess.
Unfortunately this means that there are going to be a lot of people who get hurt.
But the workers are not blameless either – so all the crying that is certain to ensue into the beer (of which there will be much) should be met with shrugged shoulders and a turned head. These voted to certify these unions and did not vote to get rid of them – both of which are their right, but they must accept responsibility for what has befallen them. They were lured in by wages twice the value of their work and pension and retiree medical benefits that could not possibly be funded. They voted for those contracts and through the actions of their own hand in those union halls were full partners in this rape – both of the nation and, if you bought a truck or SUV, of you as a consumer.
Now the bill for their greed has come due.
In the coming weeks and months I’m sure you will hear much wailing and gnashing of teeth how this is so “unfair” that corporate America dumped all these poor people out of a job. When you do, remember that each and every one of them had a voice – and a democratic vote – to certify the UAW as their bargaining agent, and that
they asked for this representation. They can hardly complain now when the results of their decision come back to haunt them.
In the meantime, there’s a further lesson here, and it applies to the “Boomer” generation and that before it (the current Retirees) that has had its hand out for
literally everything including free medical care, social security, etc. The Federal Government is in the same role as GM’s management – and is playing the game the
exact same way.
Those Ponzi schemes are just as unsustainable as the automakers.
They will have the exact same result too.
It is just a matter of time – and whether we’d like to deal with it now before it becomes an active crisis, or
when it does – when it will be much, much more painful.
Your
children are looking up at you, right now, wondering if you’re going to do the right thing – or screw
them 20 years down the road with your actions
now…….
