Naperville may be a fair distance from Detroit, but that doesn't mean our community is unaffected by the troubles of the auto industry. There are estimates that as many as 3 million jobs could be lost if the Big Three American car companies were to shut down, from those who make parts for cars, those who sell the cars and even those who market and sell advertising to the companies. Drive down Ogden Avenue on the west side of town and you'll see that car dealers have a big presence in our community. The amount of money they contribute to the city through sales tax cannot be insignificant.
We are all aware of the sad state of the industry. GM and Chrysler insist they are weeks away from bankruptcy, and claim the state of the financial sector would mean they would not be able to get loans and may need to shut down. Others say the automakers are overstating the case and that bankruptcy may be the best thing that could happen to them, allowing them to return with a more profitable business model.
Congress failed to pass a bailout package, but now President Bush is planning to give the automakers aid, although it is as yet unclear what form that will take. Bailout measures are extremely unpopular as a rule, as anyone who has ever worked for or owned a business that has failed asks, "Where was mine?" But it doesn't make sense to allow the industry to fail and pay unemployment to 3 million people either. So what do you think about a potential auto bailout?
No! The idea of combining the big 3 into "congressional motors" might have some of the earmarks of an FDR era work program. It does, however, miss on one very big ingredient...pay. The civilian work corps of the 1930's payed their workers very little. People were so desperate to work that they would do almost anything for a job. They were not making the types of salaries that the UAW folks receive.
Some interesting facts from a Sept 2007 article on contract talks between GM and the UAW.
• GM had 73,000 U.S. auto workers (3 month bail out costs: $15B / 73000 = $205,479 per worker not including a giant management pyramid or what ever structure they have, if any. This place was a paradise for empty suits when I dealt with them)
• UAW represented 302,500 active (big three) workers during the last contract talks in 2003. This year (2007), that number fell to 180,681.
• All three companies want to cut or eliminate what they say is about a $25-per-hour labor cost gap with their Japanese competitors. (It would be nice of the companies could also fix the management gap, GM is the worst company HQ I ever dealt with, AT&T a close second. Chrysler, pre Germanization, was by far the best of the auto companies in the world, now a shell of what it once was)
• Contracts between the UAW and General Motors, Ford and Chrysler cover 180,681 U.S. hourly workers and 540,344 retirees and surviving spouses.
• $90.5 billion in unfunded retiree health care obligations. (This is like the SSA pyramid. Lets see $90.5B / 540,000 = $175,000 per worker needed to fill up medical fund, but to what level of benefits? We have a retired GM worker friend who retired 20 years ago with 100% unlimited medical plus $90K per year. What do the 540,000 need to make them whole?)
• http://www.usatoday.com/money/autos/2007-09-15-gm-contracttalks_N.htm
If the big three are failing because no one is buying their cars, what good will a bailout do?
I don't know that it's fair to say no one is buying their cars. They sell millions every year. The problem is their business plan is out of whack. I don't know if it's true but I heard somewhere that GM loses $2,500 on every car it sells. That sounds hard to believe, but if so it would explain some things. They need to change their business plan so that revenues are in line with expenditures. With all those pensions and union benefits I don't know how they can get back into line.
Chris,I googled profit on vehicles, and according to what I found, they make around 3% profit on a car, and 15-20% profit on trucks and SUVs. I would assume profit means after all costs, so I would suspect it is the huge inventory they have on hand that is dragging them down. Maybe they will have to go back to the days of taking orders instead of hundreds of cars sitting unsold on a dealer's lot. As you said, the business plan has to change somehow, and I don't think a bailout is going to change that plan.
Yeah, I think a big part of the problem is they have to make too many of them. Their assembly line has to always be working because they don't want to pay the workers to stand around, so they make more cars than they can sell. With all the plants they've closed you'd think they would have cut down on that by now.
Ken,
Your assumption is wrong! They make 3% Gross Profit on a car and 15-20% Gross Profit on a truck or SUV. That is very different than Net Profit which includes all costs! Gross Profit only includes the cost to manufacture the vehicle. Also they had those nice gross profit margins on SUVs before the credit markets froze. Now they are unloading most vehicles for almost no profit. The cars are also suddenly more profitable than the SUVs. A reversal may be in the making if gas prices stay at their very low prices. Customers are afraid to buy large vehicles for fear gas prices could begin climbing again.
After paying all their overhead and legacy costs, these car manufactures lose tons of money.
GM is currently losing 38.88 dollars per share. This is called EPS and translates to net profit.
Ford is doing much better and only losing 5.21 dollars per share.
Chrysler is privately controlled and its records are no longer public.
In both cases they are losing more per share per year than their shares are worth.
The problem is the union pension costs and health care costs are simply unaffordable. It is impossible for 181,000 workers to support 540,000 retirees and their families. They are 90.5 billion in the hole just on health costs according to Blogger Bubo who I consider credible.
Toyota and Honda do not have these legacy costs.
Toyota has EPS of $8.88 per share after all costs.
Honda has EPS of $3.22 per share after all costs. Earnings Per Share is derived from the Net Profit.
The Gross Profit means nothing especially when you have the legacy costs GM and Ford have. The Net Profit is the meaningful number!
As far as the $2500 Host Chris mentioned, that is the difference between what the Japanese make compared to what the Americans lose. I think the Japanese make about 994 dollars per vehicle while the Americans lose about 1500 per vehicle when you factor in all costs which include the union legacy costs.
The only way in my opinion to solve the auto problem is to let GM, Ford and Chrysler fail. That way they can dump the unions and the tens of billion they have in future legacy costs. Reducing the wages to equal those of American workers will not solve the crisis. The legacy costs have to be eliminated through bankruptcy. You simply can not pay workers 100% of their pay and full benefits when they retire. That is total insanity. These unions must have been so powerful someone let them dig their own graves.
The Napergatians think City of Naperville officials have dug a hole with their $61.4 million pension fund deficit for the police and fire fighters. They are right! But in comparison to the car companies our city officials look like geniouses. But in due time as growth stops and retired employees equal working employees, the city of Naperville will have a problem almost as bad as the car companies are experiencing.
If I were a City Official, I would heed the advice of the Napergatians and do something about the pension fund system before it is too late. In my opinion it is too late to help the auto companies. The band aid we are providing if we provide it will get us through a few more months. The Feds have made it clear that if the auto companies ever come back for more money they will be rejected and sent to bankruptcy court.
GM and Ford make excellent cars. That really is not the problem. The legacy costs are the problem. Toyota and Honda do not have pensions for their retired employees. They make their employees set up their own 401ks like the rest of us non-union workers of America. That is why they are VERY SUCCESSFUL. They have tons of money in the bank and will get through this credit freeze. Toyota has so much money that if you buy a car from them they will give you an interest free car loan. Honda will give you a loan for 1.9%. The American Companies are telling you to go to the banks who are not loaning at the moment. Thus the situaiton is getting worse for them if that is imaginable.
GM is giving rebates of 6k to 9k to get rid of 2008 SUVs and Trucks.
They are selling these vehicles at massive losses. It is just too embarrassing to have 2008 vehicles sitting on a lot when in a few months the 2010 models will be coming out.
I soon will be buying a Saturn Outlook 2008 that lists for $31,368 for $20,894. I have a GM friend who got me an authorization number to buy it for GM Employee Cost plus all the rebates, cash back and dealer reimbursements. GM dealers have an additional $2000 to play with and in 48 hours are getting another 500-1000 dollars to play with to get rid of 2008s by Jan 5, 2009. You could say GM is paying their dealers with future Fed borrowed money to play. "Pay to play if you will."
Basically, you can steal a GM car right now. People are afraid to buy because they fear bankruptcy. You would be lucky to get a Honda or Toyota dealer down a grand or two assuming you can find a 2008 on their lots. We tried to find a 2008 Honda Pilot but most dealers had none left and the ones that have a few left were not discounting them much.
I hope that clarifies how bad the crisis is in our country. When I get to Washington, I am going to force the car dealers to file bankruptcy which would allow them to start all over again without the burden of their unaffordable legacy costs. The union retirees are going to have to come out of retirement and work on my infrastructure projects or live off their savings. The days of hand-outs are over as soon as I am sworn into office on Jan 20, 2009.
And since I will be only making 400k annually, I will never help any company that pays their CEOs more than I earn for less responsibility. To think the GM CEO officer makes 22 million and the Ford CEO makes 16 million is ridiculous. Honda and Toyota CEO officers are happy to make a million a year. I don't know what the Chrysler guy makes but he was fired from Home Depot and given a 200 million "parachute to boot" my friends. Is this insanity? No wonder our country is failing! I did not know HD was allowed to print money. I thought only the Feds could print money. The Napergatians think your former City Manager Barchard got a parachute when he was let go....he got chump change!
If the CEOs of GM and Ford attempt to visit me in the Oval Office, they will find my door closed. They can pet Barnie if they like. I sense Barnie will bite them as he bit the television reporter. Yes, Bush, is leaving Barnie for me. He said that is all he is leaving behind! At least I can count on Barnie to bite, when someone puts his hand out for a hand-out. May Barnie stay healthy as he will be biting a lot of hands during my Presidency!
Thank you!
"The only way in my opinion to solve the auto problem is to let GM, Ford and Chrysler fail. That way they can dump the unions and the tens of billion they have in future legacy costs. Reducing the wages to equal those of American workers will not solve the crisis. The legacy costs have to be eliminated through bankruptcy. You simply can not pay workers 100% of their pay and full benefits when they retire." (ealier post of mine of 2 days ago)
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The cable channels are reporting that Presidnent George Bush may agree with me. If he wanted to give them 14 billion dollars, he would have done it by now. He gave AIG 200 billion dollars without blinking an eye.
I think he understands that these car companies can never succeed if they are burdened with these legacy costs of unaffordable pensions and health benefits. Through bankruptcy, these legacy costs can be eliminated. United Airlines got rid of them through bankruptcy and is back to being solvent again!
It is not so far fetched that the City of Naperville may have to one day file for bankruptcy to get rid of our own legacy costs which are now approaching 70 million dollars even though we only have a handful of retirees due to the fact we were a very small town 30 years ago. Watch out when the current crop of employees finally retire!!!
I think the Napergatains are right when they say we have to fix our pension system right now or face BANKRUCPTY in the future. I hope the police officers and fire fighters wake up and join the Napergatians in demanding immediate change. I would hate to see them wake up in retirement only to find out no pension checks are forthcoming their way.
I believe the UAW workers will smell the coffee soon and wake up to the realization that their massive greed was their final downfall!
Let us see if we can save our union workers before it is to late!!!
I just saw on the news that Goldman Sachs, which took a $10 billion bailout payment, recently awarded more than $10 billion in bonuses and stock payouts. What is wrong with these people?
I saw that also about Goldman Sachs. They say that it's needed to keep good people? Good people? I think there are probably thousands of out-of-work financial people that would jump at the chance to do an ethical job for GS without an annual bonus in this job market.
By Naperville Sun editorsAuthor Profile Page on December 19, 2008 5:47 PM
I just saw on the news that Goldman Sachs, which took a $10 billion bailout payment, recently awarded more than $10 billion in bonuses and stock payouts. What is wrong with these people?
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There is nothing wrong with them, the FEDS are obviously talking puppets that give them whatever they want, both parties. Paulson and Rubin are Goldman Sachs, wake up!
If the Senators and Congressmen that voted for the bail out had any integrity or honor, they would imitate their Japanese counterparts and commit supuku in front of the Capitol Building, alas they have none. Barak and McCain both voted for this, change, yeah.
Wait for Barak's $800 Billion stimulate my friends package, there are approx $25 billion in identified projects, the rest if pay off money. There are no mechanisms or controls to track the money, it will vaporize and never leave a trail.
Every whack-job social engineering program will be attached to the "save the country" bill along with the billions to ram it down everyone's throat.
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Only 29 shopping days left to buy a firearm or ammunition. High velocity semi auto riffles and semi auto handguns will be the first targets with legislation followed by the law suits; I'm sure the "stimulus package" will include funding for the groups that want to sue. Maybe they will roll out Ruger again as the shill with the promise that his guns won't be banned.
I'll have to check out one of the stores, my guess is that 9MM Luger, 223 military pin, and 40S&W are flying off the shelves.
Shotguns are by far the most lethal weapon out there, but hard to conceal with short range. So they won't go till the end.
Can someone post a link to an article referencing the bonuses at Goldman Sachs?
If GM and Chrylser were smart, they would take the money and declare bankruptcy. No matter what anyone says, the auto company problems are very deep rooted in contracts with unions, suppliers, dealers, and all sort of other people.
As the Wall Street Journal reported, not only do the American auto companies have a cost problem ($2,000 per vehicle), they also have a "revenue" problem. For example, a Honda Accord sells for $3,000 more than competitive Chevy Cobalt and Ford Focus. That is $5,000 disadvantage on a $18,000 car, about 20%!!!!
One outcome might be that Honda and other foreign companies take over the US market (just like Sony and others did with televisions). To do so, they will need more capacity than they currently have. They could buy the plants from the American companies. More likely, they would build new ones in more business friendly states in the South with lower taxes and more favorable rules to business.
In the long run, we will have a stronger US auto industry free from the UAW and the Incompentant 3 (Big 3 overstates their importance). And we might lose 3 million UAW jobs (if you count people sitting doing nothing and being paid), but they would be replaced with 2.5 REAL JOBS.
I was stunned Bush gave them the money without an orderly bankruptcy. That was the right answer. Other than 9/11, he has proven to be the worst President in history. Abraham Lincoln, Ronald Reagan, and even Richard Nixon are turning in their graves about this idoit. In fact, it is hard to think how much worst it can be with Gore or Kerry (I guess worst).
I can't find the GS US article thought I saw, but perhaps I heard it on television. Here is a link to a UK article, claiming 7bn pounds, which I believe translates to what I read/heard.
http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package--6bn-bail-out.html
check out what Credit Suisse did for bonuses this year for top ban executives - a novel and appropriate means of rewarding their performance.
http://www.iht.com/articles/2008/12/21/business/views22.php
That 4% annual growth on Credit Suisse bonus proceeds is about what Joe Sixpack would hope for in a yearly raise, no? Putting the bonus earning potential on an 8 year time-line and making employees work toward the proceeds may create a more ethical environment protecting the bank as well as the employee's return, I would think. Self-responsibility and a success requirement to see optimum return, what a concept!
Why is this so hard to make happen elsewhere? Do any of you think this type of thing might catch on elsewhere? Imagine a world where people felt self-respect and justified reward for accomplishment, rather than a world taken down by lies and ponzi schemes. We already achieve quite a bit, we could achieve so much more!
You can be sure of one thing, I will never again purchase another Chrysler, Ford or GM vehicle. Bush is now supporting the unions with my tax dollars which I resent.
The new administration will support a bail out of the auto industry simply because the can no afford to alienate the unions - a mainstay of their political support. If the auto industry tanks and the UAW is broken, the other unions in the US will lash back against the Dems big time. Teachers, public service workers, health care (and others) - all unionized and powerful in the lobbying efforts - will make themselves heard.