Why the US manufacturers are failing

[Jeffbx]

There is a great article printed in the Washington Post detailing some of the major issues that American manufacturers are facing & why.

Small excerpt:


The Big Three's hold on the U.S. market seemed so secure by 1948, that they struck a deal with the United Auto Workers that added a new element to the Detroit system: high wages and generous benefits. The car-making business had become a tight oligopoly, with investment barriers for entry so high that no domestic firm could afford to join the club. On the labor side, the UAW held a monopoly. Thanks to rising demand for cars, there were plenty of profits to go around. Periodically the three vertically integrated companies and the union engaged in a bargaining ritual to determine how to split the loot. As long as improvements in mass-production offset the ever-higher wage rates by reducing the number of labor hours per vehicle, the cost of cars for consumers held stable.


The Japanese auto makers had an outlook different from that of the Big Three. The purveyors of the old Ford-GM-Chrysler-UAW system assumed that all production laborers in the industry, including workers making parts, should be paid the same rate. The corporate and union leaders further assumed that their position was impregnable and that they could promise to pay defined-benefit pensions and other benefits decades into the future.

Read the whole article (http://www.washingtonpost.com/wp-dyn/content/article/2005/12/02/AR2005120201377.html) - I think it's right on the money. Detroit screwed themselves by overpaying & making promises too far into the future. Now there are too many retirees to pay for, and the manufacturers can't afford it. The UAW is no help, because they turn a blind eye to the issue. I truly believe they will force some large companies out of business - Delphi & Visteon, other large suppliers and maybe even force one of the big 3 into bankruptcy - before they admit there is a big problem that will take radical steps to correct.

[johnnymk]

During the nineties, the U.S. economy was booming as well as the world's. It appeared that this trend would last into the never ending future. The "New Economy" was going to transform the world. States spent like there was no tomorrow and corporations gave benefits to attract and keep employees.

And then the bubble burst soon after the new millenium.

In addition, the UAW has always been short sighted, plus they have had GM by the gonads. Lengthy strikes always hurt companies. And GM workers were paid great salaries even when they were laid off.
It was a no-win situation for GM.

So it's just not Detroit that is hurting. It's every major corporation that has benefits which raise the cost to the consumer as compared to American and foreign companies which pay lower wages or no benefits.

[mechmike0034]

I think it is right on the money as well.

A bit of historical perspective on your quote. By 1948, Americans were "car-starved" as a result of WW II. American automotive production ceased in the beginning of 1942 as US automakers turned from building passenger vehicles to building aircraft, trucks, tanks, and other war-related items. This activity on the part of the automakers was not only the right thing to do at the time but was also hugely profitable for them.

After the war ended in late 1945, it took US automakers some time to revert back to regular production. It also took some time before gasoline and tire supplies in the US came back up to prewar levels. Most 1946 and 1947 model vehicles were essentially carryover designs from before the war since very little consumer automotive engineering, research, and development took place during the war years. They sold well despite being five years behind since there were no new vehicles to speak of available to consumers during the war. This also swelled automaker's coffers with cash.

That in a nutshell was why the future looked so rosy for US carmakers at that time. They had mad cash, record demand for their products, and no offshore competition.

Detroit's first mistake was not taking Volkswagen seriously in the late 1950s. Their second mistake was not taking Honda motorcycles seriously in the early 1960s. The respective early successes of both of those companies in the US should have been a strong wake-up call.

Of course, Monday morning quarterbacking is easy fifty years later. I can't honestly say I'd have done it any different had I been in charge of any of the Big 3 in 1948.

[zippyjuan]

At the start of the cycle, the companies wanted to attract and keep a qualified workforce to produce their cars. They offered good pay and benefits, but they offered good pensions too. These were seen as a benefit by the employees (which they are- and indeed they set the gold standard for much of the country) but the companies saw them as a future expense so they did not worry about the cost of them as much. Well, the future is now and they are having to deal with the costs they put off many years ago.

The auto industry in this country is always boom and bust. The makers tend to put all their eggs in one basket- if one type of vehicle is selling well at a good profit, let's make mostly that kind of car. In the last several years that has been the SUV and trucks. They reduced or eliminated other lines. Let the Asian companies make those. Well, eventually the consumers change their minds about what they want and suddenly the manufacturers find themselves making lots of cars they can't sell. They need new models which take time and money to design and get into production. So they lose market to the more adgile Asian makers. Eventually they will get it right again and have another boom. Until the customers again change their minds.