What's the matter with GM?

Mickey Kaus has some perceptive analysis of the woes of the U.S. auto industry, and the GM-Toyota battle in particular, based in part on this data on NPR’s site.

GM pays $31.35 an hour. Toyota pays $27 an hour. Not such a big difference. But–thanks in part to union work rules that prevent the thousands of little changes that boost productivity–it takes GM, on average, 34.3 hours to build a car, while it takes Toyota only 27.9 hours. ** Multiply those two numbers together and it comes out that GM spends 43% more on labor per car. And that’s before health care costs (where GM has a $1,300/vehicle disadvantage).

If you’re GM or Ford, how do you make up for a 43% disadvantage? Well, you concentrate on vehicle types where you don’t have competition from Toyota–e.g. big SUVs in the 1980s and 1990s. Or you build cars that strike an iconic, patriotic chord–like pickup trucks, or the Mustang and Camaro. Or–and this is the most common technique–you skimp on the quality and expense of materials. Indeed, you have special teams that go over a design to “sweat” out the cost. Unfortunately, these cost-cutting measures (needed to make up for the UAW disadvantage) are all too apparent to buyers. Cost-cutting can even affect handling–does GM spend the extra money for this or that steel support to stabilize the steering, etc. As Robert Cumberford of Automobile magazine has noted, Detroit designers design great cars–but those aren’t what gets built, after the cost-cutters are through with them.

(Some formatting lost in the quoting - I encourage folks to read the full original article by Kaus.)

In fact, I suspect it’s a bit worse than Kaus makes it out to be. The hourly figures he quotes ($31.35 and $27) don’t appear to include benefits. A couple of rows down are what appear to be benefit-included numbers ($73.73 and $48). Multiply the higher benefit-included labor costs times the lower productivity, and, by my calculations, GM’s labor costs per car are about 89% higher than Toyota’s. Possibly GM manufactures more expensive, complicated cars, demanding more labor, but I doubt that accounts for more than a fraction of the difference, if any. IIRC, pickups are relatively simple to make, with presumably lower labor requirements than, say, a Camry.

GM also has about 3.24 retirees per active worker. Toyota has about .04 retirees per active worker. (That’s NOT a typo). While in theory, GM should have been fully allocating retiree costs all along as the retirees worked (and built up pension benefits), I suspect that this is not the case.

I don’t want to let GM management entirely off the hook - they agreed to the various union contracts over the years, and probably under-accounted for retiree benefits because those were distant future liabilities. (Yes, I know that by proper accounting, even a future liability can and should be properly discounted back to it’s present cost, but again, I don’t think this was done.)

So, is there hope for GM? What, if anything, should be done by GM management, the UAW, the feds, or any other parties to this?

Note: I have a bit of a personal interest in this as there is a major DaimlerChrysler plant just a few miles down the road from me. None of my family/friends work there, but if UAW plants in general take a big hit over the next decade or so, it will hurt the area I live in.

In a nutshell, the automotive industry needs a Southwest Airlines.

And this is why I am not a fan of modern day unions.

If you mean a new, low cost domestic competitor, I think that’s unlikely. The capital requirements, regulatory issues and so on make it unlikely for any new startups to emerge beyond botique shops making very expensive sports/luxury/novelty cars.

Then the auto industry is going to die. The current labor/management arrangements are unsustainable. As you said, Ford and GM have put all their eggs into the large SUV/Truck segment, and now that segment is the one most threatened by the increasingly likely regulation of carbon emmissions, higher gas prices, and shifting consumer pressures.

There has to be internal competition from an American competitor to really force the insular American autoworld to shift. Without it, the Execs will cash out and the industry will just fade away.

And i don’t see how the Southwest Airlines comparison isn’t apt. The majors tried to shut out Southwest from the major hubs like DFW. This should have been the death knell of the start-up airline. In defiance they just built their own airports. That’s not, you know, a small investment either.

I understand that they have helped numerous workers individually and some problems in a few workplaces, but it’s the UAW that’s killed the American auto industry and trying to blame it on anyone but them is overlooking the truth. Sure, GM and Ford both should have covered their negotiations better. And they should have had more foresight into consumer trends, but lets face it, this much of a disadvantage on cost versus sale price inevitably led to the situation we are in now. And the HUGE amount of that difference is in the pay, benefits, and pension of the union workers. Any study that says otherwise is blatantly disregarding facts. The question? Who is blamed, UAW, or the American car manufacturers for letting it get that bad.

I think GM can pull through it, but I imagine part of it may include a lot more manufacturing or possibly even full assembly outside of the US. Some is used already, if they were smart it would be a lot more.

AFAIK, Southwest did not build any airports. They used existing underserved secondary airports that were hungry for business…

Isn’t the right answer really that the blame lies with the Japanese for underpaying their workers, including their U.S. workers?

GM workers have gained concessions only after a long process of exploitation by Detroit. Now, they are supposedly making too much money, and making it hard for other Americans to buy the vehicles they produce.

Yet we know that the increased wages and benefits paid by GM does not in any way cause an increase in the cost of goods sold. Wage and benefit increases do not work that way; at best, it is an insubstantial increase to product cost that does not affect the consumer at any material level.

So it must be something else that is crippling the automotive industry, but only affecting GM, Ford, and other American producers.

I would suggest looking at executive pay packages. I’d bet if you took a look, Rick Wagoner and his ilk are making something like 20 times what the equivalent Toyota execs are making.

There’s a huge missing piece is his analysis. He says “it takes GM, on average, 34.3 hours to build a car, while it takes Toyota only 27.9 hours.” and links that to union rules that make work less efficient. What are those rules? Where’s some analysis of whether they make up 10% of the difference or 100%?

He also suggests that the only difference between the Japanese factories and the American factories is that the American ones are union shops (“Is it really an accident that all the UAW-organized auto companies are in deep trouble while all the non-union Japanese “transplants” building cars in America are doing fine?”). How about the fact that one is run by Japanese management and one by American management, with all the different philosophies that go with that?

Maybe he’s right after all, but his column doesn’t prove much of anything except that GM is in trouble relative to Toyota. For instance, here’s a contrasting view
Is this guy right? I don’t know, but he seems as plausible as Mickey Kaus.

Huh?

According to the NPR data, GM cars cost $73.73 x 34.3 = $2528.93 in labor costs, versus $48 x 27.9 = $1339.20 for Toyota. The GM car costs about 89% more in labor, or about $1189 in hard dollars. That’s hardly insubstantial or not material.

Further, those costs likely understate things, as I suspect GM relies on more unionized parts makers (the UAW, IIRC, pushes hard for UAW plants to buy UAW parts), which also presumably carry higher labor costs. Finally, there’s the retiree benefits issue.

I have no great desire to defend GM management, but to say the labor costs are not material (at the producer or consumer level) is simply wrong.

Interestingly, on the white collar side of things, GM looks very similar to Toyota, though the slim data makes hard analysis difficult.

GM production = 4,454,386 vehicles
Toyota production = 2,260,296 vehicles

GM Production workforce = 106,000 (42 vehicles/worker)
Toyota Production workforce = 21,000 (108 vehicles/worker)

GM White collar workforce = 36,000 (124 vehicles/worker)
Toyota White collar workforce = 17,000 (133 vehicles/worker)

Has anyone ever done a study on how universal healthcare (or the lack thereof) affects the competitiveness of companies? It seems to me that GM/Ford/Chrysler (and indeed, all other American firms in just about every industry) are at a disadvantage compared to foreign competitors since they must pay costly healthcare benefits whereas it’s provided by the government in other countries. Sure the US has lower corporate taxes than, say, Japan or an EU nation, but are the savings from lower taxation eaten up by the cost of having to provide healthcare for their employees, a cost not incurred by foreign firms?

One caveat as I look at that data source a bit closer. There is some ambiguity on some of the items as to whether they are global figures or applicable to what is made/sold in the U.S.

I think my comparisons are valid and based mainly on U.S. operations, but some of those figures might be including data from outside the U.S.

You have to pay healthcare in europe too…

Why does UPS charge more to deliver a package than Fedex? Same reason: union wages.

and believe it or not in japan they pay healthcare too as seen on internet:
http://www.jetro.go.jp/de/invest/setting_up/section4.html

side is in german sorry didnt found a fast one in english…

They’re our only decent carrier, other than that it’s puddle-jumpers to another hub before you can go anywhere.

They may not have built airports, but they caused small airports to expand. It drives me batshit that the big cities get such cheap airfare everywhere. Seems like a catch-22, the majors don’t fly out of medium markets because the demand isn’t there, and we don’t travel as much because we can’t afford the increased fares.

H.

Having lived in the Detroit area, having worked closely with the auto companies manufacturing arms (developing products for them,) including U.S., Japanese, and European companies, and having in-laws that were big time UAW members, my opinion is that if you don’t think the unions are a significant factor in hurting the U.S. auto companies, its because you just don’t want to believe it could be anything other than bad-guy rich management. Who, by the way, did a lot of stupid things.

From my late father in law and Grandfather in law: many stories of deliberate slowing down of the lines in order to prevent a faster production schedule from becoming the standard. Many stories of the company trying to fire a union member who was coming to work drunk or stoned or just not showing up and being told by the union they would shut the company down if they fired or punished that worker. Personally observing major inefficiencies on the production lines and being told by frustrated lower level (and higher level) managers that it was unacceptable to address those inefficiencies because of union rules (for example, one guy who had the line stop while he did one simple operation, with the next operation something right next to his fingers that he could do in literally 5 seconds, yet he did not do it so that the line could move 10 feet to another person who did it - but not in the 5 seconds it would have taken the first person, because the rule was the line had to be stopped for a minimum of XX minutes for each step.) Having grievances filed on me by the union because I gave a union operator basketball tickets to thank him for staying an extra 30 minutes to finish an operation in progress that would have set the run back an entire day if he hadn’t finished it (we would have started completely over again) - and that operator was in turn punished by the union for staying the extra 30 minutes and helping us complete the run.

If you’re GM or Ford, how do you make up for a 43% disadvantage? Well, you concentrate on vehicle types where you don’t have competition from Toyota–e.g. big SUVs in the 1980s and 1990s. Or you build cars that strike an iconic, patriotic chord–like pickup trucks, or the Mustang and Camaro. Or–and this is the most common technique–you skimp on the quality and expense of materials. Indeed, you have special teams that go over a design to “sweat” out the cost. Unfortunately, these cost-cutting measures (needed to make up for the UAW disadvantage) are all too apparent to buyers.

This is bullshit. American cars have been shit for a lot longer than Toyota has been threatening to take over the #1 spot. GM didn’t suddenly start skimping on quality because their prices were being undercut. Their union issues may make it more difficult for them to radically alter the orginization, but it’s hardly the root of the problems they need to reorganize to address.