(Guest Post) Can China Save American Automakers?
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The big three automakers are dead businesses not worth saving. Even if the US government pour tens of billions of dollars in bailing out them now, the companies will die another day.
Why am I so certain American car makers cannot rise from the ashes? It’s the quality: if Americans are honest, they will admit that their cars cannot match the quality of Japanese and German cars. No matter how hard Americans try, they have not been able to equal the Japanese and Germans in quality.
But not all is lost. Americans are good at innovation, marketing and service. Therefore, the Americans should use their strength to beat Japanese’s and Germans’ and South Koreans’ weakness.
How can that be done? It is very simple indeed: change the business model!
Say it again? Okay, it is a bit more complicated than that. It requires a total change of the business model, in fact, a disruptive change. Sergio Marchionne, Fiat CEO, in an interview with Automotive News, predicted as much change ahead.
First, the US government should take over GM and Chrysler. Ideally it should take over Ford as well but the Ford family may not want to sell.
GM is now worth 2.5 billion dollars. Chrysler probably values less than that. Therefore, 5 billion dollars can buy both companies.
Second, the US government should appoint a car czar as rumoured.
Third, this car czar should break GM and Chrysler (and may be Ford) into two design/marketing companies, one engine company, and two assembly plant companies. These companies should all operate independently.
Forth, the two design/marketing companies only design and sell cars. They outsource the manufacturing of their designed cars to the assembly plant companies.
The assembly plant companies, according to the designs, buy engines from the engine company and other parts from other parts companies and assemble them together.
The engine company will specialize in producing the best and most energy-efficient engines. It can sell these engines to whoever wants to buy.
In fact, all of these companies will have right to deal with others such as Japanese, German or Korean car companies.
But the latter have the current business model working for them. They may not be interested in changing the status quo.
On the other hand, the Taiwanese and Chinese don’t have as much stake in the existing model and have incentive to try the American new business model.
You may find this new business model familiar. You are not wrong because it exactly copies the current computer hardware business model.
And who are the big players in the computer hardware business?
America’s Dell, HP and Apple, Taiwan’s Acer, and China’s Lenovo are designers and marketers. America’s Intel, AMD and Nvidia are chipmakers. Taiwan’s Hon Hai, Quanta and Compal are manufacturers and assemblers.
The computer business is constant innovation and cost reduction. If the model succeeds for car business, consumers will benefit and the environment will benefit as new energy-efficient technologies will surely result.
One caveat though, I don’t think Americans alone can pull it off. They need the help of Taiwanese and Chinese – this is, the US needs China and Taiwan to buy into the same new business model to have a sufficient number of competitors in each of the specialized segments so that competition and innovation will make everyone better.
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December 18th, 2008 at 10:27 am
absolutely. so for the 10k of value addition from making car, the designer and licensor can keep 5k of the profit.
while the workers who might have their hands chopped off by machinery get 1 dollar an hour or something without health insurance. TW and CN OEM manufacturer will bear the risk of financing too. So they have to put their savings (or loans, which comes from savings by that aforementioned worker) into building factories in order to make perhaps 1k, with the risk of losing perhaps 20k from sudden downturn in demands.
sure. this way, everyone wins. including that guy who make 1 dollar an hour.
December 18th, 2008 at 12:28 pm
I think this is a great idea. China and America work together for once. Go Chimerica!
December 18th, 2008 at 12:39 pm
“sure. this way, everyone wins. including that guy who make 1 dollar an hour.”
absolutely, if that guy rightnow is jobless hanging out around mall, about to try something stupid or starve to death.
December 18th, 2008 at 12:58 pm
1. The “quality” of American cars is pretty damn good these days. Their reputation, which is what you based your comment on, is not. Also important is the “value” that American cars offer. Unfortunately, due to a myriad of reasons beyond just your oversimplification of “quality,” American cars just seemingly don’t offer as much for the buck compared to foreign automakers. Why do you think there’s so much debate about legacy costs, the UAW, etc?
2. Saw the very same allusion to the computer/electronics industry over at TechCrunch. The other famous example are shoemakers like Nike, who are effectively designers and marketers.
December 18th, 2008 at 4:32 pm
* No, American car quality is the same as anyone else. The cars of the year are Malibu and Cadillac CPT. Safety tests too. Your data is many years outdated. There are many nice cars from America auto manufacturers besides the above.
* The basic problem is the labor cost. The following costs are approximated. Union workers $70 per hour (including benefits and retirements), $25 for non-union workers, $2 in Mexico or even less in China. It does not take a space PHD to figure why we’re losing money.
* For the consumers, American cars are better (1) quality. (2) price. (3) maintenance. (4) safty. (5) patriotism to buy American goods. The maintenance of those expensive European cars are very high unless you or your friend do not tell you the horror stories owning one.
* They’re competitive to me, but they do not make much due to the high cost. The labor cost is inflated by the union, who will die with the auto industry. To survive, the union MUST go first. The only union that will thrive is the very special industry like the phone company that they cannot outsource abroad.
* After the dumping the union (need government to step in), they need to consolidate the divisions. GM needs one division instead of several as the customer only need to buy one car for one particular need. Currently several divisions selling several cars for a particular need like small commute car. Chrysler needs to build one car – jeep.
* There are mutual advantages for US auto and China. Say, China can buy the entire division from GM as GM does not need to build same car as other divisions. China needs a lot of technology in car building and she has not mastered the emission control required in US.
China can learn and produce better auto parts (quantity is already there). It helps both countries.
* Protectionism never works. However, in this desperate situation we need to protect local auto industry by putting high tariff for car import for at least 2 years. If China imposes a 25% tariff to US car, we need at least to do same, so are same for other countries. Before risking a trade war, we need to get rid of the union, downsizing the industry, giving incentive to buyers (tax credit and not buying a car from a company to be bankrupt)…
My two cents which means nothing. It is easy for us to write down what should be done. In reality it will not be possible. The union with their ego prefer to go down with the industry. The older workers prefer to have their pension untouched even they will not have a job. The investors are still betting on the bailout…
December 18th, 2008 at 6:03 pm
I’m with Kai and Tony. Ford Fusion is essentially a Mazda 6. Aside from the garish chrome accents (which they got rid of for 2009) I would buy a ford, as I have many times in the past.
Wholesale OEMing is not going to fly here, saving the US auto industry is about saving the manufacturing jobs. Yes if the union doesn’t play ball and change with the times, it’s gonna be bad news.
What China can do for America is buy more of our stuff. GM hasn’t burnt to the ground is because Buick is so popular in China.
December 18th, 2008 at 9:22 pm
I don’t think American cars’ quality as good as anyone else’s. Once I had a 500 or 1000 dollars credit for buying a Ford car. I decided giving it up and bought from another maker.
December 18th, 2008 at 9:29 pm
@TonyP4 #5
http://www.msnbc.msn.com/id/28142528/
Personally, the problem with buying cars in the US is buying cars thru franchises. Buying cars thru a franchise is one of the stupidest way to buy it because no 2 persons buying the same car will pay the same price. Also, the price of the car is different from one day to another. You can’t buy a car directly from the manufacturer because it is illegal to do so and it is hard to custom your car like how you can customize your computer at dell.com.
I recently tried to buy a new car and I was so turned off by the dealer that I am going to buy a slightly used car from a dealer’s auction instead. At least I know what I am going to pay for a car.
Also, I think China’s car are inferior to American ones because of the way it is manufactured. China’s edge is its large pool of cheap labor won’t work for the car industry. China’s assembly line are using more cheap manual labor to assemble cars, thus more prone to mistakes. Japanese and American cars spends billions to ‘retool’ car plants so that they spend less money on labor thus improve reliability of cars. I dunno, maybe China can figure out how to take advantage of its abundant labor while not requiring money to retool its factories, maybe they have a shot of having an advantage.
Here’s what I think China can take advantage of US’ Auto bust. China’s problem is that they have a lack of brand name, as most people in the US never heard of an HYD, Geely, or a Chery car. Companies like GMC are making too many cars with different names and short on cash. China can probably buy GMC’s names like Saturn and Pontiac and produce cars under their names and use America’s engineers to improve quality on Chinese cars. It is looking like it is happening already as the China’s SAIC is looking to buy the Saturn brand.
December 18th, 2008 at 10:04 pm
I agree with the last point. GM should sell most of its brands. It can Chevrolet and Buick. Saturn is a good brand. Pontiac is not good.
December 19th, 2008 at 12:16 am
The prejudice of the US quality never dies. You need to look for quality comparison from RECENT, reputable reports (last 3 years) and you can tell US cars are at least the same as everyone else when comparing apple to apple.
Pontiac is a good brand with Vibe (I owned one for over 3 years and no problem so far), Solstice (if it had a front wheel drive and I were 30 years younger), G6 and Cobalt (great cars for the money)…
Saturn’s policy is no need to bargain (I do not know whether it still holds now), so you know the exact price. I do not buy used cars esp. from auction. You need to know whether the cars have been damaged from flood… It is a gamble to me. A bargain may not be a bargain esp. my life depending on it.
It is not easy to enter the US market. China auto companies postpone the entry to the US market for a lot of reasons. They do great in Africa where price comes first. They have some success in South America.
China is moving to mid tech with a lot of car parts. I do not know whether they master the engine and transmission technology. Definitely I will not buy any tires made in China.
They do not have a good reputation even before the recent QC problems and/or marketing skill. Look at how many Asian countries use the rocket to launch satellites from China. How many parts Boeing uses from China (it is part of the deal but how many mechanical parts are actually used?)
December 19th, 2008 at 1:47 am
@pug_ster #8: I used to buy fleet cars for my old company many years ago. You can avoid all the hassle at the dealer if you know how…
How To Buy A Car (the easy way)
First you have to understand how dealers work. There are two ways they sell cars. The way you know is through a car salesman, where his commission is dependent on how much above cost he sells you that car. It’s in his interest to give you the least amount of information so he can make the most money. The other way is through the fleet sales manager. His commission is dependent on how many cars he moves.
The sticker price you see has no relevance to the actual dealer cost. They put in a lot of extras to confuse you and give them more room to “bargain”. In order for you to bargain, you need to know the actual cost. So how can you find this out?
One way is to get it from Consumer Reports. If you subscribe, they’ll give it to you for a nominal cost or maybe even free; I forget the exact policy. But there is even a better way.
First, wear slacks and a tie. Go to the dealer with a few of your business cards. Look around the parking lot to find the exact vehicles that interest you. DO NOT GIVE YOUR NAME TO ANY SALESMAN THAT COMES TO YOU AND ASKS!! When you do that, your name gets put on a list and if you talk to more than one, they split the commission. You tell the salesman you are here to see the fleet manager and ask for his name. Whenever you see a vehicle you like, write down the vehicle registration number and the list price.
Now find the fleet manager and introduce yourself. Tell him you need a fleet vehicle for work and you have several vehicles you need to price out. Hand him your business card. He’ll pull out the book and show you the dealer cost. Now you have a figure to negotiate from.
Important point: The dealer cost is not the true dealer cost. It’s the cost for one car. The dealer gets rebates depending on how many cars he moves per year. So the dealer’s true cost is below what you’re being shown. That’s why dealers have a fleet manager. Because he moves so many units, their rebate for ALL the vehicles increases, not just the rebate for what that fleet manager moves.
Now comes the negotiation, which should never take more than five minutes. If the car is super popular, I’ve never paid more than $350 over cost. In today’s market, you should definitely not pay higher than cost and might be able to go a bit below, but usually cost is the final price. If you let me know the model you’re looking at, I can tell you where to bid. Exceptions are for luxury cars which don’t need to discount, and special circumstances such as Toyota Prius when gas was $4.50 a gallon. They didn’t need to sell those through the fleet dealer because they were on a waiting list.
Ok, fleet manager accepts your cost offer. Now you fill out the paperwork and buy the car. Once I came in on a Sunday and the fleet manager wasn’t working but the sales manager said he would give me a fleet deal. When I offered cost +$350 for a very popular Jeep, he started to give me the BS story, etc. so I got up and said, “You said you’d give me a fleet deal so if you’re not, I’m done” and he immediately gave me what I offered.
The key is that there is a game being played in these negotiations. They know the game and most people don’t. If they realize you know the game, it’ll end up as I described. If they feel you don’t know the game, they are professionals and will start to play it against you.
I’ve had salesmen negotiate for hours and tell me what their deal was, and I’ve made a five minute call on the phone and was $2000 below their price. Typically, dealer cost is between $3000 to $4000 below the sticker price, but it varies. Once our neighbors were buying a Chrysler minivan and their brother in law who was a so-called “expert” negotiator got them a price, then they called a broker who got them another price. I went with them to buy it and in 15 minutes they walked out with a van $1500 below their previous best price and this model had a better options package, so the savings were even higher. It works.
You might wonder how you can claim it’s fleet when you are buying the car. Simple… you say your company is on the Runzheimer Plan which pays you a monthly car stipend based on where you live, the price of gas in your area and cost of normal maintenance. The IRS uses Runzheimer figures when calculating auto tax deductions, so it’s a well known plan.
Now you can buy that new car without going crazy. If you have any questions, just let me know. Don’t say you never learned anything useful at FM. 😀
December 19th, 2008 at 2:13 am
TonyP4.
I agree that some American cars have started to make quality cars. I was surprised that the Chevy Malibu has the highest rating in the JD power for midrange cars, even better than an Accord or Camry. Personally, I would like to buy this car but the Mrs says that sedans (Japanese or American) are boring looking…
However, for years the American car companies cared about making more cars but cared less about improving the quality about the cars. They only cared about making cars which makes a profit and put all their R&D on the big SUV’s and Trucks while leaving the sedans alone. Chrysler probably won’t survive if they keep making cars like the PT Cruiser. Personally I would like to see an American car company would start advertising about the quality about their cars and put the money where the mouth is and sell cars with a 5 year/60k miles warranty like what Hyundai does.
December 19th, 2008 at 3:42 am
@Steve 11
While I appreciate your experience of buying cars, I really think it is ridiculous that you can’t buy a car as easy as buying a computer, especially when you don’t know what you are paying for. My recent experience of buying a car recently was basically horrific. Me and my wife went to a dealer and they quoted me for a 2009 Mazda5 touring for $17k, that is $3000 below the MSRP price, the salesperson said it is going to cost about $18.5k after TTL. After we checked with other dealers we decided to go with this one, the salesperson said they require 3k for initial deposit, but we will only be charged only if we buy the car. Afterwards, we went to the financial manager and gave us the quote to be more like around $26.5k because he wants us to pay $6k in ‘fees’ and an extended warranty. When I said that I didn’t want the extended warranty they said that they have to add it in because we are buying it below the MSRP price. When I asked them about the other ‘fees’ they said I have to pay for them because they need the money to pay their rent and other utility bills. Worse of all, the financial manager was lying in front of my face and treated me like an idiot. I finally got enough and tell them that I am paying the 17k + TTL for the car and nothing else, they suggested me to buy some used car instead. However, my wife wanted the car so badly that she was willing to pay the extra thousands for the car. So I had to drag my wife and we walked out. When I thought my ordeal was over that night, we found out that the car dealer charged us $3k for the ‘deposit’ that he wasn’t supposed to charge even if we didn’t buy the car. Good thing we put it on the credit card and we disputed with the credit card company. There a difference between the salesmen trying to make you to come to the showroom and them trying to cheat you when it comes to buying cars. After that ordeal, I rather buy it from dealer’s auctions, at least you know what kind of price and fees that you are paying and nothing else. You can get the car inspected, know the car’s history and buy an extended warranty later. Personally, I (err my wife) am looking at an 2008 or 2007 Mazda5 with parts of its warranty still intact, and no we are not planning to sell the car in a few years. I figure that the car manufactures already missed their projections this year and the glut of the 2008 cars will probably end up in the Car auctions anyways. So I might as well take advantage of the downturn economy.
Funny you should mention about Fleet cars. Fleet cars is one of the reason of the downfall of the Big 3. Most of the rental cars are cheap, low end cars, with manual windows, no air con, cruise control, etc… that any normal consumer will never buy. Honda has refused to sell cars for car rentals is the reason why they are the best rated cars.
December 19th, 2008 at 5:25 am
@ pug_ster: Sorry to hear them try to screw you like that. I’ve never had a problem buying cars but I’ve never run into such a corrupt dealership either. All that stuff they told you about having to add because they sold below MSRP is BS. (as in bait and switch, though the other meaning certainly applies)
I think you misunderstand the meaning of a “fleet car”. Any car on the lot is fleet; all fleet means is that the sale goes through the fleet manager. Buying a used rental car is nuts; they are badly abused and the engines improperly broken in.
Never buy an extended warranty. It’s a rip off and pure profit for the dealer. If something goes wrong, it’ll tend to go wrong quickly and be under the initial warranty.
One other painless way to buy a new car is if you have a Costco near your home. You can buy through them and get a deal almost as good as the way I do and without the hassle. The price is the price; no haggling.
Interesting you should be looking at a Mazda. My best friend’s dad was the Mazda export manager in Hiroshima back in the 70s when they started their export program, though he’s retired now. Back then it was the RX-3 with the rotary engine. Her husband is also a Mazda automotive engineer, so it runs in the family. I’ll definitely tell her your story. Recently, Ford sold some of its stock in Mazda so now the company’s management will be free from Ford’s control. For awhile there, Ford trained their future CEO’s by sending them to run Mazda for a couple of years.
It’d sure be nice if we could order cars like we order computers, checking the boxes for exactly what we wanted. Buying cars through fleet is almost as painless but not quite as flexible. You actually can order a car from the factory exactly the way you want it, but you usually have to wait two months to receive it and because it’s not inventory to the dealer, he won’t cut the same deals as one in stock.
December 19th, 2008 at 5:31 am
@pug_ster #13,
You wrote:
Is that really right?
I always thought the cars I rent are in general pretty good. The Big 3’s sell to rental cars attempt to convince consumers that their cars have greatly improved.
In general, I think that’s true. Although … my current car is a Honda…
December 19th, 2008 at 5:32 am
@Steve #11,
Wow! That’s interesting…
December 19th, 2008 at 5:45 am
@Allen: My experience with rentals is like yours with most cars having large option packages, and over the last few years I’ve rented hundreds of cars. I typically rent the full sized cars except when gas was ridiculous; then I went with the midsized cars. The best way to rent a car is to use the bidding process at priceline.com
If you use someone like travelocity, you’ll usually end up with Dollar, Enterprise or Thrifty. If you use the priceline bidding process, you’ll pay less and typically use Hertz or Budget. You’d be amazed how low you can pay for a rental.
I don’t know if you’ve ever used priceline for hotels, but it’s great. Again, you use the bidding process but I’ve stayed in Westins for $90 per night when other guests were paying over $150. You’ll typically save at least $40 per night for most hotels. You can pick the area and the amount of rated stars, but not the particular hotel itself. Once you bid, if they accept your price your credit card is automatically deducted so it’s a done deal and no cancellations, so that is the tradeoff.
December 19th, 2008 at 4:07 pm
@Steve 14,
While I agree that the experience of buying a car from Costco program have less headache, it does leave another middleman in buying cars. Yes, you can buy a car for a few hundred dollars off from the msrp, but still over the invoice price. If you pay cash, and if they really want to sell, you can probably get a few hundred off invoice, especially if you see them in around end of the month.
December 19th, 2008 at 6:40 pm
@pug_ster: You’re correct, but the middleman cut of Costco is pretty low, and their price is usually below what you can negotiate unless you go through the fleet manager. If you want that new Mazda, you might check Costco’s price and also call up a few Mazda dealers and see what the fleet guy will give you over the phone. No real need to actually go to the dealer to negotiate since you know what you want.
These days, the auto industry is hurting so badly that you should be able to get a great deal, I’d guess at least $4000 off the sticker price. Oh, another point. When you start to talk to the manager, if he asks you if you intend to trade in your old car or use their financing, answer no to both even if you intend to. Don’t let one deal interfere with another. If you trade your old car in, they’ll jack around that price to make a higher profit on the car.
Same with financing. Keep things separate. Once you agree to a price on the car, then you can bring up all the other stuff. Financing should not change the car deal itself since once a car is financed, the dealer gets 100% of the money anyway. Financing is done through the car company’s financial division and not the dealer, so it doesn’t affect his profit one bit. He would only use this ploy to get more money out of you. They work every angle for profit but again, the fleet manager is usually above all this.
December 19th, 2008 at 9:32 pm
Steve,
I wonder why there aren’t car-buying consultants. I’ll pay 100 or 200 bucks for this service.
December 20th, 2008 at 1:39 am
Huh… no progressives here, eh? Is everyone at Fools Mountain really on board with dumping the UAW because its workers have fought their way to a fair wage for hard, intelligent work? All middle class liberals here, debating design and cost savings?
And how do people think Korean and Japanese automakers got ahead—by nakedly exploiting their employees? No, they built their companies through building loyalty among their workers, making a Toyota job, for example, a lifetime, rewarding job. The even respected seniority.
The U.S. Big Three’s problems are not simple labor problems. They are the problems of a country that has refused to make a commitment to affordable healthcare. Why do carmakers go to Canada? Not because it is anti-union, but because the government takes on some of the burdens that are now destroying GM and Chrysler.
Sorry… haven’t posted in a long time. But, really, where do people think the base, the substance of a country lies? In its college kids? No way.
December 20th, 2008 at 2:41 am
That as a little strong. My bad!
December 20th, 2008 at 4:53 pm
Hi Old Tales Retold, you do have a point.
The major problem is globalization that allows us build a good product at the cheapest cost and enjoyed by the world. 40 years ago we did not have the problem. Union workers enjoyed $20 or so an hour plus benefits (very high at that time). I was in a plant and saw liquor bottles hidden away and workers dozing off (could be too much liquor). Quality for the top 4 (counting America Motor) was not important as you need to buy from the top 4 or the Volkswagon for college kids. The marketing scheme of building shitty cars to last 3 years or cars with the highest profits was great until Toyota came in.
The best assembled cars were built on Tue, Wed and Thu. No one really worked hard on Friday and they needed Monday to recover from the liquor during the weekend. 🙂
Cars were not supposed to import (could be the cost of fright) and tariffs abound at that time. ipod is a successful, modern example of globalization with American design, China’s cheap labor, and the world as the happy customer. The only problem is the why to calculate trade deficit – China pockets little percentage from the deal.
There is no way even with the $25 plus benefits (I read $70) to compete with Mexicans at $2 with little benefits. I believe there is no tariff with the tax treaty.
Health care is a completely different issue. Canada’s system is good and bad. Some die waiting for the treatment. Personally I prefer self support and a safety net for those who cannot afford. You need to work to get good insurance coverage. The safety net should only cover the basics. We encourage every one to work and the coverage should be better than the basics. Who wants to work if they receive none or poorer coverage than just collecting welfare? Why our health care system covers the illegal immigrants (we could be the only stupid country to do so)? California’s health care is screwed up by this problem for a long while and no one bother to fix it.
College is another topic. We have most of the Nobel prize winners in science and about 40% of the topic colleges. Our high schools are good except the 30% or so are really bad – most are in city and with minority.
December 20th, 2008 at 5:20 pm
Continued from last post.
Japan uses a lot of robots so you cannot really abuse or exploit a robot – give them a tune up once a year and they will work for you 24 hours and 7 days a week. Most Japanese cars sold in America are assembled here and mostly by non-union workers.
Koreans follow the Japanese. Their cars are slightly less efficient than the Japanese but they’re making up in price and warranty. Chinese cars is about the same as Koreans 5 years ago but is catching up fast.
December 20th, 2008 at 5:55 pm
@Old Tales Retold
I understand you are angry, but it’s true the UAW needs to make concessions, the compensation they are getting isn’t matched by the value they are producing. In regards to your health care example, that’s not necessarily a big factor given Toyota and Honda’s presence in the U.S.; they are not compensated for heath care either.
However, that’s only one issue and I understand the UAW is being blamed disproportionately. But something that hasn’t been discussed too much is that the big 3 needs to sell cars! Don’t tell me they can’t sell cars, they can sell cars for $500 and their whole inventory will be empty just like that. The big 3 needs to take responsibility that they have been producing cars that people don’t want to buy! That’s not a cost issue, that’s a business model issue.
December 20th, 2008 at 9:38 pm
I agree that the Big 3 simply need to sell cars, lots of them, and that their inability to do so is at the heart of the problem. It is a little like the situation at the middle school where I am a board member: we move the numbers a little here and cut specialty teachers there, but the real problem is enrollment. If we bring in more students—find new ways to reach out to the community, post up some good flyers, build loyalty, offer an attractive product—all those other details will no longer matter as much. Yes, we will still need to watch our budget, but if we think the budget is the whole problem, then we’ll get nowhere.
Workers will, of course, have to do more to adjust to a new, increasingly globalized market place (though Mark Levinson’s piece in Foreign Affairs about a global freight bottleneck adds some uncertainty to the “flat world” hoopla: http://www.foreignaffairs.org/20081001faessay87610/marc-levinson/freight-pain.html). Workers’ adjustment will have to come through expanded education in foreign languages, up-to-date sciences, and opportunities at creative thinking through the arts. These reforms will need to be aimed at precisely the 30 percent of our high schools that are, as TonyP4, says “bad.” Workers with more skills can bring “total quality management” to bear—and think out of the assembly line to their consumers.
It is unreasonable, though, to ask that workers capitulate to capital.
The values of people in the American rustbelt—or the old SOE employees of Liaoning, for that matter—are not the problem. These folks are not demanding too much by asking that their work be recognized. It should be recognized. It should be recognized more than that of young professionals. It is a failure of imagination on the part of the rest of society that we are unable to meet workers’ demands.
But the demands of a country’s traditional working class aside, it’s scary for a society to be driven entirely by its educated elite. What you get is an unbalanced culture, where nothing is physically made and everything is thought and serviced, where there some people at the top—those attendees of TonyP4’s “top 40 percent” institutions and future Nobel prize winners—who churn out endless ideas, while the rest of the country sorts papers and works in restaurants, spas and hotels that contribute zero to a sense of community.
Compare the kinds of neighborhoods and local associations that spring up around a steel plant to those that ring a McDonald’s or data processing center. There are questions about efficiency and comparative advantage, etc… and then there are questions about the health of a nation.
As to the debate about health care, I think this is essentially a matter of political leanings, progressive and conservative. Each leaning aims to serve a different sector of the country. I’ll leave that one alone, except to say that an egalitarian healthcare system does more to allow people to make the most of their lives and fully utilize their talents than a system that provides only the bare minimum for some people from birth.
December 21st, 2008 at 7:33 am
Interesting topic, and premise. And certainly at a time like this, when governments can’t figure out what to do, any outside-the-box thinking should be welcome. The solutions suggested here would seem to fit that category.
The whole “Big 3″discussion perplexes me. First, the whole “American auto industry” terminology seems to ignore the fact that Honda, Toyota, BMW, all have plants making cars in the US, and doing so profitably. So really, it should be the “Nearly Bankrupt 3” or the “Behind the Times 3”, comprising the “American auto industry – nearly bankrupt” subgroup. So I think you have to examine why these 3 are failing, while others are not.
If you’re in the business of selling cars, you need people to buy your wares. So it seems that if you’re failing, much of it is due to people not wanting to buy your cars. Unless that changes, no amount of bail-out will solve the problem. I think a strong determinant for auto selection is perceived reliability. This is where the Japanese have excelled. And this might be the Achilles’ Heel of any plan for collaboration with China.
But the expenses side is also an issue. The labour cost per vehicle is much higher for the Detroit folk because of the UAW contracts. Ultimately, trimming of those contracts will be vital to cost control. And it’s more than just the hourly wage for workers in the assembly line. It’s the retirement benefits that are staggering, and increasing every year.
Nonetheless, in the short term, these guys have to be bailed out, because it’s probably cheaper to do that than to try to create jobs for 235,000 UAW workers who would otherwise be unemployed.
However, in the intermediate to long term, unless the Bankrupt 3 can build cars that people will buy, and do so with some decent profit margin, they’ll be relegated to the history books.
December 21st, 2008 at 4:51 pm
@ S.K. Cheung,
Again, I think, as you said, the crux of the problem is on the demand side. The “Big 3” (we can use different terminology if you want) simply haven’t been making things people want. They dug in their heels against more fuel-efficient vehicles until things were too late and, as you noted, their cars aren’t perceived as reliable. So it goes.
Toyota and others do, of course, manufacture in the U.S. To the extant that they use unionized labor, I am all for them expanding their American operations. I don’t have any particular desire for a fully “American” auto industry in the States. What is important is that the industry, whoever owns it, delivers for American workers. Pushing the UAW into a corner seems like the wrong way of delivering for American workers.
Of course, some will make an argument for cutting salaries and benefits from the perspective of workers-as-consumers, i.e. cheaper cars cut less into workers’ paychecks. But the result of similar arguments over the past few decades has been a workforce that can afford a lot of doo-dads—nice TVs, etc.—but not health insurance. And this instability has eroded communities.
What really astounds me is this sense that it is somehow unnatural for someone doing physical labor to earn a decent or even great living, that there is almost something ugly about a worker making $70 an hour and being able to retire comfortably. Is it natural for a recent college grad with little life experience to be making $100,000 in the financial sector? I mean, from either an economic or moral perspective?
December 22nd, 2008 at 2:02 am
@Netizen K #20: The only car buying consultants I’ve seen are brokers and their cut is too large. The smallest cut to get the best deal is Costco and they only add a small fee for it so if you don’t want to do it personally as I described, enroll at Costco and go that route.
@Old Tales Retold, TonyP4, yo, S.K. Cheung:
You’ve all made really good points. I think what it really comes down to is a change in the business environment from the 50s and 60s when American car companies reigned supreme.
It really comes down to two issues, neither related to each other. The first is legacy costs. With the current “job bank”, laid-off workers continued to get paid even when their plants close and they no longer report for work. The UAW has said the union will “suspend” the jobs bank, but that’s not going to be good enough. There is no “job bank” in the south where the foreign companies have their plants. Those are “right to work” states without the the legacy costs, so it does make a huge difference. Michigan workers have higher salaries and better benefits than southern workers. They have better pensions and higher health care costs. You can’t carry costs that are thousands of dollars above your competitors.
The second issue is the quality of autos and perceived quality issues. Everyone’s comments have been right on the money. Because of my line of work, I’ve rented hundreds of times in the last two years and driven just about every money you can imagine excepting Hondas, which aren’t offered as rental vehicles. It’s the little things. I’ve driven American cars where when you try to use the turn signal, your fingers hit the cruise control situated just above the turn signal. The Dodge Charger has large panels between front and side windows that result in a HUGE blind spot. Quality surveys show that though American car quality has improved immensely in the last few years, it is still slightly behind Honda and Toyota. Interestingly, Mercedes has just about the worst maintenance record in the industry, but is still perceived as a quality car.
The Ford Taurus can go 0-60 faster than a 1969 Corvette, but has sacrificed gas mileage for horsepower. Is that really what the public wants or the economy needs? The larger cars are nice, but the smaller ones are limited, with less car for the money compared to foreign brands. Maybe this is where those legacy costs hurt the most? The Ford pickup trucks are still the best on the market if you want to actually use them for hauling, and still bestsellers, so when they make a product that fits the market need, they are still very competitive.
In the end, the UAW has to realize that most Americans pay part of their health insurance costs, usually don’t get more than two weeks severance pay, get no overtime no matter how many hours they work, etc. The days of limited foreign competition are over. Both Republican and Democratic administrations have been supporters of open world trade, and a large percentage of the population (including many auto workers) shop at Wal-mart where they buy foreign products because they can save money. The UAW wants their people to be the exception to the rule, but if they don’t give up most of those advantages, there might not be many UAW jobs left. That’s the dilemma…
Incidentally, Ford in Latin America and GM in Asia do very, very well. They can point to those factories that aren’t under the UAW as examples that they can be competitive if given a level playing field. I’ve personally sold to and visited the Mercury Tracer plant in Hermosillo, Mexico so I have some familiarity with foreign run operations. They tend to be more automated than Detroit’s, so I wonder if the UAW has limited the number of robots on the assembly line in order to preserve jobs, at an increased manufacturing cost and lower quality control?
December 22nd, 2008 at 4:05 am
Of course, my immediate response would be that there needs to be a bigger unionizing campaign in the southern auto plants, as there needs to be in the southern meat packing plants, etc. But that’s a long-term question…
In regards to the legacy costs, the UAW was one of the earliest unions to push for universal healthcare (other unions wanted to preserve healthcare as a privilege, as an incentive for non-unionized workers to join a union). The UAW did this precisely because it predicted that legacy costs would drag down the automakers if not addressed by government action—and because it was not willing to one day have to step back from the advancements it had made for American workers because of a broken industry.
There’s a good piece at Daily Kos now on the history of the UAW: http://www.dailykos.com/storyonly/2008/12/21/102445/57/589/675734
December 22nd, 2008 at 7:41 am
To OTR:
I appreciate your support of the union concept. I grew up in one, and can certainly appreciate their benefits. Your point about healthcare is also well-taken, since it’s an ongoing issue for Americans and their politicians. And unionized workers do the heavy lifting for the Big 3, and should be renumerated accordingly. The question is in determining an appropriate amount. That’s not just salary amount, but all the additional legacy costs that Steve alluded to. I have no idea what that amount should be. What I can say, though, is that if they compromise in some way, and take less in order to help sustain these businesses, they’ll be making more than if the businesses went belly-up altogether.
December 22nd, 2008 at 11:14 pm
The Chinese can’t help our union if they fail to change with the times, as no one would argue the GM worker in Michigan has a more secure future than the Toyota/Honda worker in Alabama/SC.
For the union to survive they have to change from it’s current role to more of a member-service role. The business want to dump the pension – fine, negotiate to take it over with government gaurantee and serve your members. This isn’t the first time union played an obstructionist role, Nixon’s universal health care was derailed by the union.
December 23rd, 2008 at 12:09 am
Thank you for your article was most informative!
I am currently in the market for a vehicle. Thus far, I am being offered the following on two used vehicles:
$10,888 for an ’04 Nissan Frontier Crew Cab XE with 82,000 miles, and $9,500 for an ’01 Nissan Frontier Crew Cab with 95,000 miles. I am going to try using the guide book you mentioned to see if I can beat this prices.
Thank you again…and rest assured, I am all ears to more advice in regards to this manner.
Mr. Horton
December 23rd, 2008 at 12:43 am
@ Charles Liu,
Good points. I think that is more or less ultimately what will have to happen: the government will have to, directly or indirectly, take on some of these legacy costs, while the union strikes a deal on the other issues with management. Sadly, as I said, the UAW was fairly unique in being supportive of universal healthcare from the beginning—-now they’re hurting because others weren’t as foresightful.
A lot of this is really preparation for the debate over the Employee Free Choice Act. The Republicans want an early victory against organized labor. They want the unions to be seen in a less sympathetic light when the big issues are discussed.
@ Shon-tiyon,
Good luck! I don’t have a car, so I can’t give much advice. My guess, though, would be that the ’04 model would be a better deal.
December 23rd, 2008 at 3:02 am
Horton, both of those cars have really high milage. Around $10K you can get a new car with warranty, or at a minimum a more recent model that still has some warranty left. Check the Sunday papers for loss-leaders to see how far a dealer will go.
Since this thread is about Amercian automakers, try checking out Ford. Their car has been pretty good lately.
December 24th, 2008 at 3:55 am
Just bumped into this blog about Chinese auto car makers and GM is actually investing in car factory and R&D center in China even amidst of the bailout.
http://www.chinacartimes.com/2008/12/19/what-chapter-11-gm-to-build-rd-center-in-anhui/
I just went to a dealer’s car auction with a today. It is truly sad how American cars can’t hold up values…
I saw a 2008 Ford escape 4wd xlt 31k miles for 7k, 2007 Ford Fusion Sedan v6 Se 42.5k miles for 6.6k, 2005 Chevy Impala Sedan L6 3.8L v6 51.4 miles for 5.1k, and 2006 Ford Escape Utility XLT 3.0L v6 75.5k miles for 5.1k. Not that these cars does not include about $400 for auction fees and fees to pay to the dealer. But they are dirt cheap compared to the Japanese cars.
December 24th, 2008 at 5:20 am
@pug_ster: Wow! I knew American cars didn’t hold their value like the Japanese brands, but those prices are dirt cheap! Better make sure there isn’t any body damage from an accident if you intend to buy. 🙁
My wife won’t buy any American car, and when she buys Japanese she only buys models made in Japan. I once read a book about how different cultures buy different things and when it came to autos, Americans buy for emotional reasons, Japanese for quality control and Germans for engineering. There might be something to that.
December 24th, 2008 at 1:53 pm
We checked out these cars and there have normal wear and tear, like bumper scratches and such. The auction place has the vin#’s and they are clean so Some of these american cars are repos, and mostly bank owned sales. On another isle, they have alot of Toyotas that came off from their fleet/rental sales. They pretty much held their values. My wife was looking for a 2008 Rav4 and and they have some with 10-15k miles average and we saw them about $15k range (before auction fees.) My wife didn’t want it because none of those cars come with a sunroof :s They also have a bunch of Nissan’s 2008 Altima and Maxima for about the same price, for some reason. However, most of these Nissans come with alot of optional equipment like sunroof and such, which is why it cost that high.
The dealer ended up getting a 2005 Toyota Sienna base model with 51k miles for little more than 10k minus auction fees. He could probably sell it for about 11k or 11.5k. However, I looked at craigslist and it looks like I can get a comparable deal from there.