Probably the best article about GM/Ford's
01-08-2006, 03:43 PM
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Probably the best article about GM/Ford's
In order to educate the masses. . .
Troubled Legacy
How U.S. Auto Industry Finds
Itself Stalled by Its Own History
From Sales to Labor Costs, Once-Storied GM, Ford Grapple with Past Practices
A Need to 'Change or Die'
By JOSEPH B. WHITE and JEFFREY MCCRACKEN
Staff Reporters of THE WALL STREET JOURNAL
January 7, 2006; Page A1
A big cloud looms over the U.S. auto industry as executives and dealers gather next week in Detroit for the annual North American auto show -- their equivalent of the Oscars.
Normally, the cars are the stars. But this year, the industry is riveted by a far more urgent matter: the problems afflicting the Motor City's beaten-up giants, General Motors Corp. and Ford Motor Co. -- and whether they can ride them out.
In many ways, the industry's current woes are aggravated by legacies that go back to their days as icons of America's industrial power -- hobbling everything from their sales efforts to their corporate cultures.
Early last century, Ford mastered assembly-line production with its Model T and paid $5-a-day wages that put autos in reach of the masses. GM, under legendary early leader Alfred P. Sloan, refined modern management methods and made the car a status symbol. It rolled out a wide range of brands -- and features from tailfins to wraparound windshields -- designed to suit every purse and purpose.
[Shrinking Giants]
Post-World War II deals between the auto makers and the United Auto Workers union set a new standard of ever-better wages, health-care and pension benefits. That helped create a prosperous middle class of consumers, especially in the Upper Midwest -- who in turn drove the car-crazy American way of life.
The idea of either company filing for bankruptcy protection was simply unthinkable.
No more. Saddled by high labor costs and swamped by foreign competition from Toyota Motor Corp. and others, the two are now symbols not of America's economic might but its vulnerability to more nimble Asian and European manufacturers.
In the last two decades, the U.S. market has transformed from a cozy, three-way oligopoly -- including Chrysler Corp., now part of Germany's DaimlerChrysler AG -- to a knife fight among six to eight global players, all of which have substantial manufacturing operations in the U.S., Mexico and Canada.
Last year, GM's U.S. market share -- close to 50% at the company's height -- fell to 26.2%, while Ford's was down to 18.6%. Both earned "junk bond" ratings on their debt -- raising the prospect they may have to seek bankruptcy protection.
Bond analysts and traders say that based on how bonds are currently trading, Wall Street is putting the odds of a GM bankruptcy at about 40%. For Ford, the betting odds now are about 25%.
Yet for all that, the mindset of the old days persists, despite more than a decade of attempts to adapt to the new reality. The challenge is similar to that in the steel and airline industries, in which once-dominant players concluded that filing for Chapter 11 bankruptcy protection was the only way out of their mazes.
Detroit's leaders, including GM Chairman and Chief Executive Rick Wagoner and Ford Chairman and CEO Bill Ford, deny any plans to follow suit. But both also say they understand the new world, and promise big restructuring plans this year. U.S. car makers must "change or die," declared Mark Fields, newly appointed president of Ford's Americas operations, last week.
Still, tackling their "legacy costs" is proving to be a highly complicated challenge, as a look at some of GM's problems illustrates.
Most industry executives use "legacy costs" as shorthand for health and pension obligations owed to retirees -- usually cited as the industry's No. 1 problem. But GM's real legacy costs constitute a vicious circle that go well beyond those issues, affecting decisions about employees and production capacity, marketing and corporate culture. Progress in one area often hampers it elsewhere.
Take GM's longstanding agreement with the UAW to pay laid-off hourly workers nearly full wages long after their jobs are eliminated. Dubbed the "Jobs Bank," this has stirred concern for investors asking how GM can cut costs and sell its vehicles at more competitive prices if it can't stop paying unneeded workers.
GM won't disclose the costs of the Jobs Bank, but analysts estimate that it covers about 5,000 people. At roughly $100,000 per person each year, including benefits, that puts its estimated cost at $500 million a year -- roughly $110 for each vehicle GM sold in the U.S. in 2005.
Some analysts say GM takes a big hit on indirect costs too. The need to pay idled workers is part of the reason that GM in recent years has sustained production of models that weren't in demand. To move the excess inventory, GM resorted to ever-more-costly discount deals. A recent estimate by CNW Marketing Research put GM's per-vehicle discount spending for 2005 at an average of more than $5,000 a vehicle, compared with $2,853 for Toyota.
The Jobs Bank is a legacy of the early 1980s, when then-Chairman Roger B. Smith was embarking on a strategy to automate GM's North American factories. In a recent interview, UAW President Ron Gettelfinger and UAW Vice President Richard Shoemaker, who heads the union's GM department, said the Jobs Bank originally was a company proposal, aimed at convincing UAW leaders not to oppose new technology.
"The idea was, 'You help us get productive and we'll bring work in' " to occupy the displaced workers, Mr. Gettelfinger said.
But that decision came back to haunt the company in later years as it began to embrace Toyota's methods of car making, which substitute discipline and a focus on eliminating wasted worker effort for fancy machines. They spurred much faster productivity gains than anyone expected and redefined the productivity debate in the auto business.
But the Jobs Bank never got redefined. Instead, after fighting a series of costly strikes with the UAW in the mid-1990s, GM management concluded it was better to build a harmonious relationship than provoke fights. The bank has survived successive rounds of contract bargaining, including the most recent round in 2003.
In the consumer arena, GM is saddled with another legacy: The years, mainly in the 1980s and 1990s, when its vehicles suffered from inferior quality and reliability compared with the best Japanese brands. Many consumers thought GM also lagged in its designs. As GM Vice Chairman for Product Development Robert Lutz said earlier this year, "We had interiors that can only be described as 'functional.' They had very little about them that was aesthetically pleasing."
Mr. Lutz has spent much of the past four years pushing GM's designers and engineers to create better-looking cars that will erase memories of GM's drab 1980s and 1990s vehicles. But that's easier said than done.
Last April, when GM hosted a competitive-drive event at a race track outside Chicago, customers formed long lines to try out the new Volkswagen Jetta and BMW 3-series. But there was no wait to drive many of GM's touted vehicles, such as the Chevrolet Malibu. The only GM cars that drew attention at the Arlington International Racecourse were the Chevy Corvette and the Cadillac CTS-V.
"It became a pain, because you had to wait a while to drive a BMW 5-series or another GM competitor," said Jeff Henderson, an Algonquin, Ill., resident who owns a Honda Accord sedan and Toyota Sienna minivan. "You couldn't help but notice the lines were pretty small for the GM vehicles." GM, he said, "does have some great products out there, but they don't have the reputation for quality that Toyota has."
It's the kind of comment that Mark LaNeve, GM's North American marketing chief, hates to hear. "We've got to overcome that," he said. "Maybe we've been too reluctant to admit our competitive problems in the past."
GM plans to kick off an aggressive new marketing strategy next week, which will stress quality and new, lower base prices on most models. "In some ways, we're going to turn back the clock," Mr. LaNeve said. "The Japanese offer a good product at a good price. Our cars are just as good, and you're paying more for that Japanese product."
Mr. LaNeve didn't discuss details in advance, but said he plans a "straightforward message on competitiveness, price advantages." In some cases, that will mean calling out specific competitors, like Toyota and Ford, sometimes on a model-by-model basis.
But the mission is complicated by another legacy: the complex structure GM has built in the U.S. over 97 years. The company currently sells cars and trucks under eight U.S. brands, compared with six in the 1950s when its market power was at its zenith. It has 7,500 dealers selling just over 26% of the market. Toyota's roughly 1,400 dealers sell just over 13% of the market.
Over the years, GM executives mostly have rebuffed calls to focus their marketing, design and engineering resources on fewer brands and models. The company did kill the Oldsmobile brand in 2000. But the phase-out was messy, taking several years and costing about $1 billion in expenses related to buying out Oldsmobile dealers, who had claims to compensation under state-franchise laws and GM's dealer agreements.
Mr. LaNeve says he's not planning to kill any more brands. Instead, he's trying to get Buick, Pontiac and GMC dealers to consolidate so they can sell a slimmed-down portfolio of vehicles under those three brands. As of now, he says, stores in which those three brands account for 60% of volume have been merged. "If we really do it right, we get better financial results," he said.
But when? Mr. Wagoner won't say, although he has hinted that he expects 2006 to be better than 2005. With most industry executives forecasting flat overall U.S. sales in 2006, and competitors such as Toyota lining up big new model blitzes of their own, though, it's not likely GM will get much relief from pricing pressure.
Coming in 2007, GM faces perhaps the toughest legacy test: negotiating a new contract with the UAW. UAW leaders, in letters sent to rank-and-file members, have justified decisions to accept cuts in health care by warning that if GM filed for bankruptcy protection, workers could wind up with even less. But UAW leaders are under fire from dissidents who believe they have been too quick to accept cuts to health-care benefits
In an unusual move, a group of Ford UAW members last week formally challenged the procedures the UAW used in a recent ratification vote for a package of health-care cuts at Ford that passed by a narrow 51%-49% margin.
The irony is that if Mr. Wagoner achieves somewhat better financial results this year, that could make it harder for him to persuade UAW workers to accept painful cuts needed to save the company in the long term.
---- Gina Chon contributed to this article.
Write to Joseph B. White at joseph.white@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com
Troubled Legacy
How U.S. Auto Industry Finds
Itself Stalled by Its Own History
From Sales to Labor Costs, Once-Storied GM, Ford Grapple with Past Practices
A Need to 'Change or Die'
By JOSEPH B. WHITE and JEFFREY MCCRACKEN
Staff Reporters of THE WALL STREET JOURNAL
January 7, 2006; Page A1
A big cloud looms over the U.S. auto industry as executives and dealers gather next week in Detroit for the annual North American auto show -- their equivalent of the Oscars.
Normally, the cars are the stars. But this year, the industry is riveted by a far more urgent matter: the problems afflicting the Motor City's beaten-up giants, General Motors Corp. and Ford Motor Co. -- and whether they can ride them out.
In many ways, the industry's current woes are aggravated by legacies that go back to their days as icons of America's industrial power -- hobbling everything from their sales efforts to their corporate cultures.
Early last century, Ford mastered assembly-line production with its Model T and paid $5-a-day wages that put autos in reach of the masses. GM, under legendary early leader Alfred P. Sloan, refined modern management methods and made the car a status symbol. It rolled out a wide range of brands -- and features from tailfins to wraparound windshields -- designed to suit every purse and purpose.
[Shrinking Giants]
Post-World War II deals between the auto makers and the United Auto Workers union set a new standard of ever-better wages, health-care and pension benefits. That helped create a prosperous middle class of consumers, especially in the Upper Midwest -- who in turn drove the car-crazy American way of life.
The idea of either company filing for bankruptcy protection was simply unthinkable.
No more. Saddled by high labor costs and swamped by foreign competition from Toyota Motor Corp. and others, the two are now symbols not of America's economic might but its vulnerability to more nimble Asian and European manufacturers.
In the last two decades, the U.S. market has transformed from a cozy, three-way oligopoly -- including Chrysler Corp., now part of Germany's DaimlerChrysler AG -- to a knife fight among six to eight global players, all of which have substantial manufacturing operations in the U.S., Mexico and Canada.
Last year, GM's U.S. market share -- close to 50% at the company's height -- fell to 26.2%, while Ford's was down to 18.6%. Both earned "junk bond" ratings on their debt -- raising the prospect they may have to seek bankruptcy protection.
Bond analysts and traders say that based on how bonds are currently trading, Wall Street is putting the odds of a GM bankruptcy at about 40%. For Ford, the betting odds now are about 25%.
Yet for all that, the mindset of the old days persists, despite more than a decade of attempts to adapt to the new reality. The challenge is similar to that in the steel and airline industries, in which once-dominant players concluded that filing for Chapter 11 bankruptcy protection was the only way out of their mazes.
Detroit's leaders, including GM Chairman and Chief Executive Rick Wagoner and Ford Chairman and CEO Bill Ford, deny any plans to follow suit. But both also say they understand the new world, and promise big restructuring plans this year. U.S. car makers must "change or die," declared Mark Fields, newly appointed president of Ford's Americas operations, last week.
Still, tackling their "legacy costs" is proving to be a highly complicated challenge, as a look at some of GM's problems illustrates.
Most industry executives use "legacy costs" as shorthand for health and pension obligations owed to retirees -- usually cited as the industry's No. 1 problem. But GM's real legacy costs constitute a vicious circle that go well beyond those issues, affecting decisions about employees and production capacity, marketing and corporate culture. Progress in one area often hampers it elsewhere.
Take GM's longstanding agreement with the UAW to pay laid-off hourly workers nearly full wages long after their jobs are eliminated. Dubbed the "Jobs Bank," this has stirred concern for investors asking how GM can cut costs and sell its vehicles at more competitive prices if it can't stop paying unneeded workers.
GM won't disclose the costs of the Jobs Bank, but analysts estimate that it covers about 5,000 people. At roughly $100,000 per person each year, including benefits, that puts its estimated cost at $500 million a year -- roughly $110 for each vehicle GM sold in the U.S. in 2005.
Some analysts say GM takes a big hit on indirect costs too. The need to pay idled workers is part of the reason that GM in recent years has sustained production of models that weren't in demand. To move the excess inventory, GM resorted to ever-more-costly discount deals. A recent estimate by CNW Marketing Research put GM's per-vehicle discount spending for 2005 at an average of more than $5,000 a vehicle, compared with $2,853 for Toyota.
The Jobs Bank is a legacy of the early 1980s, when then-Chairman Roger B. Smith was embarking on a strategy to automate GM's North American factories. In a recent interview, UAW President Ron Gettelfinger and UAW Vice President Richard Shoemaker, who heads the union's GM department, said the Jobs Bank originally was a company proposal, aimed at convincing UAW leaders not to oppose new technology.
"The idea was, 'You help us get productive and we'll bring work in' " to occupy the displaced workers, Mr. Gettelfinger said.
But that decision came back to haunt the company in later years as it began to embrace Toyota's methods of car making, which substitute discipline and a focus on eliminating wasted worker effort for fancy machines. They spurred much faster productivity gains than anyone expected and redefined the productivity debate in the auto business.
But the Jobs Bank never got redefined. Instead, after fighting a series of costly strikes with the UAW in the mid-1990s, GM management concluded it was better to build a harmonious relationship than provoke fights. The bank has survived successive rounds of contract bargaining, including the most recent round in 2003.
In the consumer arena, GM is saddled with another legacy: The years, mainly in the 1980s and 1990s, when its vehicles suffered from inferior quality and reliability compared with the best Japanese brands. Many consumers thought GM also lagged in its designs. As GM Vice Chairman for Product Development Robert Lutz said earlier this year, "We had interiors that can only be described as 'functional.' They had very little about them that was aesthetically pleasing."
Mr. Lutz has spent much of the past four years pushing GM's designers and engineers to create better-looking cars that will erase memories of GM's drab 1980s and 1990s vehicles. But that's easier said than done.
Last April, when GM hosted a competitive-drive event at a race track outside Chicago, customers formed long lines to try out the new Volkswagen Jetta and BMW 3-series. But there was no wait to drive many of GM's touted vehicles, such as the Chevrolet Malibu. The only GM cars that drew attention at the Arlington International Racecourse were the Chevy Corvette and the Cadillac CTS-V.
"It became a pain, because you had to wait a while to drive a BMW 5-series or another GM competitor," said Jeff Henderson, an Algonquin, Ill., resident who owns a Honda Accord sedan and Toyota Sienna minivan. "You couldn't help but notice the lines were pretty small for the GM vehicles." GM, he said, "does have some great products out there, but they don't have the reputation for quality that Toyota has."
It's the kind of comment that Mark LaNeve, GM's North American marketing chief, hates to hear. "We've got to overcome that," he said. "Maybe we've been too reluctant to admit our competitive problems in the past."
GM plans to kick off an aggressive new marketing strategy next week, which will stress quality and new, lower base prices on most models. "In some ways, we're going to turn back the clock," Mr. LaNeve said. "The Japanese offer a good product at a good price. Our cars are just as good, and you're paying more for that Japanese product."
Mr. LaNeve didn't discuss details in advance, but said he plans a "straightforward message on competitiveness, price advantages." In some cases, that will mean calling out specific competitors, like Toyota and Ford, sometimes on a model-by-model basis.
But the mission is complicated by another legacy: the complex structure GM has built in the U.S. over 97 years. The company currently sells cars and trucks under eight U.S. brands, compared with six in the 1950s when its market power was at its zenith. It has 7,500 dealers selling just over 26% of the market. Toyota's roughly 1,400 dealers sell just over 13% of the market.
Over the years, GM executives mostly have rebuffed calls to focus their marketing, design and engineering resources on fewer brands and models. The company did kill the Oldsmobile brand in 2000. But the phase-out was messy, taking several years and costing about $1 billion in expenses related to buying out Oldsmobile dealers, who had claims to compensation under state-franchise laws and GM's dealer agreements.
Mr. LaNeve says he's not planning to kill any more brands. Instead, he's trying to get Buick, Pontiac and GMC dealers to consolidate so they can sell a slimmed-down portfolio of vehicles under those three brands. As of now, he says, stores in which those three brands account for 60% of volume have been merged. "If we really do it right, we get better financial results," he said.
But when? Mr. Wagoner won't say, although he has hinted that he expects 2006 to be better than 2005. With most industry executives forecasting flat overall U.S. sales in 2006, and competitors such as Toyota lining up big new model blitzes of their own, though, it's not likely GM will get much relief from pricing pressure.
Coming in 2007, GM faces perhaps the toughest legacy test: negotiating a new contract with the UAW. UAW leaders, in letters sent to rank-and-file members, have justified decisions to accept cuts in health care by warning that if GM filed for bankruptcy protection, workers could wind up with even less. But UAW leaders are under fire from dissidents who believe they have been too quick to accept cuts to health-care benefits
In an unusual move, a group of Ford UAW members last week formally challenged the procedures the UAW used in a recent ratification vote for a package of health-care cuts at Ford that passed by a narrow 51%-49% margin.
The irony is that if Mr. Wagoner achieves somewhat better financial results this year, that could make it harder for him to persuade UAW workers to accept painful cuts needed to save the company in the long term.
---- Gina Chon contributed to this article.
Write to Joseph B. White at joseph.white@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com
01-08-2006, 04:17 PM
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Thats the price you pay for living in the society that you do. Your society is everyone fend for themsleves.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
01-08-2006, 04:28 PM
#3
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
01-08-2006, 05:34 PM
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Originally Posted by cutes2k,Jan 8 2006, 05:17 PM
Thats the price you pay for living in the society that you do. Your society is everyone fend for themsleves.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
You're right! In order to save GM and Ford, we should institute your form of socialist nirvana.
What do you care anyway? Since when can the average blessed socialist Australian consumer afford a new car....
01-08-2006, 06:11 PM
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Wow, sounds like it should be a proverbial utopia down there.....How come you say you love Australia, but your sig says you live in Washington with an American flag? I don't recall a Washington Australia....
I hate people who troll and try to start things. However, it did get me to respond....
(don't get me wrong, I love the Ausies, but don't start something you can't finish)
I hate people who troll and try to start things. However, it did get me to respond....
(don't get me wrong, I love the Ausies, but don't start something you can't finish)
01-08-2006, 07:30 PM
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Originally Posted by cutes2k,Jan 8 2006, 05:17 PM
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government.
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01-08-2006, 08:14 PM
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Wow, this got off topic quickly.
Anyone have any opinions on the sad state of affairs at GM and Ford? I'm hoping that the unions concede quite a bit in 2007, that GM realizes that full-size SUVs are NOT the way to go, and that Ford figures out how to truly get into the hybrid market.
Anyone have any opinions on the sad state of affairs at GM and Ford? I'm hoping that the unions concede quite a bit in 2007, that GM realizes that full-size SUVs are NOT the way to go, and that Ford figures out how to truly get into the hybrid market.
01-09-2006, 04:43 AM
#10
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Originally Posted by cutes2k,Jan 8 2006, 08:17 PM
Thats the price you pay for living in the society that you do. Your society is everyone fend for themsleves.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
We in Australia pay more in taxes, but we have free health care, Pensions, unemployment benfits, child care etc all paid by the government. Education, including University is paid by the government. We have a lower crime rate because people don't need to steal to live etc.
You have chosen the society you live in, if you don't like it, change it.
