42 Comments

1. Ron:

Win and few and lose a few. Ford and GM still have Uncle Sugar to fall back on just like Chrysler did. They’ll be going off shore next. They hung onto the SUV a little to long, with gas going for close to $3.00 per gallon it would seem that they are a little short sighted at looking at the future and will pay the price. Got to get the Nuclear going like France and Japan did after the 1970’s robbery by OPEC, those two countries said “never again” and became over 70% nuclear for their power consumption using our technology. How stupid to be in this position after what happened in the ’70’s.

May 10, 2005 - 10:26 am 2. David Thomson:

ìKirk Krikorian is supposed to be the savior of GM.î

There is no saving GM. The company is on its death bed. Kirk Krikorian will only try to sell off parts of the company as quickly as possible. GMís obligations to its employees are too burdensome. It no longer has enough money for research and development. GM is forced to ìplay it safeî which almost certainly means that its vehicles will be boring.

May 10, 2005 - 10:29 am 3. chuck:

I used to know a gal whose dad had been head of research at Chrysler until the research division was shut down. I believe it was Lee Iacocca who had this brilliant cost cutting idea. I could never figure out where Lee got his reputation as a lion of industry.

May 10, 2005 - 10:35 am 4. chuck:

I used to know a gal whose dad was head of research at Chrysler… until the research division was shut down. I believe it was Lee Iacocca who implemented this brilliant cost cutting move. Why Iacocca had a reputation as a lion of industry is something I could never figure out.

May 10, 2005 - 10:40 am 5. David Thomson:

General Motors did a tremendous amount of damage years ago with the introduction of its so-called employee health insurance benefits. This is nothing less than a well meaning con game. An employer never pays for your health insurance. It is always figured in your overall compensation package. This nonsense has resulted in employees often frivolously using their health insurance because of the mistaken belief that they really arenít paying the bills.

May 10, 2005 - 10:58 am 6. Silicon valley Jim:

Somehow I’d be more comfortable if I heard Steve Jobs or Bill Gates were taking over. Maybe it’s about time GM moved to Mountain View or Redmond. At least it would be more interesting.

Not quite sure where they’d find the land in Mountain View. If they just want office space, though, there’s a whole lot of that vacant (at least until Google acquires it). Steve Jobs doesn’t work in Mountain View, however; he works in Cupertino, and lives, I think, in Palo Alto.

May 10, 2005 - 11:04 am 7. David Thomson:

ìSomehow I’d be more comfortable if I heard Steve Jobs or Bill Gates were taking overî

It doesn’t matter if Jesus, the Buddha, and Moses took over GM. There is no way of saving the company. GM will have to eventually declare bankruptcy to get rid of its legally binding employee benefits. This is the sad reality: GMís top management must spend most of its time and effort on resolving these issues. Who has time to develop exciting cars?

May 10, 2005 - 11:17 am 8. jerry:

As an owner of two Japanese vehicles I feel a need to defend GM and Ford on at least the quality issue. The two American automakers are in trouble more because of high price of gas and not quality. Ford and GM make very good products these days and are quite comparable to Japanese vehicles. {I will wait for the stories about 1985 Chevies.) Surprisingly, Chrysler is doing just fine right now. I don’t know where this story of Chrysler closing down it’s R&D facility came from because the reason the Daimler-Benz bought Chrysler was for its state of the art research and design facility that Iacocca mortgaged the company to build.

Japanese automakers, really only Honda, Toyota, are really what you could call “Auto PC” based on their hybrids. Their marketing departments figured out that they could con the liberal PC environmental market into buying an inferior technology. European diesels outperform hybrids in realized gas mileage while still being more robust and durable. The Jetta TDI gets much better gas mileage then either the Civic or Prius with the added bonus that you do not have to manage your battery power like you were conning a U-boat.

Worship of Japanese cars is pretty much limited to Honda, Toyota and at a distant third, Nissan. For example, Mitsubishi is every bit as good as a Toyota but just doesnít have the cache. It may be the best buy in the auto world. Toyota quality at Ford prices. Mazda is nothing more then a Japanese Ford. The Mazda 3 is just a Ford Focus with a little different trim. If it werenít for the all wheel drive, Subaru would be dead by now. So please, I donít want here about the ìJapaneseî when what you mean is Honda and Toyota.

May 10, 2005 - 11:41 am 9. LouMinatti:

Roger and David, this is nitpicking, but it’s “Kirkorian”. Regarding GM, the situation could improve. They just needed a fire lit under their butts. (See Boeing.)

BTW, I’ve just fisked Meathead! Ariana’s blog presents a target-rich environment.

May 10, 2005 - 11:49 am 10. Cardozo Bozo:

“The two American automakers are in trouble more because of high price of gas…”

Wrong. Filling up a Toyota Landcruiser ain’t any cheaper than a Ford Explorer.

GMAC (GM’s financing arm) is highly profitable, and could easily remain so if severed from GM Manufacturing. At the moment it’s the only thing keeping GM solvent. The financing arm is currently (as a percentage of GM, with GM’s labor contracts weighing it down) trading at 40% or so if it’s “true” value. Kerkorian will spin it off, double his money, walk away, and let GM go into bankruptcy.

Then it’s just a question if GM will be more like Delta, or Eastern.

May 10, 2005 - 11:53 am 11. lindenen:

I remember reading an article about GM’s insane health benefits. The cost was estimated to be (from memory) over $2 billion. It would be cheaper for GM to employ its own doctors to treat these people or maybe just buy a hospital! They also need to tell the UAW to get lost and move the jobs to some place like Texas where unions are weak and employment is at will. Oh, and fire half of management too. Maybe open up an R&D place in Japan or Israel and make the American engineers compete with them.

May 10, 2005 - 11:56 am 12. David Thomson:

ìKerkorian will spin it off, double his money, walk away, and let GM go into bankruptcy.î

Iím utterly convinced that this is what Kerkorian will do. Heíll ask his advisors how this can be accomplished legally. How might the unions stall the process in the courts? Could the US Congress give him some trouble? Only a fool will discuss the possibility of ìsavingî GM. That chapter is over.

May 10, 2005 - 12:06 pm 13. LouMinatti:

And now I must spank myself. Kerkorian. Sheesh! Even professional editors are misspelling his name:

http://news.google.com/news?q=kirk%20Kirkorian&hl=en&lr=&rls=GGLD,GGLD:2004-40,GGLD:en&sa=N&tab=wn

May 10, 2005 - 12:19 pm 14. D:

Also, don’t forget these nails-in-the-coffin for the Ford-GM-UAW axis of sloth.

Toyota opening R&D facility in Michigan.

http://www.michigan.gov/som/0,1607,7-192–115385–,00.html

Hyundai opens first North American assy. plant in Montgomery, Ala.

http://www.hmmausa.com/home.cfm

What is amazing about all of this is that the US auto industry is very much alive and kicking. However, the future Heartbeat of America will have foreign nameplates primarily. The consumers and workers will be none-the-poorer but a few unemployed top-execs will be holding their heads wondering “what just hit us?”.

May 10, 2005 - 12:47 pm 15. jedrury:

“General Motors did a tremendous amount of damage years ago with the introduction of its so-called employee health insurance benefits.”

I side with David Thomson. Was there not a GM/Ford management opinion when these health care benefits were given up which calculated what the health care costs would be in 2005 and beyond?

The Journal this AM has a fascinating article on the French Electric government monopoly – EDF – and its benefits and costs and generous health care and employee benefits. The Journal also reported a few weeks that in dollar terms $ 1600+ of the price of each SUV goes to employee health care costs and benefits. So I think David has hit the nail on the head.

May 10, 2005 - 1:00 pm 16. D:

Also, AFA Kirk is concerned it is GM’s fault for allowing their share price to become so depressed by neglecting to plan for the future. If KK didn’t swoop in for the grab then someone else might (Carl Icahn? the Chinese Government!?).

May 10, 2005 - 1:00 pm 17. Brian:

“Maybe it’s about time GM moved to Mountain View or Redmond. At least it would be more interesting.”

For the record, many of the most interesting technology companies of the past decade have been founded or run by folks from Detroit or the other “rust belt” states: Oracle, Sun, Microsoft, Google, etc.

In a sense Detroit is already in “Mountain View.”

It is easy to give a beat down to companies that are 100 years old and struggling with compeitition today.

But lets not overlook how much Detroit and Michigan contributed to our modern world. Take a drive through Silicon Valley and then go take a drive through suburban Detroit. Know what you’ll find? They are identical in spirit, focus and approach. And Detroit invented that not California.

May 10, 2005 - 1:04 pm 18. Kevin P:

Lou;

I didn’t see a comment section under the Reiner post. Where did you post?

May 10, 2005 - 1:10 pm 19. lindenen:

Oracle, Sun, Microsoft, Google may have origins in the rust belt but all essentially fled it in order to be successful. What’s become of the Rust Belt is a warning to all cities and states who allow their economies to become too dependent on one industry.

May 10, 2005 - 1:17 pm 20. LouMinatti:

Kevin,

My Fisking of Meathead is here:

http://louminatti.blogspot.com/2005/05/fisking-meathead.html

I have to wonder if Ariana’s wealthy and famous pals realize that hordes of people who write far better than I will soon be picking their articles apart in a very public fashion.

(Still can’t believe I blundered the Kerkorian thing. It’s not like the guy’s name is hard to spell.)

May 10, 2005 - 1:38 pm 21. Silicon valley Jim:

It is easy to give a beat down to companies that are 100 years old and struggling with compeitition today.

Considerable truth to that. I think that size plays an important role, as well. Even though Microsoft is still less than twenty-five years old, it’s probably not nearly as much fun as it was fifteen years ago; of course, some of that has to do with the performance of its stock.

Here in Silicon Valley, many companies of the same approximate age are generally regarded as terrible places to work; Cisco, Oracle, and, to a lesser extent, Sun Microsystems all fall into that category. My own experience includes joining a corporation of approximately 1,000 employees (including Larry Ellison, prior to his founding of Oracle), and leaving after its employment had peaked at about 10,000 and then declined as a result of its shipment of decidedly inferior products. Big organizations just really aren’t a lot of fun, at least for me.

May 10, 2005 - 1:47 pm 22. Inspector Callahan:

The two American automakers are in trouble more because of high price of gas…”

Wrong. Filling up a Toyota Landcruiser ain’t any cheaper than a Ford Explorer.

And if Toyota sold more large-margin vehicles (Ford Expeditions and Chevrolet Suburbans for example), you’d have a point. Alas, this is not the case.

The Japanese companies are seeing their profits increase, while American companies’ are dropping, PRECISELY because of high gas prices. I bought a Toyota because I wanted a good, small car that was good on mileage. And I live in the Detroit area.

TV (Harry)

May 10, 2005 - 1:52 pm 23. Tom Grey - Liberty Dad:

Hey Roger — weren’t you a BIG pro-labor guy all those years (months?) ago?

How many companies will have to go bankrupt because of OLD promises, then, to pay a LOT in the future — which is now?

I think Bush’s Social Security plans to be more of a forced savings will look a LOT better after GM goes belly up because of the “GM pension” disaster.

(Unless they let Marlboro start advertising again, so the retired die a lot sooner.)

May 10, 2005 - 2:17 pm 24. yama-arashi:

I second the thoughts of D, though too lazy to provide more links, increasingly buying a “Japanese” car in America means buying something made by Americans in America. And while Toyota and the others are going after the P.C. crowd to some extent, part of the increase in sales, if I’d have to throw out a theory, is due to more Red State acceptance. 1) the factories are in red States 2) Japan has proven itself a loyal ally since 9.11. (I wonder how Renault is selling in Mississippi.)

May 10, 2005 - 2:28 pm 25. shakespeare_101:

I read somewhere that $1,100/per vehicle price sold by GM goes to supporting union labor benefits. I have also heard that Toyota doesn’t have this same expense for it’s employees because the government picks up the tab (medical, retirement?).

If this is the case then the markets are not equal and Japan is operating with a competitive advantage. Will see if I can search Lexis for details.

May 10, 2005 - 2:33 pm 26. Morgan:

Yama -

My wife recently looked into buying a car with an old American nameplate (Chrysler), now owned by a German company (Daimler), built on a Japanese platform (Mitsubishi), engineered in the US, Canada, Japan, and Germany, and assembled from materials from, oh, everywhere, at a Japanese plant located in the US.

It was a beautiful car.

May 10, 2005 - 3:08 pm 27. Silicon valley Jim:

1) the factories are in red States

True. It is also true that those red states are “right to work” states, in which “closed shops” or “agency shops” are illegal, i.e., it is not possible to compel a worker to join a union in order to work at a plant. Ohio (home to Honda’s American factory) is a right to work state, as is, I think, every other state in which a Japanese or other foreign auto manufacturer has set up a factory. For years, starting in the 1950s (some would apply a different date), it was easier for GM, Ford, and the now-defunct or acquired American automakers to accommodate union demands by mortgaging their futures than to muster the will to confront problems. By 1970, GM, et al, were paying the price in terms of lost market share, caused in large part by inferior quality (I owned a 1972 Vega, and the experience of its inferior quality is seared . . . seared into my memory).

Today, quality is, in my opinion, no longer a problem; American cars are, if not the equals of Toyotas and Hondas in quality, close enough that quality is no longer much of a concern. Cost is now the problem. I recently (probably three to six months) ago read something that said that Honda and Toyota require approximately 20 hours of labor to manufacture a car, while GM and Ford require 25. At $50 per hour (fully-burdened), that extra five hours is a substantial competitive disadvantage.

May 10, 2005 - 3:09 pm 28. Luther McLeod:

“(Unless they let Marlboro start advertising again, so the retired die a lot sooner.)”

Tom Grey, interesting thought LOL, OTOH, http://powerandcontrol.blogspot.com/ scroll down to “Smoke Cigarettes – Live Longer “.

We bought another Honda for my wife a year or so ago, I think it will be our last. Fit and finish, sound deadening and MPG were/are not very good. But then, we got 14 years out of the last pair we owned.

I’m still a middle of the roader on unions. Some are good, some are horrible. But, in the GM/Ford situation I think they should be coming up with their own concessions to offer if they want to keep their jobs.

May 10, 2005 - 3:33 pm 29. photoncourier.blogspot.com:

We had an active discussion over at ChicagoBoyz on the subject “What would you do if you were running GM?”

http://www.chicagoboyz.net/archives/002956.html

Also, my post on the influence of organization design on GM’s future:

http://www.chicagoboyz.net/archives/003111.html

May 10, 2005 - 4:45 pm 30. Kevin P:

Roger:

The problem with many American Labor Unions is they have no idea when the right time to fight is and when they need to take a tactical retreat. Recently there was a grocery workers strike in California. The economic state of their buisness is that there are to many Major chains still operating in the state, especially with the introduction of Wal Mart into the state over the last ten years. When the strike started I talked with one of the strikers and told him that I understood his feelings but that the strikers were going to lose and lose big. It was a long strike, the Union eventually conceded to an agreement that thet could have gotten after 3 days and the strikers, especially the older ones will never recoup what they lost in wages and lost benifits. I am neither anti or pro union but you have to be realistic and not treat the union like a religion. Don’t attack when you don’t have enough ammo.

May 10, 2005 - 5:17 pm 31. jerry:

Cardozo:

It’s not like people have stopped buying SUVs. US automakers are much more dependent on trucks and SUVs for their profit margin. Sales are down because gas prices are up. I am sure the Toyota is selling fewer landcruirsrs these days.

May 10, 2005 - 6:16 pm 32. Buddy Larsen:

Another demonstration of why the dems are getting so isolationist/protectionist. Protect them unions, boys, from those nasty global market forces. Too damn bad UAW has banked on politics rather than economics.

May 10, 2005 - 8:42 pm 33. Sandy P:

I swear sometime around 1985, GM and the other US mfrs. announced they were going to raise prices to compete w/the Japanese.

That was 1 of the stupidest things I ever heard.

US car quality has surpassed German car quality, overall.

May 10, 2005 - 8:52 pm 34. lindenen:

“Too damn bad UAW has banked on politics rather than economics.”

Which is why, if they’re going to make a move against the unions, they need to do it now while they can guarantee a Republican as president.

May 10, 2005 - 9:08 pm 35. Buddy Larsen:

Lindenen, per your comment:

“There is a tide in the affairs of men, Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures.”

–Shakespeare, “Julius Caesar”

This quote leads off a Roger Kimball essay on how to do something about the abysmal political state of the Academy (which is apparently no longer teaching “actual” economics–see GM, Ford).

A federal judge just today ruled that UAL could dump its pension fund on a federal work-out agency, wash its hands, and let the feds pay out the much reduced pension fund–prob. at 70% or so, a news report guessed. This is where GM Pension Plan will end up, unless UAW faces that turnip/blood reality. Or is it the kill-the-golden-goose…such a rich array of aphorisms announce themselves.

May 10, 2005 - 10:44 pm 36. Brown Line:

It was one detail that turned me against cars from US manufacturers: the headrest. I’m 6′6″, and no standard US-built car that I’ve tried (granted, not an exhaustive search) offers a headrest that goes high enough to support my head – in fact, the headrests go just high enough to snap my neck should I be badly rear-ended. OTOH, every car from an Asian manufacturer that I’ve driven, without exception, has a headrest that goes high enough for my head. That detail shows a world of difference in attitude toward the car and the driver: no doubt GM et al. saved a couple of bucks by shortening the stem on the headrest, but they cheapened the product in a way that makes it dangerous for me to use. Which is why I can’t imagine buying a car from a US manufacturer when one from an Asian manufacturer is available.

May 11, 2005 - 6:03 am 37. LouMinatti:

It’s no mystery. Quality, quality, quality. That, and interesting designs.

American cars are very competitive pricewise. But Detroit, particularly GM, cut corners for decades and lost an entire generation of car buyers, people like me. You know what I remember about GM cars when I was growing up? I remember seeing Caddies with tail lights hanging off the ends of 8-inch metal poles because the decorative plastic on the fake tail fins ROTTED OFF after a year or two. Same with the decorative molding around the bumpers. It was weird seeing a heavy chrome bumper hanging off separate from the rest of the car!

Remember the Citation? Came out in 1979, I believe. Remember what they looked like 3 years later? All of them had missing sections in the body panels near the rear and front bumpers, where GM used that plastic crap as a substitute for good steel.

How about vinyl ceiling liners that fell down after a year or two? Remember having to thumbtack the vinyl back up? Lots of people remember that.

And what the hell happened to Saturn? That was a hot division in the early 1990s, and they built pretty good cars for the time.

I don’t blame the union guys. They do what they are told. I blame management. Current management? Can’t say. They were handed a turd and they probably won’t be able to polish it.

May 11, 2005 - 8:04 am 38. jerry:

LouMinatti:

I was waiting for someone to come by and talk about the 1979 Citation as indication of American car quality. I agree that many Americans left the Big Three behind for those reasons and they aren’t coming back. However, lets get real American cars are very well built now. GM and Ford, but not Chrysler, are once again in trouble because of the high price of gas. They rely too much on SUVs and Trucks to make a profit at today’s gas prices. I have no clue why Chrysler should doing ok because they also make their money from big vehicles. Maybe it’s because of all the good work they have done at their design center that a previous poster claims no longer exists.

May 11, 2005 - 11:04 am 39. thibaud:

Brian,

But lets not overlook how much Detroit and Michigan contributed to our modern world. Take a drive through Silicon Valley and then go take a drive through suburban Detroit. Know what you’ll find? They are identical in spirit, focus and approach.

Agree and disagree. You’re right that Detroit was the Silicon Valley of the industrial world during the first half of the 20c. As with high tech’s winner-take-all market consolidation, the auto industry consolidated from something like 200 auto companies at the start of the century to ~30 by 1930, ~8 by 1950 and 4 by 1970. Soon to be only 1 wholly US-owned company: will Ford or GM go under first?

But today’s Detroit suburbs are populated largely by bureaucratic drones and Big Labor’s aristocrats. Any Detroit kid with any entreprenurial spirit would not be caught dead working for one of the Big 3, and lights out for one of the coasts as soon as he comes of age.

Recent examples:

– Steve Ballmer (Bloomfield Hills; Det Country Day School) helped Gates build MSFT;

– Scott McNealy (Country Day School also) founded Sun Microsystems;

– Johnny Fisher (Birmingham, MI; Cranbrook class of ‘79) started Draper Fisher Jurvetson, the heavyweight silicon valley VC;

Other distinguished Detroit entrepreneurs who went east rather than west:

– Ivan Boesky (Cranbrook) nearly cornered the 1980s high yield debt market with Mike Milk’em before discovering prison and the talmud;

– Mlle . Louise Ciccone (Rochester, MI, Ecole des Coups Durs, ‘79) founded her own multi-million $$$ global brand;

May 11, 2005 - 2:39 pm 40. thibaud:

As for the bashing of GM for its generous health care benefits to the UAW, I agree that the system is abused. I fail to see why these folks are required to pay only 7% of their total healthcare bill when the rest of us pay something more like 20-25%. Pfizer, Aventis, Merck et al are raking in millions because GM is picking up nearly all the cost of the little purple pill, the little blue pill, and umpteen other prescription drugs for their UAW employees.

But there’s a bigger picture here, one that’s obvious now to most CEOs of firms large and small. Our health insurance system is broken. It’s hugely unfair that one’s coverage depends almost entirely on one’s employer. So an ambitious kid who refuses to shlep it at the River Rouge plant and joins a small startup gets, in many cases, absurdly priced coverage while his slacker buddies at the UAW get the most generous plan in the nation?!

It’s also massively inefficient: the US spends ~15% of overall healthcare cost on processing paperwork and claims, as compared to only 7% for — get this– Sweden’s system. This absurd, wasteful, unfair system is driving Fortune 2000 firms out of business, and the only path to survival for Lucent and GM and IBM and GE and Ford and Caterpillar and the telcos and any other legacy industrial company is for them to screw their retirees out of their health insurance benefits. That’s not fair, it’s not American, and it is not economically or socially or politically sustainable.

Rick Waggoner is right: health insurance is a national problem, and a national political responsibility. Long past time. Get this back on the national agenda asap. And this time, get it done. No Hillarycare, no FristInsuranceMafia. Just fix it.

May 11, 2005 - 2:52 pm 41. Buddy Larsen:

You know, we have the adults in charge of the Congress and the White House…one would think that solutions are possible.

May 11, 2005 - 3:04 pm 42. thibaud:

Anyone who’s interested in the product strategy discussion should check out Bob Lutz’s blog. http://fastlane.gmblogs.com/archives/2005/04/the_sun_keeps_c_1.html

Many of the commenters are quite smart and knowledgeable, and GM to its credit doesn’t shy away from printing their critiques. Bob doesn’t respond directly, however; he posts and then the commenters fly with it.

May 11, 2005 - 3:07 pm

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