You’ve probably seen all the announcements about Ford’s recent record-setting performance. They managed to cough up $12.7B — that’s the big “B”, folks — last year. This is tempered only by GM’s $10.6B loss last year (“all the kids are doing it, Mom!”).
I don’t know about you, but the first few times these staggering numbers crossed my desk, I managed to brush them off. For one thing, $12.7B is large enough to go into my mental “Federal deficit” bucket — the number’s just too big for any kind of normal comprehension. After you cross the billion dollar threshold, I start to get a little glassy-eyed. Maybe we should measure Ford’s loss in Gates’ — as in, “Ford lost a quarter of a Gates last year.”
The other problem I have with these numbers is that it’s just way too easy to chalk it up to Ford’s management just having been numskulls last year. “Get your head out of your ashtray and build a car that people want,” or “build a car that doesn’t fall apart on its way out of the dealer’s parking lot.” Easy scapegoat.
But it turns out the problem isn’t quite that simple. Take a look at this article from CNN Money. This is a great introduction to the hole that our big-three automakers find themselves in. The article points out that our nation’s automakers are giving away a $2900 handicap per car to foreign rivals. Of this total, the biggest hits come from labor costs (especially health care), a weak dollar, and a negative brand premium.
So here’s where this article started to get really interesting. The blame for the brand premium problem falls squarely on the shoulders of the bean-counters in Detroit. These people are every bit as capable as any other business executive of reading the tea leaves. Gas is going to jump every time the weather is colder than normal, or warmer than normal, or windier or rainier than normal. Gas is going to jump any time anyone hears any loud noise coming from the general direction of Mecca, or if a camel does his business on a pipeline. Any auto executive that doesn’t get this should be stood up in front of Donald Trump — end of story.
Same thing goes for styling. As in, get some.
But the rest of their problems — who do you blame for those?
How about health care costs? What, *exactly*, is it going to take before our government collectively gets its act together and starts to make this better? Our health care problems clearly affect every aspect of our nation, including its overall economic performance.
How about labor costs? Most people have heard the quote, “What’s good for General Motors is good for the rest of America”, attributed to GM Chairman Charlie Wilson in his 1955 appearance before the U.S. Senate.
In those days, GM was considered invincible. The extent of their power and dominance was even greater than Microsoft’s today, in part because of the big-capital, industrial nature of their product. They kept a whole lot of other businesses churning away, and this effect was very visible. You see a big factory cranking out steel a lot easier than you see the impacts of computer software.
The big automakers, then, tended not to get a lot of sympathy when the UAW came knocking. Contracts got bigger, workers gained protection, and pension funds were established. Now, of course, these decisions have become gifts that just keep on giving.
I have a feeling that there aren’t too many executives at the big three who were around in the 50’s. And once that ball got rolling, I can completely imagine that it was hard to slow it down.
Who do you blame?
Do you blame today’s executives? Who’s going to be the one to go toe to toe with the unions and weather a long, dry strike?
Do you blame the unions? Which union leader is going to go back to his guys and say, “Yeah, so it turns out we’re asking for way too much from them. We’re going to end up with no jobs at all if we keep this up, and we’ve got to reduce our costs.”
I wouldn’t want to bet on who’s going to blink first.
What about the weak dollar? It turns out this is effectively a subsidy for foreign automakers to the tune of around a grand per car. No matter how good our automakers get, they’re at a thousand-dollar disadvantage.
Who do you blame? Again, the problem here isn’t GM or Ford. It’s an international economic and political issue for the United States, and the solution has to come from Washington.
What if GM and Ford are the canaries in our coal mines?