America's Other Auto Industry | Hacker News Reader

America's Other Auto Industry

online.wsj.com

I don't think it is fair to blame unions for Detroit's problems. A union's motives are clear: to maximize income of its members.

The fault lies with management. They agreed to terms with the unions that have made it impossible to run a profitable business. The writing has been on the wall for a very long time. The pension and benefit issues have not silently crept up in the last couple of years. It has been an issue for decades.

So now Detroit is screwed. Their only outs are to default on the pensions they legally owe or to have taxpayers cover their debts.

Repayment on a loan isn't realistic when their cost structure is so screwed up. A loan now will only delay the inevitable.

The only realistic solution is for the automakers to declare bankruptcy, allowing the courts to decide what to do about their obligations.

Are you at all familiar with the UAWs negotiating tactics? I worked at Ford (in systems) many many years ago. I ran the IT and plant-floor systems operations for a now-defunct Ford plant (Dearborn Glass). This was about 14 years ago, for reference sake.

As a sideline I was also building and selling PCs to various coworkers, including a lot of fairly high ranking UAW negotiators. As such, I would go to their houses after hours to fix various user-inflicted issues, we would have a few beers and get to talking... Let me just say that there was little room for "management" to negotiate in the grand scheme of things. The majority of the demands by the UAW were completely unreasonable and unscalabe, and underneath it all they knew this.

Your first sentence is correct in that the UAW seeks only to increase its membership and payroll, but they go about this in a very non-beneficial parasitic arrangement. I am not saying that management is/was all saints either... But when I had to almost physically drag a forklift operator away from a poker game to move something, or witness a guy whose sole purpose for being was to make sure the "knobs" (thing the rear view mirror attaches to) were properly installed on finished windshields (he managed to do this job while simultaneously reading the paper) something was clearly wrong.

The non-American automakers really had to make only 1 critical business decision: keep the UAW out of the factory.

I don't think tactics are relevant. Management had a choice at each negotiation:

1. Stand Firm and accept a strike.

2. Cave, agree to something clearly not viable and let someone deal with the problem in the future.

Option 1 doesn't make management look too great -- the were likely concerned for their jobs. This is why they took option 2 with the hope that the 'future someone' would be the government.

Let's keep in mind that the automakers are not profitable and have not been for some time. Long term, shutting down is generally preferable to operating at a loss.

As publicly traded companies, the management is beholden to the stock holders and are (in essence) required to act in the manner that most increases stock value. Wall Street is notoriously short sighted and will ALWAYS prefer short-term moves over long-term moves. Therefore, accepting a strike for the greater/future good would have only decreased the stock value and resulted in a massive management turnover.

BTW, while I worked in Ford Systems, my wife worked in Ford Finance. I'm pretty familiar with most of the inner workings at Ford and can tell you that your assumptions about the available options are not very accurate, although I can understand why you might think that way.

I'm not sure about your statement of profitability. Ford had a profitable Q1 this year, and it's last full profitable year was as recently as 2005 (just under 3 years ago). "Profitable" can be very open to interpretation, although they have been losing marketshare for quite a while, they have not been unprofitable for a significant amount of time when you look at the bigger picture. Not sure about GM or Chrysler.

I don't think Ford was "Profitable" in 2005. To be profitable you need to reduce you income by all liabilities you are adding in the future such as pension and heath care. They have been cooking to books for so long it looks like they only recently got into trouble, but an under funded pension is just as much debt as any other loan even if it takes a while to come due.

Well, according to their SEC filings they were profitable in 2005. You can argue the point ad nauseum if you like, when they move billions of dollars in cash there can be a lot of room for interpretation at times.

As a side not: the big automakers' suppliers often have very similar complaints against the automakers. unreasonable, unsustainable, short sighted, they'll take the whole ship down.

Very true. They usually require some sort of annual cost-down from their suppliers, even if operating costs, material costs and labor costs are rising.

It's not uncommon for a big auto contract to be the thing that puts a small supplier out of business.

[the 12 "foreign" producers] can switch their assembly lines to different models in minutes.

That's pretty impressive.

Ford's plant in Brazil can do this too:

http://info.detnews.com/video/index.cfm?id=1189

is it normal for an article like this one to appear without an author credit?

Yes.

It's an editorial. It reflects the views of the editorial staff of the publication in question. Sometimes one editor is chosen to write it, sometimes it is more of a group effort (such as when a paper endorses a presidential candidate)

Yours is an interesting question. This is a common feature in printed newspapers and has been for decades. It might be good for online versions of newspapers to explain things like this, because today many online readers are not exposed that much to the print editions.

Thanks, I figured it was something like that.

It feels very weird, in the extremely personal medium of the web, to attribute a voice to a newspaper; Steve Waldman (see?) wrote about something related this morning: http://www.interfluidity.com/posts/1228128707.shtml .

Yeah, exactly.

Here is a who page for wsj editorial staff right now: http://www.opinionjournal.com/about/whoweare.html

Are companies considered "American" if their profits are shipped to another country? If their design, business strategy, and engineering are done places other than America?

Or is that simply considered, "modern?"

As the article hinted at, part of that question rests on ownership. Profits "shipped to another country" are ultimately the property of the shareholders. If all of the shareholders are American, then the profits get shipped to Japan and then returned to America in the form of dividends and share buybacks. There are legal issues, of course, regarding taxation and jurisdiction, but it does make you wonder. There are plenty of companies in Panama (et al) which the US Government would like to have enough evidence to prove are American owned...

There are a lot of people who will take pains to tell you that their foreign auto was "built" in America.

There's a big difference between assembled from foreign parts and manufactured in America. Now even the Big 3 have foreign parts in their cars. But the foreign manufacturers bring over their own suppliers and a much higher percentage of their cars are not made in this country.

A high percentage of the sales price of that foreign assembled car you buy is sent to the parent overseas. When you consider that each dollar is multiplied five times thorugh the economy with an automotive purchase we have exported a large chunk of what used to be part of this country's economy.

Buy what you want but please don't kid yourself into believing you're purchasing an American manufactured car when you buy a foreign make.

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