May 8, 2009

Buying a GM? Think first.

Are you in the market for a car? Would you buy GM right now knowing it is seemingly being run by Barack Obama? The government can't even get the post office right, imagine how badly they'll screw up a car company. Not to mention the fact that getting Rick Wagoner to step down as CEO of GM is heavy handed autocracy on the part of the Obama administration. That's not what America is about. America is about allowing businesses to decide their own fate, free of government interference. That would include providing bailouts, by the way.

Would you buy a GM knowing that it is still suffering under the weight of the crushing legacy costs of UAW pensions and a crippling competitive disadvantage of fully loaded wage rates that will still take time to address despite the re-negotiations?

Don't believe it? Blogging Stocks points out the reality;

For both GM and Chrysler to receive any more federal aid, it was mandated that wage parity had to be reached between the two companies and the U.S. operations of their foreign rivals. Instead of a $70/hour figure for compensation, insurance and fringe benefits, wages would have to approach the $50/hour level.

Indeed, Ford's latest contract with the UAW puts it close to the $50 level, even though Ford has not taken federal bailout money yet. So, it took the impending collapse of the U.S. auto industry for this change to come? If you don't think unions have power in U.S. industry, think again.

With UAW workers making $28/hour at all three U.S. automakers (just base wage), newer workers that are hired to replace retiring ones only make half that. Still, with benefits, foreign companies like Nissan and Hyundai's U.S. operations pay $30/hour and up -- and Ford or GM's entire workforces won't retire overnight. For unions, labor concessions are only the start. Welcome to the global stage, fellas.

And what about those legacy costs? Pensions and benefits for retirees? From the New York Times the following Ford graphic shows the before and after situation, but notice the 20% new workers required to get to that smaller cost. That means the new cost per hour of labor isn't instantaneous. Taking the pensions and retiree benefits off the books will help. But recovery around the corner is still a ways away for Ford and GM (and Chrysler too).

There's an interesting take on it at 538 that argues it isn't a liberal versus conservative issue, it's a today versus the past issue. That's true from the sense the root cause - the UAW and management in the past were willing to kick the can down the road. But the solution can be addressed in a free market way or a government interventionist way. That's where the discussion becomes contentious. What makes anyone think the government wouldn't also kick the problem down the road like it has with Medicare, Medicaid and Social Security liabilities? In fact by offering bailout money the government already has kicked the can down the road.

Back to my initial question - Are you in the market for a car? Would you buy GM right now knowing it is seemingly being run by Barack Obama?

Or would you buy a Ford? The company who did not take bailout money and negotiated the wages down anyway. The company that took steps to prevent a need for potentially filing for Chapter 11 bankruptcy. A company that's trying to be ahead of the curve on the problems the industry is facing.

Or would you buy a Toyota or Honda? As Americans have been doing ever increasing percentages over time. They make what is perceived to be better vehicles, because in the 70's American manufacturers produced a lot of junk. The way back for Ford, GM and yes Chrysler, is not only cutting uncompetitive practices and costs, it's also about rehabilitating their product and their image. They need people to want to buy their product, or even just to consider it as an option and have a reasonable shot at their business.

America is still a democracy. Just because there are no elections, doesn't mean that you can't vote. You can vote with your feet and you can vote with your wallet. And that seems to be what a lot of Americans and others worldwide are doing.

But that ignores that America is the land of the automobile. It ignores that Chevy is like apple pie. It ignores that America has smart engineers and good workers. Do you want to throw all that away because of mistakes that were made and corners that were cut 30 years ago? Or do you believe America can still make cars as well as anyone else? Do you believe that GM and Ford are salvagable?

Do you believe in buying American? Because you can vote with your feet that way too. If you hate government intervention you can still buy Ford. If you don't care but want American manufacturing not to continue dying a death by 1000 cuts, you can buy Ford or GM.

Or you can not care and buy what's best for you and/or your family. That's the American way, and the way of Adam Smith's Invisible Hand.

Those decisions are your own. It may not be a simple call. Weighing what's good for America long term versus what's good for yourself immediately isn't easy to measure. Consider though, that what's good for America long term should be good for Americans long term too. I wouldn't presume to tell you what's best for your own personal situation. That would make me a liberal. I'm just saying an informed decision is always better than a rash one.

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