General Motors is such a difficult position financially that their auditors have stated that they cannot see how the company cannot stay out of Chapter 11. Chrysler which is privately held and does not have to publish a financial report is believed to be headed the same way. Some experts speculate that Chrysler may be in a worse position.
The likelihood that one of the American brands will gone in five years is high (I think Chrysler will be gone). If it survives another ten years GM will likely be a shadow of its current self.
In the last three days as I have driven in the Washington DC area I have noticed the name plates on the cars around me. In doing so I have seen evidence as to why the American three automakers are in such dire straits. Excluding trucks I saw far more Toyotas, Hondas, Nissans, BMWs, Mercedes, Lexus than all the GM name plates combined. I even saw more Volvos or Porsche Boxers than Chryslers automobiles.
Less than one in six cars were North American name plates. In the mid 90s the American brands would have been about half the vehicles on the road. Sales declines are evidenced around us, but the impact of those declines on the bottom line is not as evident to the general public.
If we go back 25 years ago the automobile workforce was robust and vast. Today, a good part of those workers are retired or nearing retirement. The pool of retired automobile employees is humongous for the American brands whereas the other brands that make cars in North America have few employees. Hence the health care and retire benefits for the American brands are extremely larger than their competitors, and with declining sales of the last decade, those costs represent a growing portion of the vehicle’s sales price. This means that the potential profit margins have become slimmer for the American brands. If the American brands had the same legacy costs of their competitors, their vehicles would be selling below their foreign name plate competitors. Quality differences are not as vast as it was fifteen years ago as several American lines are now being rated amongst best of class.
Foreign name plates do not have the same legacy costs even though they too have a growing retirement pool in their home countries. In Japanese and European brands have lower legacy costs because in those countries have different retirement and health care systems that have enabled their firms to beat the American brands into submission not only by having had a quality advantage for decades but a health care and retirement advantage that allowed them to sell their vehicles more cheaply than the American brands.
In essence, two factors behind the demise of the American automobile industry are the American retirement system and the American healthcare system. The competitive field has not been a level.
Reflective Wanderings - Reflections on various topics that arise out of my personal, life and professional experiences. There are also are some family related news, travels and pictures.
3 comments:
One other thing to note and you touched on it a bit is the bad quality of the 80s and early 90s for the Big Three.
People got burned buying cars that cost them a fortune to keep on the road due to poor quality and the need for excessive repairs. As a result these people are the ones driving Toyota's and Honda's today. Toyota and Honda are among the most reliable cars on the planet and their own product lines have expanded making them more attractive across a wide demographic. Toyota has Lexus, and Scion while Honda has Acura.
Being a car guy I will leave another comment...What can I say, I am bored at home with a sick kid!
My dad had a 2000 Ford Windstar. He maintained it according to the service manual at a Ford Dealership every 5000 miles as recomended by Ford.
At about 60,000 miles everything began to break in it. I believe he told me he put $4500 in maitenance in a single year in it. Then around 70-75,000 miles, the transmission failed costing another couple thousand in repairs. The van had all sorts of electrical problems as well. He replaced it as soon as it was eligible.
My father in law, had a 2001 Ford Windstar with similar problems including a failed transmission at about the same time. It also had the typical Ford electrical problems.
I owned a 1998 Ford E-Series Van and a 2002 Ford E-Series. Both had the same engine. The 1998 sounded much more put together than the 2002. The 2002 developed an engine knock, but the dealer denied its existence. The 98 never had the knock. On the 2002, if you drove on a highway in a rainstorm, the turn signals would not work for 2 days. Again, the dealer was never able to fix it.
My parents had a 1995 Ford Taurus Wagon that the cruise control stuck on me. It was only a year old when it happened and was quite scary! This car also had a freak electrical issue that was never resolved that required us to drive a Ford Escort to Kentucky for vacation. That was not pleasant! I got stuck in the back and Escorts are not comfortable for me in the front seat let alone the back!
I know I am picking on Ford, but that is the brand I have the most experience with. My 2nd car was a 1989 Plymouth Horizon which was a great car the 6 years I owned it.
Currently, I drive a Toyota Sienna minivan and a Chevrolet Express full size van. I am pleased with both of them. The Toyota has needed no mechanical repairs other than preventative maintenance and it has 77,000 miles on it. The Chevrolet has probably only cost me about $700 in maintenance over the nearly two years we have owned it.
I agree with Christian about the dependability of the foreign cars, especially in the past twenty years. Maybe they need to get back to basics - produce a few cars really well rather than so many different kinds of cars that really are so similar in the end but are just made by another division of the company.
I also agree that retirement benefits are a factor, altough this factor influences not just the auto sector. Supporting us baby boomers in our golden years is already a challene, never mind when we get on te elderly side of life. Financially this huge bubble in the population has been the most influencial sector in the population since we were born on many aspects of life. For instance, the number of schools that were built through the 60's and very early 70's to support the number of children through education was enormous and many of these schools are sitting empty, or close to empty today and have been closed or are under threat of being closed. Through the years Canada has hoped, and depended on, new immigrants would fill the gaps left behind to support our aging population. Unfortunately, I am at the tail end of that blip and wonder if very many of the supports that were put into place will be left standing when I retire. I have a feeling I will be continuing to work, especially since some of the benefits are already being scaled back and thte government has been talking about for a few years now about raising the CPP (Canadian Pension Plan) to 70.
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