What killed the auto industry?

IF YOU believe the Motley Fool and other "stock advisors" in the business press, 90 percent of GM's losses can be attributed to the United Auto Workers (UAW), which accounts for 10 percent of a vehicle's cost.

The UAW's disproportionate responsibility for the automakers' unprofitability is based on the same sort of accounting whiz that led GM to claim they lost $39 billion in November 2007 due to "deferred tax credits."

Thanks to corporate welfare, GM accumulated more tax deductions than they could take in a year. So they deferred the tax deductions and booked them as an asset until the asset got so fat it attracted the attention of auditors who asked--"quote unquote"--What the f##k is this?

Rick Wagoner was quick to assure the fools not to puzzle their pretty heads. The $39 billion wasn't actually a loss of cash, he said... merely an accounting gimmick--a fancy--like paper wings. The fools refer to compensation like pension and health care as "welfare," despite the fact that unlike "deferred tax credits," the compensation was earned by productive labor. It's no wonder the fools are having trouble figuring out what part of GM is losing what, and how much, and why. They ignore the obvious and thumb their noses at analysis. For example:

-- GM sold 4.4 million vehicles in the U.S. in 1992 and employed 265,000 UAW members.
-- GM sold 4.5 million vehicles in the U.S. in 2007 and employed 73,000 UAW members.

A company can't make productivity improvements as astounding as that and lose money on labor.

SINCE GM sold as many vehicles in the U.S. in 2007 as it did in 1992 and employed 192,000 less UAW members, profits should be way up by any accounting standard. Unless, of course, profits were siphoned off into investments overseas, dividends, bonuses or unaccountable black holes of financial rigamarole. (In 2005 GM paid Fiat $2 billion dollars to get out of a "put option" that would have required GM to purchase Fiat.)

GM sold over 9 million vehicles worldwide in 2005, 2006 and 2007. If GM lost money on sales that enormous, Wagoner wouldn't have been awarded a $23 million payoff. He would've been put up against the wall and shot. What does the Board of Bystanders know that we don't know?

continued here: http://socialistworker.org/2009/04/20/what-killed-the-auto-industry



The auto "bankruptcies" are a massive fraud, con job - on the workers & the country.

WITH THE threat of bankruptcy hanging over General Motors and Chrysler like a sword, the federal government is giving the United Auto Workers (UAW) a choice: Do you want to cut off your own legs, or would you like us to do it for you?

...To get some idea of the scale of the assault, consider GM's own forecasts of what it expects to gain from negotiating new cuts from the UAW.

GM expects to lower its hourly employee costs from $7.6 billion in 2008 to $6.5 billion in 2009 and $5.4 billion in 2010. But hidden in these numbers is the slashing of benefits paid to retirees in the form of pension and health care payments--known as "legacy costs."

In 2003, GM had $18.4 billion in hourly employee costs, including $5.7 billion in legacy costs. By 2010, GM expects that its legacy costs will be less than $1 billion, and by 2014 as little as $100 million.

So in scarcely more than a decade, GM hopes to eliminate 98 percent of the benefits it pays to 1 million UAW retirees and their families, who expected that for 30 or more years of back-breaking labor, they would receive a livable pension and health care coverage after retiring...

http://socialistworker.org/2009/04/06/autoworkers-get-the-stick


Note that GM took in 178 billion in 2007. Houly "Legacy costs" are a small portion of their cost picture, contrary to the impression one gets from the MSM.

and worldwide sales fell by over a million, with most of that in the US.

Not that they're angels, but sales did fall mightily and the "labor" costs they complain about most are the retiree costs.

accounting loss, but widely trumpeted as demonstrating what bad shape they were in.

GM reports $38.7 billion loss in '07 - Los Angeles TimesFeb 13, 2008...

The massive yearly loss was foreshadowed in November, when GM announced a ... Indeed, worldwide sales for GM increased 3% in 2007, ...
articles.latimes.com/2008/feb/13/business/fi-gm13 - 43k - Cached - Similar pages

I don't doubt what you're all saying: They're maipulative and greedy and dishonest, of course.

But can a company sell cars if it's known as a failed company?

I would have bought an EV-1 if they had offered it, but as I recall, they crushed them, and then ground them up into little chunks of metal and plastic when they implanted their boy into the California Air Resources Board.

bets on mortgages.

they gained market share everywhere but in the us.

they didn't lose money on their auto operations, or even on their auto finance operations. they made about 500 million.

"restructuring charges"

The headline screams "15.5 billion loss" 2nd qtr, but when you read the article, turns out all but 6 billion is accountancy bullshit.

http://74.125.155.132/search?q=cache:C65O8-c4w8MJ:money.cnn.com/2008/08/01/news/companies/general_motors/+gm+lost+billion+2008+restructuring&cd=1&hl=en&ct=clnk&gl=us

Their 2008 annual report isn't out on their website yet, but I have no doubt that once it's out, I'll find a partly real loss due to the downturn r/t oil/gas costs & financial crisis & a bunch of pink elephants as well.

ps: every one of the big 3 lost money in 2008.

Big, Big K&R!!

Thanx for posting, Hannah!!

I posted about GMs phoney 38 billion tax credit "loss" several times here.

No one ever commented on it, they just kept babbling about how GM "lost 38 billion dollars, what don't you get, they have to cut costs!"

He's the only commentator I've *ever* read that noted it.

It's almost like there was a conspiracy to deceive the public.

Mr. Shotwell's website

http://www.soldiersofsolidarity.com/index.html

His "Live Bait & Ammo" columns are available there too.

They wanted our social security under Bush to prop up their worthless stocks. They didn't get it so they are raiding the Treasury now with bailouts.

I've told my personal story about it on DU before, so bear with me.

When I was a college graduate, I interviewed with the "Big 3."

Not only was my motive a good paycheck, they were hiring women as executives for the first time and in fact I was the first female executive ever hired by any of the Big 3.

But my motive wasn't just a good paycheck: it was that all my life I and my family had had American cars that never worked. I was mystified as to why they couldn't make a car that...worked? I decided a working experience in a car company might tell me the answer.

At that time the Japanese were rolling out cars that actually worked, so that told me it could be done.

So I worked in the automotive field for a few years and was shocked at what I saw every day. The upper-level execs were bull-headed and would listen to nothing.

The management--upper and middle--were stupid. On my first day in distribution I overheard a call come in from a truck driver who drove straight into an overhead bridge, shearing off the tops of some cars. How dumb is that? And they acted like it was no big deal.

The employees who had been around for some time were like walking zombies because they were so sick of the policies and joyless quality of the work. One in particular walked around with a hunchback and a frown permanently etched on his face. He had been there 30-years.

We would tour the auto plants and it was literally a physical risk. The autoworkers hated the executives so much they would set "accidents" up so the execs would be injured on their tour. I almost took a motor to the face--it came swinging at me and another exec on the tour pulled me out of the way just in time.

All they ever thought about were the short-term sales. Every 10-day report was a nightmare of getting the sale of every last auto you could turn in.

So are you getting the picture of a hellhole of stupidity, poor planning, and lack of common sense?

Oh but the pay was great and the perks were, too. Great insurance, spiffs, all sorts of things. I had a new car every couple of weeks.


Cher

http://www.nytimes.com/2009/05/24/magazine/24labor-t.html?pagewanted=1&_r=2&ref=magazine

And this quote in particular..

As it happened, in the spring I landed a job as executive director of a policy organization in Washington. This felt like a coup. But certain perversities became apparent as I settled into the job. It sometimes required me to reason backward, from desired conclusion to suitable premise. The organization had taken certain positions, and there were some facts it was more fond of than others. As its figurehead, I was making arguments I didn’t fully buy myself. Further, my boss seemed intent on retraining me according to a certain cognitive style — that of the corporate world, from which he had recently come. This style demanded that I project an image of rationality but not indulge too much in actual reasoning.

Edited for speling.

I read that article (great article--one of the most emailed and has been for awhile)and thought the same thing.


Cher

- the US market.

Funny how they can make fuel-efficient cars - in Europe: where they have about 9-10% of the market.

http://www.indiacar.net/news/n10945.htm

You know what the *great* toyota has there? less than 6%.

http://www.reuters.com/article/GCA-autos/idUSTRE5216MZ20090302

funny, since toyota "knows how to build cars" & those stupid gm folks don't.

it's almost like they've divided up/cartelized the global market so as to hold down labor costs *everywhere*.

Sorry for your experience in a plant, but there are places you cannot be when the line is moving.

What you write is symptomatic of all American manufacturing, not just the auto makers. In "classless" America, management, who never get their hands dirty, have set themselves above labor, who have to claw among each other to get their just reward, while still producing a product. Management come from business schools, where they learn the theory of finance, while labor comes from sons and nephews of current workers who need a steady paycheck. It's not that management is stupid, they just don't care. As long as labor will turn out a product that is worth quite a bit more than the cost of materials plus their wages, management will skim the profit and while away their time playing office politics.

It goes both ways, since if you are an exempt worker, the non-exempts treat you as if you have no practical knowledge at all. They look at your design or plans, and then do exactly what they have been doing, since you couldn't possibly know how things are supposed to work.

This is all the end result of the American view that competition brings out the best. Set labor and management in competition with each other and watch as the best of both worlds comes to pass. Except that it doesn't work that way. Both sides end up looking like a boxer's face after a 15 round decision -- beaten, sweaty, cut and bloodied. This is where the socialist notion of decision by building a consensus would work better in the long run.

as a lowly hourly factory worker was around $12,000 a year. I could buy three new pickups a year. Today my wages wouldn't even buy one pickup a year. You tell me what the problem is!

for the big automobile companies, You'd think my employer would have payed high enough wages so we could buy his product, but. . .

Today, if you want to buy any kind of a vehicle for family traveling, you have to plunk down over $30,000. That price is so far out of proportion to where wages are you have to borrow the money and make payments over a six year period. Before the end of the six years, the vehicle starts falling apart and you're putting thousands of dollars into replacing parts, tearing the engine or transmission apart or some other major expense. And they don't make these cars so that you can do some of the maintenance yourself. We have a minivan that requires removing a bunch of equipment and lines just to replace the battery! So guess what? You have to take the damned thing to a technician and pay that person around $80 an hour just to replace your battery. This used to be something I could do on my own in less than 10 minutes.

The auto industry just doesn't get it and that's why they're in the mess they're in.

employers have been ramming down the working mans throat over the past 30 years.

When the union and company get together to negotiate a contract, there is just so much money on the table. So the union has to decide how much to ask for wages & overtime, and how how much for medical & pension. So the later isn't "philanthropy, it's money that could have gone directly into the paycheck rather than "deferred payment".

So suddenly those CREEPS are no longer obsessed with the "Sacredness of Contracts"! WHY am I NOT surprised?

pnorman

is now on the brink of bankruptcy.

Things like that don't happen because of "high wages" and "retiree costs". As I've pointed out in a past journal entry, the average American wage in real dollars hasn't risen since 1979. Subsequently, the wages of the upper 5% have risen anywhere from 29 to 144 percent in that same time period (depending on where one is within that paradigm).

And as you pointed out, they sold the same amount of cars in with nearly 1/4th of the American labor. Could it be they're using the slave states to save a buck or million?

We cannot really blame supplier costs either. I worked for a middleman supplier to the Big 3 once. Most of our products in our warehouse were shipped from South Texas border cities, Mexico, Guangzhou and other assorted Chinese cities and Japan. They're likely getting their raw materials imported or assembled overseas.

So where did all of that money GO?

Seems to me the "Mark of Excellence" turned into the "Mark of Chicanery". And the workers are unfairly getting the blame.

we are stupid dupes. the whole storyline is phoney.

The past few quarters may have been bad for the auto industry, banks, etc., but what happened to the profits of "1.5 billion in the third quarter," "2.2 billion in the fourth quarter," etc., that were common in the past few decades?

I agree, what did happen to the profits? Would it not be a great book for someone to write to actually divulge the mystery of the folw of money from one of the biggest parts of the US Ecomonomy for many decades after WWII?

Or is it still a "Trade Secret"?

I wonder when you will be accused of hating the UAW and American workers?

The big 3 pretty much shot themselves in the foot by going for big profits on guzzlers by influencing congress, and by shutting out the competition in collusion with big oil also by influencing congress.

See Who Killed the Electric Car, and get a perspective, if you've been missing it, on how our national security has been compromised by corporate greed and monopoly and stupidity.

killed the big three. they made crappy products, so people went to the japanese cars and never looked back

Except that you need a special tool to get the sepentine belt off, and take the front right tire off to get at the alternator.

However, 120,000 miles on the thing, and it only needed a new front end, a new alternator, and one set of disk pads so far, along with 3 sets of tires.

Oh, did I mention that they discontinued the Taurus, then brought it back when they realized how dum that was?

Too bad they had destroyed the tooling they used to manufacture these adequate vehicles, and the following product was a pig.

Still, I think it was too expensive for what it is.

I went to a junk yard a few moneth ago looking for old Taurus' to scavenge parts from (Plastic stuff and trimn that wheres out), and I was surprised to find only 2 in 10 acres of cars. Considering that the Taurus was a fleet car for many years, I found this remarkable.

Ah, but this was 'fringe' talk, not so long ago, not now.

The only force capable of opposing capitalism is socialism, half measures are futile.

Part 1: 265,000 UAW members in 1992 could afford to buy cars. In 2007 that number was 73,000 -- that means 192,000 families were no longer getting money to buy their own products.

Part 2: Short term thinking -- if you purchase stuff from overseas, that is more people who aren't going to be paid 'locally' and won't be able to afford your product.

Part 3: Legacy costs (for health care). We don't have single payer, so the auto companies hit a point where the bottom line is 'we're better off with them dead.' Its not personal; its business, and its one of the *many* reasons Single Payer is the way to go.

Capitalism by its very nature must be a mutually beneficial arrangement: people supply products that other people purchase. As soon as you destroy one part of that equation (by creating a situation where folks can't AFFORD to purchase the products you produce), it all goes to hell in a handbasket.

At the same time, you can't just pay folks to stand there and look pretty; the idea is that people make valuable contributions, or they don't get paid. Obviously, executive salaries have gotten seriously out of whack, with folks thinking they are worth millions, when they really aren't.

I, however, am worth A LOT. And my common sense analysis should result in a nice hefty bonus. Check, please! LOL!

I always find it hilarious when someone doesn't understand it himself or herself and therefore declares it must be "unaccountable black holes of financial rigamarole." That's sort of like saying, "I don't understand, so it must be very, very bad."

The "loss" of $39 billion in tax credits is neither an actual cash loss, but neither is it "just" an accounting loss.

It's really a projection about profitability.

GM had losses in certain years. When you have a loss, and you don't have profits to deduct the loss against, the Treasury allows you to "roll over" your loss to the next year, or for a few years. You can apply that loss against future profits. But if you accumulate these tax loss deductions and don't have profits, then the deductions expire. You lose an asset.

So let's say the business tax rate is 25% (making the numbers easier).

Year 1: profit=$100. I pay $25 in taxes. After tax income = $100-$25=$75.

Year 2: loss=$100. I pay $0 taxes. I have zero after tax income

Year 3: profit=$100. I would pay $25 in taxes, but roll forward my tax loss of year 2. Pre-tax profits = $100 - $100 = $0. I pay zero taxes. After tax income = $100.

So in year 2, I book that deduction as an asset because of the amount of taxes it will save me.

But if I accumulate year after year of losses until the deductions begin to expire and I have no prospect of profits, then I have to write off the deduction as the loss of an asset.

said: stored-up government-granted tax credits booked as an asset then taken all at once to produce a loss.

Fact is, there was no real loss; in fact, there was a $500 mill profit in the automaking division.

Learned one, please explain the following fallacy to those of us incapable of understanding.

"It doesn't require a degree in economics to figure out that workers making $14 per hour don't buy new cars. They don't buy homes, and they don't invest their savings in the stock market. They live paycheck to paycheck. Restricted income leads to boycott by default. The economic blowback won't end with the Detroit Three."
http://socialistworker.org/2009/04/20/what-killed-the-auto-industry

That's what did it.



Our international trade policy (globalization) left the Big Three vulnerable to unfair global competetion. Competetion who's home countries DID protect their domestic industries against the Big Three.

Our US domestic monopoly policy (mergers are great!) allowed the Big Three to consolidate until they became uncompetative, unresponsive, un-innovative, bloated companies. Foreign countries, in contrast, kept their domestic industries diverse and competative, resulting in a cut-throat environment of economic war within each industry.

Our US health-care policy bloats health-care costs. Other nations have national non-profit health-care systems which keep their employees healthier and don't cost the companies any money or bureaucracy.

Hope you dont mind me reposting at:

http://watercoolerwars.blogspot.com/

customers will tell you whats wrong with your product - either when they return it or just don't buy it in the first place

Really amazingly bad management.

It has nothing to do with the unions; it has everything to do with management and the failure of management to think into the future.

And it has nothing to do with the banks.

"good management" for someone's interests.

Clearly, the long-term welfare of the company was not primary.

And screw everybody else, including the companies they pretend to "manage".

Much of the ascendancy of the asian automakers can be attributed to selling high quality, sporty and affordable cars to young people during the years they are forming their brand loyalties, while the domestic offerings in this realm have been disappointing for a generation.

Its 1986, your a cool young dude buying your first car... are you going to buy a Honda CRX or a Chevy Citation?

And for the sake of argument lets say you bought the Chevy Citation... its now 1988 would you ever buy another Chevy or would you set yours on fire in the dealers parking lot?

:grr:

and the wilingness of the US "government" to help them do it.

If we accept the premise of the OP's source, that GM's massive losses are all a giant scam, that implies that almost every auto company in the world is running the same scam because they're all LOSING MONEY. GM, Chrysler, Ford, Nissan, Honda, and even Toyota are all being hit with losses.

8 years of failure, gotta expect it.

And they occurred at several levels

1) National - Free trade became unfair trade. Jobs and industry all across the nation moved overseas to areas where worker rights, environmental laws and of course general human rights are not practiced. In addition, it became rather obvious that the Federal government has taken the opinion that Corporations are somehow more worthy citizens than the middle class.

2) GM itself - GM started going downhill in quality and innovation when they became more interested in finance and banking than cars. Most of their energy was spent in trying to use their auto side to maximize profits on their banking side. At that point almost everything mid-long term such as re-investment in the auto side became an unnecessary expense or something that could be "deferred".

This recession is really nothing more than a storm which is revealing just how rotten the tree really is.



L-

... the business schools who protected their ideological empire against the innovation and design preferred by engineers and environmentalists.

Neither group could look past the comfort of their own personal guaranteed money maker.

& stupidity. Hatred of those who think outside of 'the herd mentality'. They NEED to restart the EV1 & go all the way back to horse carriages as the gas cars did. When you have horses you get them tired, so coaches were lighter. I already said a few months ago that the Towe Auto Museum has a small collection of electric cars; there was a blue one there with a "tiller" instead of a wheel to steer. 1916, electric, think about that for a moment. Electric cars mentioned in F Scott Fitzgerald novels-from the 1920s.

Put ALL trucks & suv vehicles into a special Big Vehicles Only, I hope that would silence the nasayers. SUV rolled over pretty easily, killed that woman from the music group TLC. Countless studies on how those vehicles had the tendency to tip-leaving only 2 wheels on the ground. & finally, HOW can an SUV be good for traveling on unpaved roads WHEN THEY ONLY GET 12-18 MPG?

Manufacturing of any kind is a long term investment.

Compensation (bonuses) are typically based on short term returns.

Seen in this light, their decisions were simple if not unethical.


Electric cars (EV-1) vs. More of the same.

R&D can take a lot of money and years to see a payback.

adding new product lines (such as electric cars) is also time consuming and expensive.
* Big marketing campaign
* Re-train workforce
* Re-train sales people
* Re-train Technicians

It was probably cheaper to crush the cars than to train and equip their mechanics to service the ones that were left.




SUV's vs fuel efficient cars

Originally, only the Big 3 have assembly lines were wide enough to make full sized SUV, since there was less competition, they could charge more and get more profit.


UAW Legacy costs

Without picking sides, UAW legacy cost were mounting for decades, Instead of dealing with it when it was smaller, they just kicked the problem down the road, again, this helped short term profits.



They have finally gotten to the point where there are no more short term profits, and this is when they have finally started to react.

the minute unions took hold the powers that be began working on how to kill them forever in the US. The beacon of light that was briefly America has to be snuffed out in order for the top tier of world power holders to effectively exploit the world.

some lady on a talking head ews show said the auto indusrty was the victim of the same "live beyond your means" mentality the housing industry had adopted. :shrug: