The Difference between GM and Toyota: The Health Care

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China Hand’s got a great post describing the biggest difference between GM and Toyota–the health care they pay workers (or not) in their home country. The argument (click through to read it) that GM had to cede the sedan market is one that accords with discussions about business models I’ve had.

 Some excerpts:

Assume that a bridge loan to help the Big Three weather the downturn is going to happen, perhaps when the current crop of congresscritters has left Washington and the bailout can be hung around the neck of the Democrats and the Obama administration.

Maybe in February, we can have a serious discussion about fundamental problems and systemic solutions.

And the whole debate might not hinge on greedy unions, electric cars, CAFÉ standards, on brain transplants for auto executives.

It should be about national health care.

A key difference between GM and Toyota isn’t unions.

It’s national health care in their home markets.

[snip]

The interesting little secret about Toyota is that, like GM, its home base operations are not especially profitable, even with the health care subsidy.

Japan is an expensive place to have a factory. When bonuses are factored in, Toyota and GM workers both make yearly incomes in the $60,000 range.

Even with massive exports of Japan-built cars, the Japanese operations account for about 1/3 of global profits while posting 50% of worldwide sales.

In the first quarter of FY 2006, Toyota’s home operations brought in about US$1 billion of its total profits of $3.23 billion.

That’s roughly what GM was paying per quarter on retirees’ health care.

Read the whole thing.

Playing Chess with the Chinese

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Last week, I suggested that Shanghai Automotive Industry Corporation might be the most likely GM buyer, if it came to that.

So if GM goes bankrupt in January, as may happen, it may well have to sell itself off (unless the government guarantees the same kind of financing that it is refusing now). And I believe one company is one of the most likely–and indeed sensible–buyers: Shanghai Automotive Industry Corporation, or SAIC, the Chinese company with which GM partners to do business in that country. 

Apparently, the Chinese thought so too.

Chinese carmakers SAIC and Dongfeng have plans to acquire GM and Chrysler, China’s 21st Century Business Herald reports today. [A National Enquirer the paper is not. It is one of China’s leading business newspapers, with a daily readership over three million.] The paper cites a senior official of China’s Ministry of Industry and Information Technology– the state regulator of China’s auto industry– who dropped the hint that “the auto manufacturing giants in China, such as Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation, have the capability and intention to buy some assets of the two crisis-plagued American automakers.” These hints are very often followed with quick action in the Middle Kingdom. The hints were dropped just a few days after the same Chinese government gave its auto makers the go-ahead to invest abroad. And why would they do that?

A take-over of a large  overseas auto maker would fit perfectly into China’s plans. As reported before, China has realized that its export chances are slim without unfettered access to foreign technology. The brand cachet of Chinese cars abroad is, shall we say, challenged. The Chinese could easily export Made-in-China VWs, Toyotas, Buicks. If their joint venture partner would let them. The solution: Buy the joint venture partner. Especially, when he’s in deep trouble.

How’s that bridge loan looking now, Richard Shelby? You want your Japanese manufacturers to be competing against cars assembled in China?

Shorter Mitt: Let the Auto Retirees Starve!!!

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Boy. Mitt Romney let loose one festival of stupid on the NYT op-ed page today. He writes an entire op-ed making prescriptions for the auto industry. But in the whole op-ed, there are just two suggestions that aren’t already being implemented: The first suggestion? Find some way to renege on the pension promises the auto companies have made to retirees:

Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

Unlike that recommendation, his second recommendation is very sound.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Chrysler’s Nardelli may make $1 million a year, GM’s Rick Wagoner makes $2.2 million a year, and Ford’s Mulally makes $2 million a year, plus truckloads of bonuses. I absolutely agree these guys should take a pay cut (and all but Mulally said yesterday they’d be willing to take them–Nardelli said he’d be willing to follow Lee Iacocca’s $1/year example). But it is more likely that these guys will take pay cuts in case of a bridge than in bankruptcy. (Also, some of them have put real limits on executive compensation and benefits already.)

Aside from these two suggestions, though, breaking a promise to our seniors and cutting the pay of top executives, every suggestion he makes is something that at least one of the Big Two and a Half are already doing.

Mitt predictably starts–after spending a long paragraph talking about how his Daddy turned an auto company around–by calling for new labor agreements.

new labor agreements to align pay and benefits to match those of workers at competitors

Which is, of course, what the UAW negotiated. Last year. While wages and benefits haven’t yet been entirely equalized, they will be, probably by 2010.

Mitt’s next idea is to get rid of management–recruit new guys from unrelated industries.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

Read more →

Live Blog of Auto Hearings: Senate Banking Committee

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I was a little late tuning in (CSPAN), so I missed Senator Shelby speaking about how cool his SUVs were, as compared to American SUVs.

Interesting, Jim Bunning (crazy-KY) favors some bailout–so it sounds like he’s siding with this constitutents like McConnell. 

Carper states that a GM bankruptcy wouldn’t be Chapter 11, would be Chapter 7. Also notes that the auto industry has done a lot of the reorganization they’re being called to make now–also mentions the UAW’s concessions.

Liddy Dole (forcibly retired–NC) says it’s all Fannie and Freddie’s fault. There she is! Bust the unions!!

Menendez asks for them to take a responsibility–notes that the climate crisis should not come as a surprise. Slams them for opposing the CA exception on emissions.

Corker (a mix of auto companies-TN) actually comes off as fairly moderate.

Sherrod Brown: We need to help industries that make things.

Allard (retired by choice-CO): says that bailing out Detroit will be unfair to other workers in the industry.

Bob Casey: What is the cost of doing nothing? Invest in American worker. 

Bob Bennett (used to be ew’s boss, sort of-UT): I’m not going to lecture, the Big Three is reducing capacity as quickly as they can. In favor of finding cash to continue. "Hourly workers are going to have to have their contracts renegotiated downward." [Though to his credit, that’s not busting the union.]

Tester: I like iron. I like iron a lot. I had a hard time finding a pickup that was built in the US. That distresses me. I traded off a 2004, I took a loss of 3-4 MPH. That’s ridiculous. [I agree, Tester!!] We’ve got to spend the money in the US–not in Canada. No matter how much money we put forth, if the business model isn’t changed, you’re going to fail.

Martinez: Failed business model. Use the energy funds.

Bayh: Michigan is greater Indiana. We’ve been taking steps, none of which appear in your Econ 101 text book (lists banks, insurance, credit cards, Fannie and Freddie). We should have invested in Lehman Brothers. If we allow 10s of thousands of ordinary Americans to lose their job, it will have unintended consequences, some of them severe. Probably not the right moment in our economic situation to allow that to take place. 

Crapo: We have to use the Committee process.

Stabenow:

I have to confess. Senator Stabenow is a pretty good Senator. But until this point of her speech, I wasn’t convinced. Read more →

Mitch McConnell’s Undisclosed Location

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I’m utterly fascinated by two aspects of the debate over the bailout. First, why it is that reporters repeatedly cite Richard Shelby–the biggest opponent of the bailout–without noting that if GM goes under, the foreign manufacturers making big inefficient SUVs and trucks in his state will get a huge competitive advantage? Carl Levin is presented as representing Detroit, why isn’t Shelby described as representing Detroit’s foreign-owned competition?

I’m also fascinated by the role of Mitch McConnell–with McCain’s electoral embarrassment and John Boehner’s imminent ouster, the leader of the Republican party. McConnell, of course, represents an auto state–a pretty fascinating auto state, in fact, one that has a bunch of union manufacture of American products, as well as non-union manufacture of efficient Japanese cars. So does Mitch lead the opposition to the bailout–and oppose the interests of thousands of his constituents? Or does he support it, presenting an awkward defection for the Republican campaign to break the unions?

Apparently, if you’re Mitch McConnell, you chose option "C," none of the above. Instead, if this article from McConnell’s state is any indication, you hide.

The article cites,

  • William Parsons Jr., who organizes the annual Global Automotive Conference in Kentucky
  • Ken Troske, director of the University of Kentucky’s Center for Business and Economic Research
  • Toyota spokesman Mike Goss
  • Laurie Harbour-Felax, an industry observer and president of the Harbour-Felax Group
  • Kristin Dziczek, a researcher at the Center for Automotive Research in Ann Arbor, Mich

And of course,

  • Sen. Richard Shelby, R-Ala

But no mention of the hometown Senator and the most powerful Republican in the country, Mitch McConnell.

I’ve got unconfirmed sightings of Mitch in a spider-hole in Iraq, but I’m still working to confirm that report.

The Auto Bridge Plan

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Here’s what Barney Frank’s Financial Services Committee is proposing to bail out the US auto manufacturers, using money from TARP.

  • Short-term Operating Plan – The automaker must submit a short-term operating plan that describes the intended use of the loans, including the commitment of resources to develop a long-term restructuring plan and repayment of the loan to taxpayers with interest.
  • Long-Term Restructuring Plan – By March 31, 2009, loan recipients must submit to Treasury an acceptable restructuring plan for long-term viability and international competitiveness, including meeting enhanced fuel efficiency standards and for advanced technology vehicle manufacturing,and restructuring of existing debt. 
  • Executive Compensation and Corporate Governance – All executive compensation restrictions from TARP apply to loan recipients for the duration of the loan plus the following additional restrictions:
    • No bonuses to employees making more than $200,000 (which Treasury will adjust for inflation).
    • No golden parachutes under any circumstances.
    • No compensation plan that could encourage manipulation of reported earnings to enhance compensation.
  • Warrants – Treasury must obtain warrants from each loan recipient (or economic equivalent in the case of a privately held firm) equal to 20 percent of the loan or such greater percentage as may be determined by Treasury in consultation with the Oversight Board. 
  • Dividends – Recipients may not pay any dividends for duration of the loan.
  • Acceleration of Repayment for Failure to Comply – If a company receiving a loan fails to prepare an acceptable restructuring plan, the Treasury can demand accelerated repayment of the loan.
  • Terms of Loans:  
    • Term:  7 years (or longer as may be determined by the Oversight Board). 
    • Interest Rate: 5% for Read more →

T. Boone or not T. Boone

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h/t www.thewindturbines.com/

h/t www.thewindturbines.com/

We have had quite the go lately here at the FDL Borg Hive over the automaker bailout and, more specifically, the most pressing of which is GM. For the moment though, I want to touch on a corollary to the future of the American auto industry, and that is the transition to clean and green that needs to occur for long term sustainability of Deetroit wheels.

If we could flip the switch on a perpetual motion device, heck even the Chevy Volt, tomorrow, that would be wonderful. But we cannot. The path back to health and profit prosperity for American auto will be a process that takes time, and it is going to take intermediate steps while the new technology comes on line, gets refined and evolves into maturity.

The guy, for better or worse, that has been out front making noise about the transition from oil to clean and green is none other than the infamous, and legendary, Texas oil man T. Boone Pickens. Transition is the key word regarding the Pickens Plan as it relates to our topic de jour, automobiles. Because the Volt is not scheduled for release until 2010, and even assuming GM and its Volt makes it that far (which is no given), it will take a while for plug in technology to become deeply rooted. And, of course, a massive shift all at once to electric autos would crash our strapped and deteriorating power grid.

Pickens’ main point on internal combustion transition is that natural gas should be a, it not the, transition fuel for cars, and, more significantly, fleet vehicles.

Pickens’ Plan proposes that the natural gas that is currently used to fuel power plants could be used instead as a fuel for thousands of vehicles. Ken Medlock says that the US will continue to use natural gas for electric power generation. Natural gas burns cleaner than coal, making it an increasingly popular fuel for power plants. Gas plants also produce fewer greenhouse gas emissions.

The technology needed for Compressed Natural Gas (CNG) vehicles such as City buses, fork lifts and passenger cars with CNG drivetrains is available now. Honda sells the Civic GX, with a 170-mile range. In addition, it is possible to convert vehicles to run on CNG in addition to leaving the conventional fuel injection intact, allowing the driver to switch back and forth at will. Kits are available for the do-it-yourselfer. Read more →