Monday, November 21, 2005

"Downward Death Spiral"

I’m quite torn on how to react to GM’s most recent statements. Rick Wagoner, CEO and Chairman of GM, recently announced nine plant closings and 30,000 layoffs by the year 2008. Who’s to blame? What’s happened to the largest automobile producer? What can we do?

The United Auto Workers (UAW) is exhausting GM of much needed cash flow through high-priced inefficient labor and unreasonable pensions and benefits. It’s apparent that these “deserving workers” don’t actual deserve it at all. According to an article by Yahoo News, GM’s efforts are to reduce its costs by $7 billion; undoubtedly a large chunk is the bloated labor rates and rising health care costs.

GM has been crippled by high labor, pension, health care and materials costs as well as by sagging demand for sport utility vehicles, its longtime cash cows, and by bloated plant capacity. Its market share has been eroded by competition from Asian automakers led by Toyota Motor Corp. GM lost nearly $4 billion in the first nine months of the year.

The UAW has made no real efforts to help reduce costs by perhaps freezing annual raises or reducing benefits. They’ve just kept pursuing more money and better pensions – pensions that are truly a rarity in our current conditions.

Delphi unions are the perfect example of how GM is failing:

The automaker could be facing a strike at Delphi Corp., its biggest parts supplier, which filed for bankruptcy protection last month. GM spun off Delphi in 1999 and could be liable for billions in pension costs for Delphi retirees.

Obviously Delphi’s inadequacies justify the elimination of all pension plans.

I blame American ‘entitlements.’ I blame stupidity. But most of all, I blame unions. Some of you probably thought that I would point fingers at the Board of Directors at GM or perhaps salesmen (ahem) of foreign products but actually no - unions are to blame. Unions are a plague to American businesses. They create larger gaps between American and international production rates which in turn weaken our GDP. This "downward death spiral" isn’t just American automakers - it’s the American economy.


Disgruntled Car Salesman said...

Only partial credit young grasshopper. You are incorrect in suggesting that it is all UAW's fault. Dad29 and I had an interesting discussion about this. I am sure that a big determining factor in why the did not close the Janesville, WI. plant is that workers there and the union there conceded a lot of benies and wages. They knew this layoff was inevitable and took the "high road" which was a pay cut. In turn, they get to keep their wages. I refer you to, where the consensus is poor product wuality, desirability, market volatility, and a thinly spread GM trying to be too many companies to too many people/demographics. You are in marketing, look it up.

'Nuf said!

Neo-Con Tastic said...

Big words from a ...... You yourself have already proven my point. GM is going to lay off workers so one union lowers wages. That union in turn keeps their plant. Go figure.

"But Jeff Given, portfolio manager at John Hancock Financial Advisers where he helps run a $4 billion-bond portfolio and owns GMAC debt, said the staff cuts may help "a little bit, but they do not have a lasting impact.

"It does not change their long-term outlook. They still have the overhang of high health care costs," he said." - San Diego Sign On

Jeff Given, a portfolio manager, and I agree that the Union (and healthcare) are to blame.

Sure, people have lost faith in GM products but I still see plenty of them on the road. Desirability generally isn't always a factor in a necessity. Desirability plays an important role in the Esteem Needs (Maslow) while the Social Need requires more of accessibilty and usefulness. This Social Need is truly where we classify most of the target audience of the auto industry.

Market volatility. Yes the market is rough but with the drop in the Yen (Japanese currency), Toyota can now lower prices and really put the pressure on. Also, if I recall correctly, the only volatilty was a bunch of starving import salesmen after the "Employee Pricing Event."

You claim GM is spread thin to too many companies to too many people/demographics. Pick one. Yes, they have numerous lines but each one is supported by a Union plant producing at 85% plant capacity. Lessen the plants (if the Unions let you) and increase production to 95-99%. Everyone knows that all of their lines have a twin in the company (same platform, different trim) so they can definitely keep all of the lines. This "thinness" is the least of their worries.

I believe you mean 'Enough said.'

Peace, I'm out!

Disgruntled Car Salesman said...

Welcome to the school of hard knocks. Class is in session. In this particular school, you don't sit in a pit classroom and listen to the dribble of an "esteemed" professor. In this school, you learn through experience.

Face the facts. GM is cutting production and plants and people because they cannot compete with the product they provide. I know this because I am involved in the market every single day. I study it. I read about it. I discuss it with other individuals in my profession. YOU don't. YOU have an outsider college boy take on it. Guess what? Your college boy education doesn't apply here. I am not telling you what occurs in the marketing realm every day because it isn't my business and I don't know it. Furthermore, I don't give a damn about marketing.

If GM was able to provide a product in every segment and every company that they own, they would not be in this predicament. But, because they cannot, I repeat, CANNOT compete without incentive based selling, they are where they are. They made the bed, now they have to sleep in it.

Let me spell it out so even you can understand.

If I have a Chevy Malibu that is stylish, well put together, reliable, economic and holds it's value well, I would have a car that would compete with the likes of a Toyota Camry/Honda Accord/Volkswagen Passat. I could then sell said Malibu for the same money. But, because the Malibu isn't all of these things, they have to knock $4000 right off the top in lieu of rebates. Do you think that $4000 per copy is a small chunk of change at 25000 to 30000 units? No, it isn't. And that is just ONE car.

Do the math. If they could offer a product that could compete, they would be profitable and people would buy them in this country because it is American. Hell, I would sell them.

By thinning out their lines they can concentrate their efforts and build a better car.

Common Sense in the US auto market for marketing professionals provided by the school of hard knocks over at DCS. The management at DCS is glad to provide this lesson to you for free. Next lesson costs money. For further free lessons visit or

Nuf' Said! (see the definition for slang in the dictionary to fully understand aforementioned sign off line...)