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A Portrait of My Industry - By Rick Wagoner

The Wall Street Journal December 6, 2005

DETROIT -- Since mid-October, General Motors has announced plans to cease production at 12 North American manufacturing facilities and eliminate 30,000 jobs by 2008; trim $1 billion in net material costs in 2006; and, in cooperation with the United Automobile Workers, reduce GM's retiree health-care liabilities by $15 billion, or about 25%, for an annualized expense reduction of $3 billion.

The reason for these dramatic actions is no secret: GM has lost a lot of money in 2005, due to rapidly increasing health-care and raw-material costs, lower sales volumes and a weaker sales mix -- essentially, we've sold fewer high-profit SUVs and more lower-profit cars. What is less clear is why things turned sour so fast for GM, as well as for other American auto makers and suppliers. To put it another way, why are so many foreign auto makers and suppliers doing well in the United States, while so many U.S.-based auto companies are not?

Despite public perception, the answer is not that foreign auto makers are more productive or offer better-quality or more fuel-efficient vehicles. In this year's Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place. In the latest J.D. Power Initial Quality Study, GM's Buick and Cadillac ranked among the top five vehicle brands sold in America, ahead of nameplates like Toyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz. And GM offers more models that get over 30 miles per gallon (highway) than any other auto maker.

In fact, this kind of operating performance makes GM's recent financial performance all the more frustrating. The fact is, we're building the best cars and trucks we've ever built at GM, our products are receiving excellent reviews, and we're running the business in a globally competitive manner. Outside of North America, we're setting sales records. In fact, for the first time in our history, we will sell more cars and trucks this year outside the United States than inside, aided in no small part by our market-leading performance in China.

So why, fundamentally, are GM and the U.S. auto industry struggling right now?

Intense competition, for one. The global auto business grows tougher every year, and we accept that. Our ability to compete has made us the world's No. 1 auto maker for 74 consecutive years, and we're fighting hard to stay on top.

Beyond that, our performance in the marketplace has not been what we've wanted it to be. While we've been strong in truck sales, we've been weaker in cars, and, yes, the recent surge in gas prices hurt sales. While we've led in technologies like OnStar, we've lagged in others like hybrid vehicles. Rest assured, we're working hard to address the areas where we lag. Simply put, we are committed to doing a better job of designing, building and selling high-quality, high-value cars and trucks that consumers can't wait to buy. No excuses. We will step up our performance in this regard.

But competition and marketplace performance are not the whole story. To fully understand why GM and the U.S. auto industry are struggling right now, we have to understand some of the fundamental challenges facing American manufacturing in general -- challenges well beyond the control of any single company.

There are those who ask if manufacturing is still relevant for America. My view: You bet it is! Manufacturing generates two-thirds of America's R&D investment, accounts for three-fourths of our exports, and creates about 15 million American jobs. And the auto industry is a big part of that, accounting for 11% of American manufacturing, and nearly 4% of U.S. GDP. Together, GM, Ford and DaimlerChrysler invest more than $16 billion in research and development every year -- more than any other U.S. industry. And GM, alone, supports more than one million American jobs.

So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents -- a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.

Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed going unpunished. That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago.

Another factor beyond our control is lawsuit abuse. Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That's more than 2% of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties.

Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese auto maker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate. No wonder Japanese auto makers have noted their recent record profits were aided by exchange rates. And no wonder the U.S. trade-balance deficit continues to grow by leaps and bounds.

There are other issues, of course, but my point is this: We at GM have a number of tough challenges that we must and will address on our own -- but we also carry some huge costs that our foreign competitors do not share.

Some say we're looking for a bailout. Baloney -- we at GM do not want a bailout. What we want -- after we take the actions we are taking, in product, technology, cost and every area we're working in our business today -- is the chance to compete on a level playing field. It's critical that government leaders, supported by business, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness.

We can do this.

And we need to do it now.
 

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Ponder this for a moment, if GM goes under, we'll all be driving FORDS. Now thats a scary thought.
 

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I don't think GM will ever disappear, heck back in the late seventies it looked bad for Chrysler. then the Govt stepped in to bail them out. if it gets that bad it will happen again.

if you look around right now most Govt plated vehicles are made by Chrysler, I see in the future it will be more spread out between the big three.

It would not be wise for the US to lose its manufacturing capabilities.

Mike.
 

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Get rid of some the the politics, do some streamlining and they
will be just fine.

In an organization that huge am sure there are a lot of counter productive people, and people that are not team players (worry only what the Company can do for me).

Times have changed and will change more, this also, is not a good time for Unions, they are not flexialbe enough and stale.
That is one of the biggest reasons the World is tramping all over
us.

The CEO brought up very idealistic reasons too.
 

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American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century.
Nanny States Vs the Nanny corporation. No, disrespect here.

Market dictates or follow the heart?

The State should give a bail out to GM etc, or provide health care to citizens?I am unfamiliar with health care facilities provided by the government.

Anyway I can hear the butchers knife being sharpened.Trade Unions are not alone responsible for losses.

I wonder if rest of the American car makers are facing the same problem.I read in Newsweek a couple of years back, why Japanese and Korean car makers register higher profits.One of the reasons was extreme fine detailing of job design and multi-tasking/skilling by workers. Per worker contribution to the operations in the Japanese firms is higher than the workers working in the American firms.I can be wrong for I am writing out of memory.

For someone studying Industrial relations and Personnel Management at the moment, this post is of great interest and importance to me.

Thanks Steve for the Post.

Best-
Vikram.
 

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vikram said:
I wonder if rest of the American car makers are facing the same problem.I read in Newsweek a couple of years back, why Japanese and Korean car makers register higher profits.One of the reasons was extreme fine detailing of job design and multi-tasking/skilling by workers. Per worker contribution to the operations in the Japanese firms is higher than the workers working in the American firms.I can be wrong for I am writing out of memory.

For someone studying Industrial relations and Personnel Management at the moment, this post is of great interest and importance to me.

Thanks Steve for the Post.

Best-
Vikram.
Vikram, I contract engineered for GM (on a plant level) for a few years, I left this past March. Yes the other two of the Big Three are as well facing the same challenges as GM. When $1500 USD comes off of the top of ever vehicle you sale to cover health care cost (for a large retired workforce) it is crippling to your bottom line. I will not argue the points of right or wrong here (I believe that is best left in the political forum) but the situation is what it is.

When GM shuts down a facility in the US, the vast majority of the persons do not become unemployed GM will retire these folks if they have enough years in and are willing, or they will move them to another facility as openings occur. The actual hourly worker for the most part has their life (and their family's life) disrupted, they are not just thrown out on the street. The major impact of these plant closings are to the vendors, suppliers, and towns that cater to the closed plant.

As in any industry there are great people that work for GM and there are worthless people that work for GM. Yes the negotiated contracts do somewhat limit what is expected of some of the employees in a facility, but GM has managed to win several awards for Hour Per Vehicle built (HPV) this is a comparison of direct and indirect labor against the number of vehicles produced in a facility compared with other manufacturing plants producing equivalent vehicles. There are some fairly efficient Big Three manufacturing plants in the US, but the efficiency will have to increase dramatically to cover the rising cost of doing business.

Johnboy
 

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GM is in substantial trouble... as bad or worse than Chrysler. The Unions are going to insure that it goes under as they are calling a strike against bankrupt Delphi. Since the Chrysler bailout (which went over like a lead balloon) there's a law on the books prohibiting a repeat action. In two years, GM will be paying more money to retirees and the costs of their benefits will exceed that of the active payroll. Plant closings are an act of desperation and will result in no real benefit towards solvency.

Word on the street from those directly in the "know" is that Chrysler will be moving its world headquarters from Michigan to Hamilton, Ontario. That's the Germans for you!

Contrary to what you might think, the closings at GM and its impending demise and the exit of Chrysler will not benefit Ford as it faces much the same problem that GM does. In fact, there's a rumor that AC/Delco is on its way out of the picture.

An analysis of the industry would say that the death of the US auto industry stems from three things: Unions, Design Stagnation & Poor Market Forecast. Believe it or not, according to the industry news, quality is not a factor.

Michigan is doomed to become a Third World state, based upon agraculture and trash disposal. :wink:
 

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Ready to move down here yet Paul? You wont make as much money, but it doesnt take as much to live on in Gods Country. The fishing is great most of the year and weather is "tolerable", people are friendly,and the neighbors willingly help with your regular chores just for something to do.

That beautiful lot across the bay that I mentioned is still available . We could even discuss politics by smoke signals. :lol:
 

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Are you saying it wasn't successful, or wasn't a popular choice-------publically?
It was very successful! It was not (outside of Chrysler) a popular move and Chrysler's sell-out to Daimler-Benz was the icing on the unpopularity. In short - we saved Chrysler so the German's wouldn't have to. Now, they are moving all North American operations and Chrysler World Headquarters to Hamilton, Ontario in 2007.

Bailing out another company would be the death knell for the politicians who fight for it - believe me! :wink:
 
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