Daily Dose of Optimism

The Chevy Camaro Concept Car: A "Butter Face" (GM)

Looks alluring...

Until you see the grille...

GM swings...and comes close!

But, it's a "butter face." - Ed

Is the US this Pathetic?

So, foriegn companies manage what used to be done in the US. Even though they could probably assemble and ship more cheaply, they open plants in the US so our consumers still have jobs that pay enough money to buy the cars they sell. Meanwhile, US-run companies flounder. Wonderful! - Ed

Toyota Motor Corp., whose runaway success has fanned talk of a political backlash in the United States, took pains on Monday to highlight its focus on environmental and safety issues in the years ahead.

"Our main mission as a company is to contribute to a better society," President Katsuaki Watanabe, who took up his post last week, told a news conference on Monday held to introduce the company's new management team.

Watanabe's comments come at a time when Toyota and other Asian auto makers are luring customers away from General Motors Corp. and Ford Motor Co., helping drive the top Japanese car brand towards its goal of selling a record 8.03 million vehicles worldwide this year, up 7 percent from 2004.

The Detroit giants' troubles -- stemming in part from massive employee health-care costs -- have aroused worries in some quarters about possible political fallout, to the point that Toyota Chairman Hiroshi Okuda suggested recently that price hikes might be needed to give GM and Ford room to "catch their breath."

Last month, U.S. sales at the world's second-biggest auto maker grew 7.8 percent, giving it 13.4 percent of the market -- less than one percentage point shy of Chrysler's 14.3 percent. GM's sales, meanwhile, fell 5.5 percent and Ford's were down 3.0 percent.

As Toyota profits from rising sales in the United States and other overseas markets, Watanabe said its second task was to ensure it was contributing to each country's social needs, such as by offering employment through increased local production.

"As far as the U.S. business goes, what we need to do is offer the kind of products that customers want and boost local production and procurement," he said.

Link to CNN  (June 27, 2005)

Offshoring of US Management

Interesting data point - with a new plant in Canada, Toyota will have seven vehicle assembly plants in North America. GM has about 23 in the US alone, which post-cuts, goes to about 17.

Also interesting, from Detroit News, 6/8/05:

"Analyst Stephen Girsky at Morgan Stanley recently estimated that 45 percent of GM's North American production capacity -- the equivalent of 15 plants -- is unused or produces models that generate little or no profit, such as vehicles sold at cut rates to employees and cars sold to rental fleets."

I guess with GM's new "employee discounts for everyone", you can up that figure to every plant GM runs...

"GM's North American factories run on average at 85 percent of their capacity, and that means its costs relative to revenue are much higher than those of rivals such as Toyota Motor Corp. The Japanese automaker's capacity utilization rate in North America is 107 percent, with plants running overtime to meet demand."
Detroit News

- Ed

WSJ: Toyota to Unveil Plans To Build Plant in Canada
June 27, 2005; Page B6

DETROIT -- Toyota Motor Corp. is expected to announce this week a plan to build its seventh vehicle assembly plant in North America, near Woodstock, Ontario, lured in part by a total of 125 million Canadian dollars (US$101.4 million) in incentives provided by the province and Canada's federal government, according to people familiar with the move.

Toyota has three assembly plants in the U.S., with a fourth slated to open in San Antonio in late 2006. It also has one assembly factory each in Canada and Mexico.   WSJ

GM's Generous Health Benefits

Before we take GM's workers and their generous benefits to task too harshly, get a load of this! (Courtesy of Mickey Kaus Link) - Ed

GM is maybe not your best example of the ineffectiveness of "transferring more of the cost to individuals," since GM has not even instituted the obvious deductible and co-pay measures with its hourly workers. The deductible for UAW workers at GM is ... zero.

UAW workers at GM and retirees don't pay monthly premiums or deductibles for health care, but white-collar workers and retirees pay both. GM says union employees pay 7 percent of their health-care costs and white-collar employees 27 percent. (Chicago Tribune)

Is your health care deductible zero? Mine's $2,000. ... P.S.: The interesting question, for Brownstein's cost-control argument, is whether the overall health care costs of GM's white collar workers are any lower than the costs for the zero-deductible hourly workers.

America Struggles to Make Real "Stuff"

Forget about cars, let's sell paper!  On the positive side, at least Ford seems to understand the concept of true "management compensation"... - Ed

Ford:
Cut its full-year eps forecast to range of $1.00-$1.25, down from prior $1.25-$1.50 range and street at $1.16, citing weaker outlook for sales

Announces 5% reduction in salaried positions in North America; to eliminate 2005 bonuses for salaried management employees

UAW Responds to GM Management

Seems like the UAW has a better grasp on GM's situation than management!  See the excerpts from a NY Times article below. Even though I believe that union wages are a big part of the problem, it doesn't take a rocket scientist to understand where GM has been going wrong. Maybe the UAW should run the company!

Key quote - from labor:

"Mr. Gettelfinger also said G.M.'s core problem is that its cars and trucks, designed and engineered by management, have not been selling. "To us, product is No. 1, first and foremost," he said."   - Ed

(NY Times Article)

While many workers and local union officials say they are willing to consider concessions to help G.M., they also express belief that management has not indicated it would make its own sacrifices. Workers and local union leaders say Mr. Wagoner needs to take a step like that of the Ford Motor Company's chief executive, William Clay Ford Jr. Although Ford earned $1.2 billion in the first quarter, Mr. Ford said in April that he would accept no compensation of any kind until the company's automotive profits improved.

As Don Swegman, president of a union local in Indiana, said in an interview Tuesday: "We're being asked to sacrifice, and I think the sacrifice should go uphill as well as downhill.

"I think the bulk of the members on the floor feel the same way. If you look at Ford, their C.E.O., Mr. Ford, has decided not to take any pay at all until they turn things around. That would go a long ways to making us feel better. Everyone needs a paycheck, don't get me wrong."

Referring to Mr. Wagoner, Mr. Swegman added, "But does he need $10 million, when under his leadership the company loses $1.1 billion?"

G.M. officials noted that while Mr. Wagoner's base salary did not decline in 2004 from 2003, his overall pay package of roughly $10 million was more than 40 percent lower last year than in 2003 because the company's declining share price eroded long-term performance bonuses tied to stock performance. They also noted that half of Mr. Wagoner's pay was in stock options. Though the options are valued at about $5 million using complex accounting methodology, they are not actually worth any money until G.M. shares return to $53.92.

Asked about the matter of pay, Mr. Gettelfinger, whose own compensation is around $140,000 a year, said: "There's always been an awareness among the workers in the field about this issue. In fact, we've talked about this at almost every collective bargaining convention since I've been involved. That's an issue, it's always there."

Mr. Gettelfinger also said that G.M.'s continued payment of $1.1 billion annually in dividends was another factor, as well as its roughly $20 billion in cash on hand. While its debt is in the hundreds of billions, it comes due over several decades, and most financial analysts say a bankruptcy filing is not imminent. But down the road a few years, they say, bankruptcy is not out of the question.

Mr. Gettelfinger also said G.M.'s core problem is that its cars and trucks, designed and engineered by management, have not been selling. "To us, product is No. 1, first and foremost," he said.

LA Times Reviews the New Pontiac G6

(From April 11, 2005)

I thought that the new Pontiac Solstice was a winner. The car looks absolutely amazing for its price range, and was the first time in a while that I saw an American car that I felt I would actually want to own.

In April, the LA Times reviewed the Pontiac G6 (which I believe is the non-convertible cousin of the Solstice) and were less than impressed by the car's performance relative to its Japanese peers.

The review was controversial, and I believe GM threatened to pull, or actually pulled, its advertising from the paper.  For the struggling newspaper, this is a credible and important consideration.  The key line from the review that caused the controversy was this:

"The car has zero appetite for hard driving. You want excitement from the "Excitement" division? Try to get this thing to turn in a sharp corner."

Makes sense to me that GM might not like to hear this.  But it serves as an important reminder that good looking cars aren't enough to save the American auto industry. "TQM" - Total Quality Management - was of Japanese invention, from the 1950s.

We still have a lot to learn! - Ed