Posted on 12/06/2005 5:43:21 AM PST by bullseye1911
Rick Wagoner
Chairman and CEO
General Motors Corporation
Op-ed submission to The Wall Street Journal
December 1, 2005
Since mid-October, General Motors has announced plans to close 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 percent, 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 automakers and suppliers. Put another way, why are so many foreign automakers 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 automakers 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 automaker.
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 number one automaker now 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 any single company’s ability to control.
By the way, 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 percent of American manufacturing, and nearly 4 percent 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 1 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 it’s going up again this year. Foreign automakers 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 about no good deed going unpunished. While appealing to some, that argument ignores the fact that American automakers 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 in 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 percent of our gross domestic product. 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 the injured parties.
Another major concern is unfair trading practices, especially Japan’s long-term initiatives to artificially weaken the yen. A leading Japanese automaker reports that for each movement of 1 yen against the dollar, it gains 20 billion yen in additional profitability, or nearly $170 million at today’s exchange rate. No wonder Japanese automakers have noted that 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, 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 and 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.
Oh please, give it a rest, will you? This incessant whining about the Baby Boomers has gotten old.
Your accusations are not just old; they are false too. The Baby Boomers did not create Social Security and they have not been collecting from it. If you really must point fingers (a useless exercise, in my opinion) direct your wrath toward the so-called "Greatest Generation."
Likewise with General Motors. The Baby Boomers did not force GM to sign those union contracts or produce bad cars. Most of the Boomers are still working, so they are not drawing retirement benefits from GM either.
I'm in the same boat as are MANY others. "Slap me once, shame on you. Slap me twice..."
Rick, you have to fess up to your longer term problem:
Quality.
Now that you have hammered Delphi into the ground, the only way they will make it at todays parts pricing formula is to cut corners and take out quality control. Meanwhile Delphi is going to massacre their wage base, so no-one will give a shit about doing the job right.
You've hammered all your independent supplier base by requiring a 2% cost giveback every year of a multi-year contract, after you hammered out all the profits and underpaid for tooling just to be awarded a contract, so they can only make it by cutting back on quality control.
Now you've told thousands upon thousands of employees that they will be out of work at plants all over the country. Watch for no-shows, sleeping on the job, forgetting about installing that bolt correctly, or outright sabotage, 'cause their employment future is dim, so why should they give a shit?
Future quality is the final straw that will flush GM down the toilet!
I have to say, as a former GM supplier, you are right. I am the only one that bought a GM product this last go around, the rest are Hondas, Chryslers and a Scion.
Fact is that the Japanese-based companies that have opened plants here in the US do a better job. The UAW even canceleed an organizing vote at Honda because they faced a humiliating defeat. The problem with US-based auto companies is NOT with the American Worker -- it's with BAD leadership at the companies and the unions.
Roger Smith and Douglas Fraser were not baby-boomers. For that matter, baby boomers have been paying in to social security. A boomer born in 1946 (the oldest) is not quite 60, so blaming boomers for social security's problems is like blaming depositors for bad bank loans. You've got the victim confused with the perp.
If you drove an early 90's pontiac grand am or if you are driving a 2005 Chevy Aveo, you are driving a korean car.
This is ancient history, but do you remember the Pontiac Sunbird I bought (as a GM employee) and drove it directly to Annapolis with 18 miles on it? It struggled getting up the hills and when I took it back to the dealer--complained there also was a banging noise in the rear going around corners--it turned out the carburetor had to be re-worked (on a brand new car?) and the torsion bar was loose!
My next car was a Chevette. At 15,000 miles I had to have new brakes! After a complaint to GM Home office the charges were reimbursed. Moved and left GM.
Fast forward 25 years--older, wiser, many miles driven--we have had 4 Toyota Camrys (2 car family) since that Chevette--and will never buy anything else. Three reasons: Quality, style and performance! They build great cars in Kentucky!
You proved my point.
Incorrect. The Grand Am was always built in Lansing, Mi. I know, I worked there.
How about Chevy....
to ramcat, please read post 52.
You appear to be correct, as I can find no evidence the grand am was built in korea. I think I got the grand am and le mans crossed.
The Daewoo story began with General Motors. In 1972, GM established a joint venture with Korean car maker Shinjin Motor Co., the company named GM Korea and is obviously GM’s weapon to dominate the South Korean market. Although 50% stakes were sold to local industrial giant Daewoo Group in 1978, GM still controlled the development of cars.
In fact, Daewoo did not really involve much the new car development because GM could always find some outdated cars from its Opel etc. operation to transfer to Daewoo. The Pontiac Lemans of the late 80’s was one of the examples.
In the light of supplying the US market to fight against the Japanese small cars, Daewoo started to produce this rebadged version of Opel Kaddet on behalf of GM. However, the project gave the Korean car maker the first taste of large volume export which became the sales policy today. It also gave Daewoo a modernised plant with 170,000 annual capacity.
GM quit in 1992 as it sold the remaining stakes to Daewoo group. As the US influence evacuated, Daewoo started to develop its own cars. That called for setting up R&D centers in Europe and subcontractting many development projects to overseas consultants. With the help from the Western experts, the small car Lanos was born in 1995.
Next year, Daewoo invested into Poland’s FSO, forming a joint venture which eventually produces the Matiz mini car. In 1998, SUV maker Ssangyong bankrupted and was received by Daewoo.
Daewoo group used to have variety of business in different fields. In 1999, the group got into financial crisis due to the over-expansion during the previous few years, thus resulted in selling nearly all business but the car division. The latter also faced the same fate next year. Ssangyong spinned off from the troubled Daewoo in year 2000.
In 2002, GM bought the majority assets of Daewoo and renamed it to GM Daewoo. Because the Daewoo brand had very poor image, its cars are rebadged as Chevrolet for the American and European market, and sold as Holden in Australia. GM's partial subsidiary Suzuki also took 14.9% of Daewoo to let it sell Daewoo's cars as Suzuki in the North America.
More on the le mans
1987 -- GM imports Daewoo-made Pontiac LeMans; Ford imports Kia-made Festiva; Hyundai's U.S. sales hit record 263,610 units.
1992 -- Daewoo buys out GM's 50-percent stake for $170 million; GM ends LeMans imports.
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 about no good deed going unpunished. While appealing to some, that argument ignores the fact that American automakers 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 in 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 percent of our gross domestic product. 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 the injured parties.
This sickens me.
I will never again purchase a GM product.
Whoa...! Good post - - makes me feel a little better about GM. Heck, if China is where you have to go to escape the unions, then China it is. At least GM is showing an interest in addressing their problem.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.