An Anti-Union Guy Says: Don’t Blame the UAW

May 27, 2009

I’ll start by making it crystal clear: I don’t like unions. Most unions, in my humble opinion, penalize the best workers and deliver unjustified compensation to the worst. As a guy who loves to negotiate on my own, I’d only join a union as a last-resort.

That being said, America’s infatuation with demonizing the United Auto Workers is DEAD WRONG. Almost everything you’ve heard or believe about the UAW is not accurate, because the UAW is different from most unions.

Myth number one is the UAW, like all unions, exists only because it makes the leaders rich off of union dues. Guess what? Ron Gettelfinger, the President of the UAW, made $156,000 in 2007 and just under $160,000 in 2008. It might sound like a lot of money, but consider that this most powerful union boss in the world makes less than almost any regional union chief. For instance, the Service Employees International Union (SEIU) Local 32B-32J chapter in New York was paying its president $530,000 each year.

Even better, a person with no experience and no education can get a base of $80,000 if he is lucky enough to get a Longshoreman’s union entry-level job.

In comparison, Rick Wagoner, former President of GM, had a 2008 salary of $2.2 million. Bob Lutz, GM’s former high-profile VP, saw $1.56 million in 2008. Gettelfinger, the demonized head of this so-called greedy union in actuality makes less money than the average GM low-level department director.

Myth number two is that the UAW has no interest in the survivability of the auto companies and has never been interested in anything other than better pay and benefits. This is totally untrue. Indeed, in 1949, UAW President Walter Reuther oversaw the publication of a position paper called “A Small Car Named Desire”, which urged The Big Three to start producing smaller, more fuel efficient cars, because that is exactly what the UAW perceived the American public would want. The Big Three’s top brass told Reuther to stick to negotiating contracts, rather than tell them how to run their businesses.

Throughout the 1960s and 1970s, the UAW was regulated by the Big Three to being concerned only about protecting members’ benefits. By the late 1970s, the UAW started to see the foreign competition as a legitimate threat to the US auto industry, even when Big Three SWAT (strengths, weaknesses, opportunities, and threats) analyses focused solely on one another in each segment.

The UAW urged foreign automakers to build their cars here in the USA. Unfortunately for them, right-to-work states did better jobs of lobbying, so most foreign-owned shops became non-union.

Interestingly, though, the Japanese-owned factories seemed to offer fair compensation for work. So what does that say about the Big Three? To me it says they were…and still are greedy, shortsighted, too inbred, and insulated to see that it was their own damn fault, not the UAW’s, for the domestic auto industry’s collapse.

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If They Can’t Sell The Cars, How Do They Expect To Sell The Car Companies?

December 5, 2008

The Big Three CEOs are back in front of Congress to again ask for money. This time, the boys left their jets at home and drove in cars. They also brought the plans for returning to profitability that Members asked them to supply.

Pluck me bald and call me Telly, but what the executives are shoveling doesn’t seem to be nearly enough fertilizer to make this garden grow again.

Central in plans from each company is the sale of at least one brand. Ford wants to sell Volvo, GM admits Saturn, Saab and Hummer are on the block, and Chrysler is waving Jeep in the wind. Now I’m not an automotive executive…and I didn’t even stay at a Holiday Inn Express last night, but I’d like someone to explain to me how if none of these brands are successfully selling individual cars to consumers, then how do the Big Three execs expect to sell the freaking brands themselves?

Let’s break it down: Volvo is on track to sell roughly 72,000 cars. Ford sold-off Volvo trucks many years ago, so the value of the brand is based only on consumer vehicles. Over at the General’s place, Hummer is on pace for just under 45,000 vehicles, Saab at 90,000 and Saturn at 230,000 cars. Jeep is the largest contributor of any of the brands, looking to deliver in 2008 for Chrysler just under a half-million vehicles.

Nobody in their right mind will buy Hummer. Its place in a 2015 35 mpg CAFE America is non-existent. Some Arab prince might buy it on a whim, but no automaker wants that brand hanging on its CAFE results like an anchor.

Saturn is like Mazda, just not as sporty. It is possible that a BMW or Porsche could buy them for their mpg and stand-alone dealership network. Don’t expect them to pay too much.

Saab and Volvo might as well look to the Korea, Malaysia or India for a buyer. No German, French or Italian company will touch these quirky Swedes.

Jeep is a more interesting play, because it’s a respected niche brand without the horrible CAFE strain of Hummer. Some company will make a play for Jeep.

In the near term, though, selling these companies creates costs for the Big Three. GM, Ford and Chrysler have traditionally spent way too much money in concessions to dealers after selling or closing brands. Also, don’t expect any companies to pay much for these brands when it is well known that a) the brands are for sale and b) nobody else is bidding on them. Despite skipping all those economics lectures in college, I do remember the whole supply and demand concept.

Obviously there is much, much, much more the Big Three’s plans for profitability than just selling these brands. Labor union concessions, plant closings, pay reductions, job cuts, supplier contract renegotiations, and dealer closings (why is it when you ask about dealer quality, Big Three executives always are quick to point out that dealers are independent, and it’s impossible to better control service and sales capabilities, but when dealers are a part of larger plan for money, they are no longer seen as rogue entities?) are all part of the deal.

Maybe the Big Three will offer “Zero Down, Zero Percent Financing”, “Factory-to-Dealer Rebates” and “Employee Pricing” for any company interested in buying Saturn, Saab, Hummer, Jeep, or Volvo?

With now $34 billion in bailout (call it loans, investment, or whatever – it’s a bailout) requested, and now talks about “government managed restructuring” which sounds way too much like British Leyland version 2008, Americans should be screaming to let the companies sink or swim on their own. If it really is as easy to sell brands, lower labor and supplier costs, and most importantly – create new cars that people will actually buy over the competition as the Big Three claim it will be with the funds Congress provides, then certainly these companies should be able to do it without getting involved with inefficient government red tape that will come with any bailout money.


Bail Out the Big Three? History Suggests “Don’t Do It”!

November 11, 2008

It would be catchy to lead with something like “I’ll give you fifty-billion reasons why the US government shouldn’t bail out the Big Three automakers.” Instead, I’ll just write: don’t do it.

I need to make something crystal clear here. My views are not ideologically-based. If you’d like some Republican versus Democrat, free market capitalism over big government socialism, Apple against Microsoft rants, you’re not going to find it here.

What you will find is a simple statement: history and common sense intersect at a point with a big marker titled “STOP”.

The Meat Of the Deal

Congress has already given General Motors, Ford and Chrysler around $25 billion so they can retool for production of more fuel-efficient cars. Last week the three CEOs returned to The Hill to ask for as much as $50 billion more to keep their companies floating while they hemorrhage cash in the down economy.

It is true that consumers are not buying new cars right now. That’s a huge problem for all automakers, not just the Big Three. When they start buying cars again, fuel-efficient vehicles like hybrids and compacts will be in demand. Actually, if we’re being truthful here, these vehicles are in demand right now. Just go try to find a Prius on a dealer lot.

So the Big Three CEOs have the audacity to go to Congress and say “give us money so we can ride out the bad economy and have what the consumers will want when they are ready to buy.” Audacity? Why did I choose that word?

Simple, because unless you’ve been living in cave for the last decade, you’ll know that even when GM, Ford and Chrysler were selling SUVs and trucks faster than a Ramones drum beat, they were largely losing money. Keep in mind that SUVs and trucks had a hell of a lot higher profit margin than compact and hybrid cars could ever hope to attain.

Imagine if the CEOs told Congress: “we need money, because we couldn’t make profits when we were selling high-profit vehicles. Since we pocketed that money in salaries, union deals, benefits, and executive bonuses, and got drunk on cheap gas (although in our hearts we knew it wouldn’t stay that way, but we hoped we’d be retired by the time it hit $4 per gallon), we never spent enough on R+D, so we didn’t have vehicle products ready to go for this current marketplace.” Unfortunately, that’s the truth.

Here is a scary reality
If Congress gave $50B directly to American consumers with the condition that we went out and bought new cars, here’s what would happen: $50B would buy 1,666,666 cars, based on the current average price of around $30,000 each. Given the current market share, GM at 22.4 percent would sell 373,333 vehicles, Ford (14.8%) would move 246,666 units, and Chrysler (11%) would sell 183,333 units. In other words, with fifty billion dollars going directly into the hands of consumers to buy a new car, the best any of the Big Three could do would be to sell a group of additional vehicles equating to less than one year’s worth of Honda Accord sales in America. (392,231 Accords were sold in the US in 2007.) Think that’s enough to keep them (or dealers) from failing? Nope!!!

Inevitably, there are those out there who will say the Big Three are “too big to fail”. Television news channels are already reporting huge job loss potentials if the companies go out of business—from a few hundred thousand to somewhere around 1.5 million. For every one job at GM, Ford and Chrysler, there are seven positions at vendors providing parts and services for domestic auto production. In other words: if they fail, we’re in a depression with millions of unemployed workers.

The logical conclusion, claim these folks, is to keep the government money flowing– no matter how long it takes, otherwise the companies will implode, everyone in the industry will be out a job, and a depression is unavoidable. To these people I have just two words:

BRITISH LEYLAND

Allow me to follow up those two words with a description of why this is critical history for every Member of Congress to know. England used to be tied with America as the automotive powerhouses in the world. We had Ford and Chevy, while they had Austin and Morris. Just like the contraction of companies in America that formed Ford-Lincoln-Mercury and General Motors, Austin joined Morris in BMC. Standard joined with Triumph, which was joined with Jaguar. Finally, by 1968 most British-owned brands were rolled into British Leyland.

Thanks to equal parts ineptitude, greed and lack of ethics, BL drove the British car industry into the ground. BL executives blamed the economy (including an oil crisis) and labor. Everyone else pointed the finger at products that were inferior to foreign competition, as well as short-sighted contracts and profiteering.

Despite selling forty percent of the vehicles in Great Britain, by 1975 British Leyland was broke. The British Government sank millions into the group and became the majority shareholder. The corporation was reorganized, and millions more went to cure production and labor problems.

The company was again reorganized into saleable units. Jaguar-Daimler was sold-off in 1984 (two years later it went to Ford). The Leyland truck and bus unit was merged with Dutch DAF in 1987, which later sold bus operations to Volvo. Just a year later the Rover Group (including most of the remaining car business) was sold to British Aerospace, which turned around and immediately sold this remaining part of Great Britain’s auto industry to German BMW.

Which puts us back to GM, Ford and Chrysler

If Congress simply let nature take its course, there is a strong chance that all would fail. But we need to DEFINE “FAIL”. In this case, do we honestly think that if any of the Big Three “fail” everything the company owns would simply be auctioned off to the high bidder in front of the local courthouse? Of course not.

All three companies own valuable plant assets. All still have cash. All own products and technology that are profit centers. There is certainly a big financial value to Chevy’s Volt product, as well as Chrysler’s ultra-modern flexible plant locations, Ford’s Mustang brand, Corvette production, F150 fleet sales, the “Hemi” trademark…

Considering that Porsche just tried unsuccessfully to buy VW, it puts them back in the market for an entity that will enable them to meet 35-mpg CAFE standards. By the way, Porsche has also been one of the most profitable automakers of the last decade. (Turns out that selling overpriced sports-SUVs is a cash cow.) So even after the botched buyout, they have money to burn.

Hyundai is also a strong competitor without a good hybrid play, as is Mitsubishi. Both have money. Mitsubishi’s dedication to cars might be questionable, but Hyundai’s certainly is not. Honda could use a more diverse product range, especially upmarket. Even Toyota could make a case to buy one of the Big Three — Chrysler for flexible production facilities or GM for Volt plug-in technology (since it could take a big bite out of Hybrid Synergy Drive sales).

Then there’s BMW – the same company that at one time or another has purchased Rover, MG, Rolls-Royce, Bentley, Austin/Morris/Mini, and still retains the rights for Triumph. They have cash and good credit…not to mention a pretty good history of acquiring, absorbing, improving operations, and remarketing companies. (We’ll give them a pass on Rover, which was a debacle, only because nothing short of a neutron bomb could have solved that company’s issues.) Finally, BMW has banked way too much on hydrogen over plug-in hybrids, so they could benefit from buying the technology, rather than developing it in house.

Don’t count on Mercedes to get involved. The company is still sore from its marriage to Chrysler. It turns out Mercedes was ill prepared to deal with the complexities of a merger with such a dysfunctional corporation at a time when it was challenged with its own operational and technical issues. Consequently, Mercedes lost more money than a drunk billionaire trying to impress the hotties at the high roller baccarat tables.

Hyundai, BMW, Porsche…Any of these companies could benefit by buying GM, Ford, or even Chrysler.

All have experience designing, building, marketing, selling, and servicing in America already, and do so with high profit margins.

No doubt each and any foreign buyer would bust the unions and negotiate dumping retirement benefits on the US government. Then the companies would kill poor performing legacy products, as well as the people who continued to push losing strategies. Good niche brands and solid future technologies would be exploited, while albatrosses like Hummer would likely be closed down or sold to a greater fool.

In the end, America would have to let go the concept of the American Big Three. One could get caught up in buzzwords like “failure”, but the goal is to save money and jobs.

No matter how we look at it, American jobs will be lost. The difference is that if the US Congress pushes the Big Three to sell, more people will actually be able to keep jobs. Granted some will do so at reduced wages and most at decreased long-term benefits. Wouldn’t it be better, however, for these people to work for a competitive company again – one that isn’t in jeopardy of needing to make more layoffs or beg for more government money next year?

Congress might still decide to throw good money after bad at GM, Ford and Chrysler, just like the British did for BL, but the best course of action is to allow these dinosaurs implode under their own weight sooner rather than later, and work to convince German, Japanese and Korean automakers to bring them back to life as more efficient, better targeted and longer-reaching versions of their old selves using the American workers and suppliers who are willing to adapt to a new world with a view far beyond the self-interests of Michigan and D.C..

Editor’s Note: We here at the Four Wheel Drift realize that this whole bailout issue is far more complicated than can be summarized in one article. We expect that if Alan Mulally or Rick Wagoner read the above article, they’d accuse us of missing important details. (We’d expect that Bob Lutz would say we’ve got our heads up our asses if we thought it was that simple.) The fact is that it isn’t simple. It took nearly a century for GM, Ford and Chrysler to create the mess they’re in, and there are no easy answers. We simply are taking a stand unpopular with car folks, especially those emotionally tied to the long history of American auto producers, and suggesting that the only way to stay competitive is to admit that there is no way to stay competitive by just taking government money and tightening belts.