[Rhodes22-list] Math Error

Thu Dec 18 17:11:04 EST 2008

The numbers being tossed around, primarily the cost of a car being
around 10% labor cost per car, is accurate enough if we're talking the
VARIABLE cost per car.  The problem for the Big 3 is that the legacy
costs per car (retirement + healthcare)  is around $2000 per car.
Even if the Big 3 labor costs were identical to US based Honda,
Toyota, Hyundai, etc., the Big 3 start out at a $2K per car
disadvantage (see the experience of the US steel industry for similar
a similar example).  To add further insult to injury, if Toyota cuts
production and sends workers home, they cut their total labor costs.
If the Big 3 do that they're still on the hook for 95% of the worker's
income for two years.  See a problem here?

Ben is right, the bankruptcy court can throw aside labor agreements.
We in the airline business know this all to well from the Continental
Airlines experience where in 1982, CEO Frank Lorenzo took Continental
into Chapter 11 when the company was in fact solvent to avoid labor
agreements.  As a collectively bargained employee myself, I don't like
that solution but at the same time, desperate times call for desperate
measures.

Short of substantial changes in the business model of the Big 3,
loaning money only postpones the inevitable.  Bill is right, we can
take our pain short term and deep or long, long term at a slightly
lower threshold of suffering.

Brad

On Thu, Dec 18, 2008 at 3:51 PM, David Bradley <dwbrad at gmail.com> wrote:
> Even if it were only 10%, being 1.5-2x non-competitive in 10% of cost
> structure is a death sentence in a commodity business, which, like it
> or not, is what the US Big 3 are.
>
>
> On Thu, Dec 18, 2008 at 12:09 PM, Bill Effros <bill at effros.com> wrote:
>> The average cost per car in the US today is $20,000.
>>
>> The average benefits package per car for US auto companies is $1,500.
>>
>> The average additional profit per car of foreign based car companies is
>> $2,400.
>>
>> 10% is widely used as the labor cost per vehicle. (This number is said
>> to include health and retiree costs.)
>>
>> $45 an hour is widely used as the average actual salary of all auto
>> workers whether they work on foreign or domestic based car companies.
>>
>> Here's where the tap dancing starts:
>>
>> If the average car is $20,000, and $2,000 (10%) is labor costs, and the
>> average benefits package for US based companies is $1,500, you are
>> saying that the average direct labor cost per car is $500 divided by $45
>> or just over 11. You are saying that the total amount of time it takes
>> to build the average car is slightly over 11 hours...seems unlikely to
>> me, even with the best robots in the world.
>>
>> When you start trying to interpret these numbers differently, it just
>> gets worse.
>>
>> This situation won't improve until people start to face the real
>> problems here.
>>
>> Bill Effros
>>
>>
>>
>> Ben Cittadino wrote:
>>> Robert;
>>>
>>> If by "shake the unions" you mean void their contracts with the unions the
>>> aswer is yes. This is the reason many people think bankruptcy is the answer.
>>> The Trustee in bankruptcy can, with the approval of the Court void any
>>> contract the company would otherwise be required to honor; unions,
>>> suppliers, dealers, etc.
>>>
>>> If you think the unions are the problem (labor casts are about 10% of the
>>> cost of a car) then bankruptcy is your answer. I tend to think incompetent
>>> management is the problem, emphasizing short term quarterly profit reports
>>> for big bonus' over long term infrastructure planing and modernization of
>>> plants with imaginative designs instead of more gas guzzling SUV's. The
>>> unions didn't plan that garbage.
>>>
>>> Ben C.
>>>
>>>
>>>
>>> Robert Skinner wrote:
>>>
>>>> Two questions:
>>>>
>>>> If they went into chapter 11, would the auto companies be able to "shake
>>>> the
>>>> unions"?
>>>>
>>>> Can the auto companies function without the unions -- or have the managers
>>>> forgotten how to make a vehicle?
>>>>
>>>> /Robert O'Maine
>>>>
>>>> Brad Haslett wrote:
>>>>
>>>>> David,
>>>>>
>>>>> It isn't fun watching the personal side of these events.  My oldest
>>>>> son's roommate in Little Rock works at the family Jeep dealership
>>>>> (Chrysler) that's been in the family for three generations. I doubt
>>>>> they'll make it. On the other side of the equation, people in San
>>>>> Antonio, Tupelo, Montgomery, Jackson, etc. are ready to hustle at $40
>>>>> an hour. If we didn't allow for failure we'd still be driving Hudsons
>>>>> and Packards.
>>>>>
>>>>> Brad
>>>>>
>>>>> On Wed, Dec 17, 2008 at 6:47 PM, David Bradley <dwbrad at gmail.com> wrote:
>>>>>
>>>>>> And too many dealerships holding too much finished inventory.  Now
>>>>>> that the shock has worn off from the meltdown I'm remembering how
>>>>>> perfectly awful the prospect of not being a leader in the steel
>>>>>> industry seemed in the 70s.  Let 'em declare chapter 11 - no loan wi
>>>>>> thout stiff terms.
>>>>>>
>>>>>> Bill Ford was being interviewed yesterday and still pandering to the
>>>>>> UAW.  If Chrysler could shake the union and close a third of their
>>>>>> dealerships they'd be well along the way.
>>>>>>
>>>>>>
>>>>>> On Wed, Dec 17, 2008 at 4:34 PM, Brad Haslett <flybrad at gmail.com> wrote:
>>>>>>
>>>>>>> David,
>>>>>>>
>>>>>>> Saw that earlier.  I flew the San Antonio trip all of October and
>>>>>>> talked to the locals about the new Toyota Tundra truck factory there.
>>>>>>> They've been doing mostly training and waiting for better times.  The
>>>>>>> new Toyota factory in Tupelo, MS is slowing down opening.  Chrysler
>>>>>>> usually shuts down for two weeks at Christmas for maintenance anyway
>>>>>>> so this is only two more weeks of shutdown, but, the UAW workers draw
>>>>>>> 95% pay during the shutdown. GM has some divisions that would do very
>>>>>>> well on their own. The Corvette would be fine in its niche.  Shanghai
>>>>>>> Buick is doing well.  Their trucks sell well.  I don't see how loaning
>>>>>>> them money will do anything but prolong the inevitable. They have the
>>>>>>> same problem as the passenger airlines - too many seats chasing too
>>>>>>> few asses.
>>>>>>>
>>>>>>> Brad
>>>>>>>
>>>>>>> On Wed, Dec 17, 2008 at 6:18 PM, David Bradley <dwbrad at gmail.com>
>>>>>>> wrote:
>>>>>>>
>>>>>>>> And so it begins.
>>>>>>>>
>>>>>>>> Time for Toyota and Ford to steal market share...
>>>>>>>>
>>>>>>>> Time for GM to fold up the rest and become Chevrolet Corporation...
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>> NEWS ALERT
>>>>>>>> from The Wall Street Journal
>>>>>>>>
>>>>>>>> Dec. 17, 2008
>>>>>>>>
>>>>>>>> Chrysler said it will idle all manufacturing operations at the end of
>>>>>>>> the day Friday for at least a month in an effort to align production
>>>>>>>> and inventory with U.S. market demand.
>>>>>>>>
>>>>>>>> For more information, see:
>>>>>>>> http://wsj.com?mod=djemalertNEWS
>>>>>>>>
>>>>>>>> For complete coverage of Detroit in Crisis, see:
>>>>>>>> http://online.wsj.com/public/page/auto-industry.html?mod=djemalertNEWS
>>>>>>>> __________________________________________________
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>>>>>>>>
>>>>>>>>
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>>>>>>>
>>>>>>>
>>>>>> --
>>>>>> David Bradley
>>>>>> +1.206.234.3977
>>>>>> dwbrad at gmail.com
>>>>>> __________________________________________________
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>>>>>>
>>>>>>
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>>>>>
>>>>>
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>>>>
>>>
>>>
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>
>
>
> --
> David Bradley
> +1.206.234.3977
> dwbrad at gmail.com
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