General Motors' Rick Wagoner's View of the automotive industry

W

wmarhel

#1
From the Wall Street Journal

Wall Street Journal said:
A Portrait of My Industry

By RICK WAGONER
December 6, 2005; Page A20

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.

Mr. Wagoner is chairman and CEO of the General Motors Corporation.
 
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B

Baldrick

#2
Oh dear...

Well thanks for putting us all straight Mr Wagoner - GM is going out of business and it's everyone's fault except you and your management team. But don't worry - when they lock the gates in a couple of years, you'll still be sure to get your huge payoff before taking up a senior management position in another gullible company....:mad:
 

Randy

Super Moderator
#3
Baldrick said:
Well thanks for putting us all straight Mr Wagoner - GM is going out of business and it's everyone's fault except you and your management team. But don't worry - when they lock the gates in a couple of years, you'll still be sure to get your huge payoff before taking up a senior management position in another gullible company....:mad:
I love it.....:lmao:

How do you really feel? Please don't hold back, no reason to feel shy.
 
D

David Hartman

#4
I understand where Mr. Wagoner is coming from and do agree with the issues he makes regarding "a level playing field", but I believe there are several major factors he conveniently ignores (or at least failed to mention).

Additional contributors to the demise of GM, Ford, and DCX sales/profitability include the fact that the average non-union American hourly worker in a Japanese (or Korean) automotive plant in the US is being paid approximately $10 - $12 an hour, whereas their unionized American auto worker in an American auto plant is making $25 - $27 an hour.

Add to this the fact that the Asian-based plant allows the employee the freedom to be a jack-of-all-trades (i.e. makes them responsible for many facets of the manufacturing process and the process of maintaining the equipment and facilities), whereas the US-based plant employee is limited by the Union contract to performing specific functions and then many times they get to wait on others to do their assigned task before they can do anything else.

I have witnessed with my own eyes Union hourly employees that will come to work, make rate in 4 hours, then set around for then next 4 hours, making "gravy" (in-fact I have witnessed floor supervisors encouraging this).

Then there is the whole issue of Executive pay:

According to Business Week Online – April 18, 2001: Spreading the Yankee Way of Pay

Japanese CEOs come out looking like paupers compared to their American counterparts. Pay for the big cheese at a Japanese firm ranges from $300,000 to $500,000 on average, says Hay Group's Tanaka, with bonuses averaging a measly 10%. In the U.S., by comparison, bonuses often eclipse base salary. And Japanese CEOs trail those in the U.S. by one other measure: Typically, they earn only about 10 times more than a manufacturing employee, according to a 2000 Towers Perrin survey that looked at industrial companies with about $500 million in annual sales. In the U.S., where the multiple is the highest in the world by far, CEOs of 365 top companies raked in 531 times more in 2000 than the average hourly worker did.

The Global Pay Gap (a table):

Nobody beats the U.S. when it comes to the difference in pay between CEOs and the average worker. On average, CEOs at 365 of the largest publicly traded U.S. companies earned $13.1 million last year, or 531 times what the typical hourly employee took home.

Around the rest of the world, Latin America is the leader in pay disparity, though even it doesn't come close to the U.S. At the other end of the spectrum, Japan has the smallest gap between CEO and average-worker pay.

The calculations below are based on on estimates by the consulting firm Towers Perrin as of Apr. 1, 2000. Average employees were assumed to be working in industrial companies with about $500 million in annual sales.

Country / CEO compensation as a multiple of average employee compensation

Brazil 57
Venezuela 54
South Africa 51
Argentina 48
Malaysia 47
Mexico 45
Hong Kong 38
Singapore 37
Britain 25
Thailand 23
Australia 22
Netherlands 22
Canada 21
China (Shanghai) 21
Belgium 19
Italy 19
Spain 18
New Zealand 16
France 16
Taiwan 15
Sweden 14
Germany 11
South Korea 11
Switzerland 11
Japan 10

When, and how, is Mr. Wagoner going to address these issues?
 
Last edited by a moderator:
D

Don Palmer

#5
Here's the true substance of Rick Wagoner's statement. "It's critical that government leaders...forge policy...". All the rest, IMO is sawdust filler. Wagoner would make a pretty good political speech writer.

Anyway, he wants new 'government policy' to help offset the old 'government policy' that got us where we are today.
 
R

ralphsulser

#6
Quote "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."
Mr. Wagoner is chairman and CEO of the General Motors Corporation.


" Level playing field"? Well this baloney too. Top management at the Big 3 have been saying this for over 20 years. So..questions is, "Why haven't they been proactive to change and improve their competitive position in all that time"?
 
D

Dan Armstrong

#9
ddhartma said:
I have witnessed with my own eyes Union hourly employees that will come to work, make rate in 4 hours, then set around for then next 4 hours, making "gravy" (in-fact I have witnessed floor supervisors encouraging this).
I worked for GM for two years in the late eighties. I was told, in no uncertain terms, that once I made rate I was to stop working. I was reprimanded on several occasions for going over my rate, even though I could accomplish it in less than three hours. I was working midnight shift at the time, but I never had to sleep once I got home - I slept at the plant!
 

Jen Kirley

Quality and Auditing Expert
Staff member
Admin
#10
I agree, he should be a speech writer.

"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."

Well, I can hardly wait. :singtome:

He makes no mention of customer satisfaction comparisons--Japanese cars have overall been on top since I can't remember when.

I sometimes wonder if those productivity measurements capture the offsetting costs of recalls and those various other pesky costs of poor quality. For example, the consumed time dealing with problems like Ford has done with its tires. White collar time is costly too, so I wonder how much of it is factored in productivity figures.

I'm sick to death of reading a complaint that litigation is out of control, when I have read how only a small portion of the hurt consumers file.

I agree the $1500(+/-)-per-car cost of health and retirement benefits is burdensome. Yet deciding to partially fund plans with stock investments was management's doing, perhaps in thinking the stock market would always be strong. Now it's not providing enough returns to keep pace, and government should correct some policy?

I agree the greatest tragedy will be that this guy and his team will collect their contracted compensation while the labor costs will be "corrected" through bankruptcy and closing plants. I continue to try recovering from my lost manufactruing job--it isn't easy to become someone else.

The dollar cost (we'll leave mental costs for another day) of becoming someone else is profound. $27 an hour is just over $56K a year. That sounds like a lot, but costs of living being as they are, such a salary frankly isn't unseemly when supporting a family of four. Comparing it to an overseas $10-$12 hourly salary is silly. My pay is in that range, and it's not exactly propping up the economy.

So our erstwhile Mr. Wagoner is not off my hook. Nope.
 
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