Yes, and I just heard on the radio this morning that the UAW left negotiating with Ford for last because they're in the worst fiscal shape of any of the Big Three, and the UAW is figuring that if they negotiate a particular deal with GM and Chrysler, Ford will more or less have to match it.
The real reason for Detroit's demise is bad management. They don't produce the vehicles people want to buy. If the reason had been high production costs, they would have had success with the big incentives that they have been offering in the last 4 years. Fact is, they mostly only increased rental fleet sales.
What do you propose Detroit do? Should they screw their former employees who worked for decades under the assumption that the retirment benefits promises made to them in employment contracts were lies?
The only and best thing they can do is go to the equity markets and say,
"Look, here's the deal. We need X billion in capital to make good on our pension and health care promises to previous employees. We PROMISE not to commit such outlandish retirement benefits again to future employees. We will cut costs inline if not better than our foreign competitors (unlikely) and the regain profitability."
Bad luck as it may be for current pensioners that is their only option aside from going bankrupt, in which case nobody except creditors will get anything.
The bottom line is that defined benefit pensions are doomed for failure, because the assumptions they were created on were just that - assumptions.
When they were created - nobody could estimate that life expectancies would increase that quickly. Discount rates and returns have been relatively constant, but when the average retiree goes from 5-10 years of benefits to 20-30 years - the costs become unsustainable.
Consider it a marginally better run social security plan and you get the picture. However, this is the corporate welfare state going bankrupt, as they don't have the power to tax their way out of short term problems. But the problems of the Big three, with their pension and health care costs are an indicator of the issues that Europre, Canada, and other welfare state will be facing soon enough
Lest it be overlooked, Toyota and Honda, at least, have built automobile factories in the Unites States. Given that the American factories for these brands do, in fact, have lower labor costs, I must reiterate that the nation of Japan and the labor costs there have nothing to do with this chart. Those factories use American workers.
Um, not to point out the obvious, Cap'n, but the chart shows costs for cars made in the United States, raher than Japan.
ReplyDeleteYes, and I just heard on the radio this morning that the UAW left negotiating with Ford for last because they're in the worst fiscal shape of any of the Big Three, and the UAW is figuring that if they negotiate a particular deal with GM and Chrysler, Ford will more or less have to match it.
ReplyDeleteCan we say "DUH, you SO don't get it!"?
Mahan,
ReplyDeleteCorrect, but if you look at the bottom they list Toyota.
The real reason for Detroit's demise is bad management. They don't produce the vehicles people want to buy. If the reason had been high production costs, they would have had success with the big incentives that they have been offering in the last 4 years. Fact is, they mostly only increased rental fleet sales.
ReplyDeleteWhat do you propose Detroit do? Should they screw their former employees who worked for decades under the assumption that the retirment benefits promises made to them in employment contracts were lies?
ReplyDeleteWhat would you do?
Ed, you act as if they have a choice.
ReplyDeleteThe only and best thing they can do is go to the equity markets and say,
"Look, here's the deal. We need X billion in capital to make good on our pension and health care promises to previous employees. We PROMISE not to commit such outlandish retirement benefits again to future employees. We will cut costs inline if not better than our foreign competitors (unlikely) and the regain profitability."
Bad luck as it may be for current pensioners that is their only option aside from going bankrupt, in which case nobody except creditors will get anything.
Now, if you think that's bad look up the PBGC.
The bottom line is that defined benefit pensions are doomed for failure, because the assumptions they were created on were just that - assumptions.
ReplyDeleteWhen they were created - nobody could estimate that life expectancies would increase that quickly. Discount rates and returns have been relatively constant, but when the average retiree goes from 5-10 years of benefits to 20-30 years - the costs become unsustainable.
Consider it a marginally better run social security plan and you get the picture. However, this is the corporate welfare state going bankrupt, as they don't have the power to tax their way out of short term problems. But the problems of the Big three, with their pension and health care costs are an indicator of the issues that Europre, Canada, and other welfare state will be facing soon enough
*sighs*
ReplyDeleteLest it be overlooked, Toyota and Honda, at least, have built automobile factories in the Unites States. Given that the American factories for these brands do, in fact, have lower labor costs, I must reiterate that the nation of Japan and the labor costs there have nothing to do with this chart. Those factories use American workers.
Savvy (to steal a line)?
It's cheaper for them because they're not promising healthcare out the ass for all of their employees.
ReplyDeleteThe next time someone tells me that US car manufacturers need help, I'll tell them to go kill a retired UAW member.
Now now now, easy on the hate.
ReplyDeletehttp://www.youtube.com/watch?v=-9RbZyrJQ4g&eurl=http%3A%2F%2Fwww%2Eleftlanenews%2Ecom%2Fchinese%2Dsedan%2Dflunks%2Dgerman%2Dcrash%2Dtest%2Dwith%2Dvideo%2Ehtml
ReplyDeleteI'm just thinking in terms of what would be best for American manufacturers. :)
ReplyDeleteGotta be sure you do it right, though... if you put somebody into long term care, it's completely counterproductive.