Delphi's Steve Miller: "What Went Wrong"

A quote from Miller's speech, published in the Detroit News.

...

Steel, airlines, and autos. Different industries. Similar painful transformations.

What these three industries have in common is an implied social contract that has evolved over the past half century between oligopolistic competitors, in capital-intensive businesses, and fostered by workforces organized by strong centralized labor unions. With the enormous leverage inherent in the threat of prohibitively expensive work stoppages, unions in these industries were able to elevate their workforces above the standards enjoyed by most other Americans, while their employers passed along the costs to customers.

Elaborate defined benefit retirement programs, spurred on by favorable tax treatment, saddled future managers with growing burdens. Back in the days when you worked for one employer until age 65 and then died at age 70, and when health care was comparatively less sophisticated and inexpensive, the implied social contract inherent in these defined benefit programs perhaps made some economic sense. It no longer works in today's economy.

In the steel industry, we were being run off the road, not so much by imports, but by domestic competitors such as Nucor and Steel Dynamics. They paid equally good wages, but needed half the labor hours per ton to do the same job. You may have seen the fine article in last Saturday's NYTimes about Bethlehem Steel. Now part of Mittal Group, there are 8,000 well paid workers producing the same tonnage that 12,000 workers did just three years ago. How can that be? The elimination of antiquated work rules and job classifications is the biggest part of the answer.

In the airline industry, Delta and Northwest were shot down by Jet Blue and Southwest, not Air India or Air China. Worker productivity is a big part of the difference.

And in the auto industry, Toyota, Nissan, and Honda are competing from assembly plants in our back yard, but without the crippling work rules and social costs embedded in Big Three labor contracts. In each case, the old oligopoly has crumbled, not so much from globalization, but from upstart domestic competition.

...

In the midst of these trends, the unions in the traditional steel companies and the traditional auto companies successfully bargained for 'thirty-and-out'. The theory was, create more jobs by retiring people sooner. And isn't working thirty years in a factory enough? What this means is that people can start work at age 20, retire at age 50, and expect full pensions and health care until age 90 or so. In real terms, this idea says that you will enjoy the fruits of your labor for more years than you were actually at labor. As a society, somebody has to pay. And to the shock of the Big Three automakers, they've found that consumers won't pick up these costs when they have choices. As someone said, buy a Hyundai and get a satellite radio as an option. Buy a Chevy, and social welfare comes as standard equipment!

Read the whole thing, it is very interesting stuff.

The "Enclave"?

Suppose you are in the marketing department of a gigantic manufacturing company that is floundering under the weight of old products and sinking market share. Your engineers design new products, and you announce that you are ready to fight your way back to glory with them.

Do you name your new cross-over SUV's "Outlook", "Acadia", and "Enclave"?

Do some word association games. What comes to mind?

Buick Enclave. Ethnic enclaves. Srebrenica. Being surrounded. I imagine that GM was shooting for exclusivity with this name, but they tried too hard. I don't know if other people get a positive association from Enclave, I certainly don't. And the car doesn't look like an enclave, it looks like an overfed tiger, or a carnivorous jelly bean.

GMC Acadia. (blank...) Acacia? Trees? Some town in Pennsylvania? What does this have to do with GMC? Shouldn't a GMC have a tough name, like "Stumpmuncher" or "Towmaster"or something? Or something that evokes rugged wilderness, like Serengeti?

Saturn Outlook. Email. Microsoft. Weather forecast. This one is really dumb--most of the middle class and upper middle class GM is targeting with this vehicle will make the email association. Here's an idea: since the brand name is Saturn, how about using an astronomic name, like Io. Or Titan (oops). Pathfinder (nope). Transit... Galaxy... Rover... Explorer... Voyager... rats. Never mind.

If I was in charge, I would have named the Buick Acadia, and the GMC Chesapeake. The Saturn crossover could be called Endeavor* Apollo.

*Sorry, I don't know the names of all of Mitsubishi's products. I am impressed that anyone does.

What War Really Looks Like [Politics]

This photo shows what Dresden looked like after the U.S. and Great Britain bombed it in February of 1945.



It is shocking to look at. But it had to be done, in the eyes of the leaders back then, to defeat Germany.

In the 1940's we (the US) were willing to destroy cities to ensure victory. Today, we worry about offending Iraqi "detainees" (non-affiliated guerilla combatants = terrorist thugs*). God forbid we should rough them up a little. Or make them pose for embarrassing pictures.

Are we in this war to win, or have we become soft?

*According to the international conventions that the U.S. has accepted on the treatment of POWs, guys who don't wear a uniform, and run around blowing up civilians do not have any rights to be treated like POWs. They should be grateful they weren't shot on sight.

The Burka Project [Culture]

I saw a link to this somewhere and had to look. The "Burka Project" is a series of photographs taken in Paris, and other locales, of three models wearing not much but colorful burkas, exposing their bodies but not their faces. The nearly nonsensical tagline for the series is

"The new freedom of woman by using the Burka as a means of showing all while hiding the essential."

I have a few problems with this "art", if you want to call it that.

I find the practice of forcing women to wear tent-like garments disturbing. But these photographs are also disturbing, because rather than counter-act the burka, they actually continue using the same cultural language.

The faces of the women are hidden, so they have no identity, but with their nude bodies showing, with heels and garters, they are pornographic objects. These photographs could be read by a Muslim as "see, this is why women have to wear burkas--they are whores underneath".

Freedom for women wearing burkas would not mean showing their shaved genitals. Freedom for women wearing burkas would mean showing their faces. Then, a burka clad woman would have a unique identity, which what the burka seems to deny them.

Truck Nuts

Apparently, driving a pickup truck is not manly enough for some guys; they need to advertise exactly how manly they are.

Today I saw a silver GMC sporting a pair of "truck nuts". A large pair of plastic red testicles, they swung back and forth as the truck drove.


Image courtesy of www.truck-nuts.com

This takes the cake. Previously, I thought the poor taste prize was taken by those ubiquitous "Pee on (other brand here)" stickers. Nothing says "I am civilized and intelligent" like a pair of truck nuts.

Anyone working on a truck johnson? Anyone? I ought to reserve that web address..

Toyota May Overtake GM in 2006

News from Japan: A Japanese business paper estimates Toyota production in 2006 at 9,200,000 vehicles, when including Daihatsu and Hino; GM production is not thought to likely exceed the 2005 projection of 9,120,000, given that GM is closing plants.

If these numbers hold, GM will lose its title of largest auto manufacturer by volume in 2006, which is much earlier than the 2010 timeframe I have read about previously.

The Turning Point

GM's recent deal with the UAW, and Delphi's looming battle may mark the turning point for unionized industrial labor in the U.S. This will be a turn towards the iceberg, not away from it.

Once upon a time, not too long ago, a high school graduate could go to a plant, and through luck or nepotism, get a union job on the assembly line. With little education, and few skills, that worker could make a nice middle class wage, with generous benefits, and excellent job security. A skilled worker, such as an electrician, could make as much money as an engineer or manager, with overtime.

The problem with this system is that it out-paced the labor market in general. In non-union factories, pay and benefits are lower than UAW plants. At automotive assembly plants, the wages are similar, but other aspects are dramatically different. For example, non-union assembly plants don't give their workers as much rest time each day. Non-union workers are paid through investment type retirement plans. Healthcare arrangements are much less generous. These differences alone amount to a huge pile of money.

But the biggest difference is flexibility for the employer. A non-union shop can shrink its workforce if it needs to at any time. A poorly performing worker can be fired, rather than just reprimanded. Strict work rules are not enforced, which require workers with certain classifications to perform only the tasks those trades have been assigned. (Just try to go into a UAW plant and re-solder a broken wire, if you are an engineer!)

Because of this flexibility, workers are highly motivated to keep their jobs, and absenteeism is low. In UAW plants, absent workers cost companies millions of dollars each year. In non-unionized plants, quality tends to be higher, or perhaps more easily attained, because of better motivation.

Like anything else in a market system, if a commodity becomes too dear, market forces rise to correct the imbalance. Except in the case of companies like GM, Ford, Delphi, and Visteon, the market forces don't operate on the UAW directly, instead they work to squash the company*.

What can the UAW do to maintain its position? Strike? If the employer goes bankrupt, the UAW has no bargaining position. Either the UAW gives concessions, or the UAW is forced to accept less. Either way, the days of milk and honey are over. The UAW will have to decide between protecting current workers, and protecting retirees. Between keeping more benefits for fewer workers, or keeping more jobs with fewer benefits.

Can the UAW rely on the U.S. Government to save them? So far, I have not heard of any likely plan that is bold enough, or any bold plan that is likely. The government won't raise tariffs, not as long as Republicans or centrist Democrats run the show. The government won't create socialized medicine, to remove the healthcare burden from the corporations. The government doesn't even appear to be willing to go to the mat with Japan and China for their currency policies.

Don't get me wrong, I do not wish any harm to the UAW workers. They are decent people who want to make a good living doing honest work. But I do think that reality has caught up to the UAW. That reality is that working class folks with a highschool education and no specialized skills are no longer valued at $23/hr, with full health coverage, 67 paid holidays, near-bulletproof job security, and a generous retirement plan. For comparison, a pest control tech (exterminator) makes about $13/hr, and this is not an unskilled profession.

As the UAW loses bargaining power, and its members lose buying power, Michigan's economy will slow down even further. Many workers will leave the Midwest for warmer economic climates. Real estate values will be hurt, local government tax revenues will be hurt, and the numerous small businesses that cater to the UAW workers will be hurt.

In this way, when the UAW loses, we all lose.

*Update: I don't mean to say that the American automakers are losing because of the UAW. If GM had maintained or increased its marketshare, the UAW benefits would not be such an issue. GM and Ford did it to themselves through poor strategy, poor quality, and timid design.

*Update: As BigFordFan points out, the 67 holidays are over 4 years; the UAW is actually getting ~17 paid holidays per year. However, this is still significantly more than the average 11 days per year that most people get.

Crown Vic Killer?

Chrysler is going after the police interceptor market with police versions of the Dodge Charger and Magnum.


Image courtesy of InsideDCX.com

Ford, the current king of this market, had better have a plan--no car maker can afford to lose share in a category they do well in now.

If you read the article, you will notice that Chrysler did not win any awards for fuel economy--this may be a good place for a counterpunch. Too bad Ford does not have cylinder de-activation (push-rods are "low tech", you see, most of Ford's engines are OHC).

The main factor that will save Ford, I think, is cost. Ford can probably sell the CVPI for much less than Chrysler $28,805 MSRP for the Hemi equipped Charger.

Don't Believe It

According to the Detroit News, GM's leaders are not considering bankruptcy.

Wagoner said unlike the airline industry, where some bankruptcy filings haven't had a big affect on business, even speculating about bankruptcy hurts the auto business.

"When you're buying a car it's a very different thing," Wagoner said. "It's a massive financial commitment. You expect to own it for a long time, and (bankruptcy) is something that's going to have an impact in the consumer's mind."

That's soothing BS. Any large organization, like any military or government, tries to look ahead and plan for possible scenarios. Somewhere in GM's most secret filing cabinet, at the very top of the Renaissance Center, is a stack of paper marked "bankruptcy Plan".

However, it is true that a bankruptcy from a company the size of GM would be devastating, economically, to many people, and to GM as well. Billions of dollars of investment would be wiped out, and numerous suppliers as well. The amount of goodwill that GM would lose would be enormous.

How Not To Buy A New Car*

Everyone once in a while, when I am driving my car, I have a moment of infidelity. My eye wanders to the shiny new luxury/sports sedan passing me, and I look at my 100,000+ mile odometer, and I wonder if maybe I wouldn't be happier with a different car.

At times like these, I remind myself about how nice it is to not have a car payment. And how relatively cheap the insurance is, because book value has dropped to about $5,000.

Modern cars are fairly well built. If you take care of your car, chances are it will serve you well past 150,000 miles. Chances are you will tire of your car before it actually dies on you. Financially, it almost always makes more sense to fix your old car than buy a new one. Consider: a typical new car payment is around $300-400/month, or $3,600-4,800/year. Here is a list of common repairs that a well used car may need, with ballpark costs:

• Shocks/struts $350
• Ball joints $300
  
• Tires $400
• A/C compressor $400
• Exhaust system $500
• Clutch $700
• Brake pads, rotors $400
• Alternator $200
• Battery $80
• Timing belt $350

My point is that any of these repairs, and even a combination of several, are cheaper than several new car payments. Even if you car needs an engine re-build or new transmission ($2,000-$5,000), that is still only between 6 months and 1 year worth of new car payments.

So, here is a list of things you can do to renew your relationship with your trusty old car. I have tried some of these, and they work for me.

• Clean it up. If it looks more like a new car, you'll get "the feeling" back.
  
• Take it to a full-service wash (like Jax in Detroit) and have it cleaned and detailed inside and out. You'll be amazed at how much nicer your car is when it is brand-new clean. ~$130.
  
• Have your faded Clinton/Gore bumper sticker removed.
  
• Repair the little dings and paint chips that make the car look old. If your seats are ripped, buy a cover, or get them repaired. You may be able to find replacement seats for your car from a dismantler at a reasonable price.
  
• Upgrade the ride. Cars get flabby over time as the suspension components wear.
  
• Buy a new set of good tires. It's amazing what a new set of grippy, quiet tires can do for a car. ~$500.
  
• Buy an upgraded shock/strut package. Tighten up the ride, get back the road feel. ~$500.
  
• Get a new set of wheels. I personally like steel wheels on Michigan's nasty roads (they're easier to fix or cheap to replace) but some people really like a nice set of wheels. $600-$1000.
• Upgrade the engine.
  
• Put in a set of platinum spark plugs (long life) and a new set of ignition wires.
  
• Put in a high-flow air filter such as K&N.
  
• Take it to a tuner and put in an aftermarket supercharger or turbocharger. ~$5,000. Expensive, and somewhat risky, but you will notice a difference!
• Get high-flow headers and exhaust. Less radical than a turbo, but no reliability problems.
  
• Upgrade your interior. The parts you touch have big impact.
  
• Get a real leather steering wheel cover and shift boot, such as WheelSkins. These are very nice, and don't cost much. ~$80.
• Get a new shift knob, like a nice Momo.
• Replace your worn out floor mats with new ones. ~$50.
  
• Get a set of carbon fiber or fake wood trim pieces for your interior. Not my thing, but some people like them. $100.
  
• Upgrade the audio. Who needs a new car to get new gadgets?
  
• Get an aftermarket stereo head unit, perhaps with MP3 or XM capabilities. $150-$400. It's amazing what good sound can do.
• Add an aux input for a portable MP3 player. Or an iPod interface. Or a CD changer.
  
• Swap out your stock speakers for good aftermarket units. $300-500.
  
• Mount a powered sub in your trunk, such as the Bazooka. $250.

The nice thing about driving and older car is that you can customize it gradually over time, without noticing that it is costing you money.

There are some reasons that you may want to spring for a newer car. My main reason would be safety--I would not drive a car older than about 10 years, because I would want more recent crash structures, ABS, airbags, etc. I especially would be careful about driving an older small car, such as a Chevy Canalier. As a car gets much older than 10 years, spare parts get harder to find and more expensive. And some cars are just ugly. If I was driving a rusty Ford Aerostar, for example, I would not keep it!

*What, am I nuts? People buying new cars keep me employed! Interestingly, many automotive engineers drive older cars.

Jail Bait

Ed Alterman of MPH writes about drag racing all comers on Woodward Ave in his loaner Corvette Z06. He feels high and might "like Zeus", until some tunerz with N20 ruin his evening.

A word of caution: I happen to live near Woodward Ave., and you don't want to be caught drag racing, especially not at speeds approaching Ed's 120mph. There have been several street racing accidents in metro-Detroit lately, with grisly outcomes, and the police are taking a dim view of the activity.

F on Yahoo Finance

I was looking at some automotive stocks on Yahoo Finance, and I noticed that Ford's stock (F) is labelled "Ford Motor Credit", rather than "Ford Motor Company".

FORD MOTOR CREDIT (NYSE:F) Delayed quote data

Last Trade: 8.75 Trade Time: 1:14PM ET Change: 0.04 (0.46%) Prev Close: 8.71 Open: 8.75 Bid: N/A Ask: N/A 1y Target Est: 10.33

Day's Range: 8.65 - 8.84 52wk Range: 8.70 - 15.00 Volume: 13,755,200 Avg Vol (3m): 11,142,800 Market Cap: 16.21B P/E (ttm): 7.36 EPS (ttm): 1.189 Div & Yield: 0.40 (4.50%)

Does Yahoo know something?

(Probably just a clerical error)

Unicef: Smurf Killers [Politics]

UNICEF, the United Nations Children's Fund, has produced a cartoon ad in Belgium dipicting Smurfs being blown to bits by a bombing raid. The point is to shock people into donating money to UNICEF:

It is intended as the keystone of a fund-raising drive by Unicef's Belgian arm, to raise £70,000 for the rehabilitation of former child soldiers in Burundi.

Now, I am all for blowing up Smurfs, and stuff, but let me ask one question:

If the UN is so concerned about children being killed, why aren't they doing anything about Darfur?

Eff the UN. Or, should I say, "Smurf the Smurfing United Nations".

Delphi: Out of S&P 500

As a reward for declaring bankrupcy, Delphi is being removed from the S&P 500 stock index, and replaced:

Delphi shares are scheduled to be removed from the S&P 500 Index after
the close of market trading today, and replaced by Patterson Companies Inc., a
distributor of dental products and veterinary supplies.

(From The Detroit News, www.detnews.com)

Delphi--Bad Omens

As you probably have heard already, Delphi, the largest American automotive parts supplier, has filed for chapter 11 bankruptcy protection. Delphi's cross-town rival Visteon, in a similar position, avoided bankruptcy when Ford took back plants and personnel.

I hope that Delphi will not live up to its name, and that this is not a portent more things to come.

I am not sure that GM can avoid the same fate. Saddled with massive legacy costs, and apparently not able to product-develop its way out of a steady market share slide, GM's future looks pretty grim to me.

GM's plan was to release new products that would halt its market share losses and firm up pricing. Unfortunately, this has not yet occurred. The Pontiac G6 is a decent seller, but not a hit, only selling about 100,000 cars annually so far. The Solstice is a hit, but is not a high-volume product. Buick seems to be sleeping. Buick annual sales are down, and I am troubled that I have not been seeing many new Buicks around metro Detroit. Buick used to be a huge brand.

Next, GM releasing a fleet of new fullsized SUVs and trucks. Many pundits criticize GM for investing in this segment, but they forget that trucks are a huge part of GMs business. To walk away from trucks would be a financial disaster for GM. However, the truck segment appears to be shrinking, and GM can at best defend its share, perhaps with some profitability gains. Large trucks will not save GM, but a failure in that segment would doom GM for sure.

Can GM tread water until enough completely new product shows up by 2008? I hope so, but I am not sure I would bet on it. If consumers continue to desert GM, and the UAW does not agree to severe benefit cutbacks, GM could easily go the way of Delphi.

A GM bankruptcy would completely change the playing field. A lean, unencumbered GM would be a world-class competitor, and would put massive pressure on Ford and DaimlerChrysler. Or it would be an attractive takeover target for someone (Ford? Honda? Hyundai? Starbucks?)

A GM bankruptcy would also be devastating to the UAW and to the US economy, hitting the taxpayers with huge pension obligations (like the collapse of Big Steel) and wiping out billions of dollars in investments. It would be the economic equivalent of a nuclear bomb.

May it not come to be.

More Eye Pollution: Honda Element "Woody"

Remember the Silly Car Contest? I saw a strong contender the other day: a Honda Element with an aftermarket "Woody" kit. It looked very much like this:


Image courtesy of www.vwwoody.com

Notice how the "wood" panels on the doors don't even follow the line of the door panels. Ugh.

You can buy all kinds of woody kits at vwwoody.com, even for a Mini.



Your only limits are the limits of your poor taste.

Enough Cup Holders

I've had enough of cup holders. More precisely, I am sick of hearing about them in car reviews. Every review published by one of the Lienerts, and every review published by Consumer Reports discusses the number, location, sturdiness, and size of a vehicle's cupholders. And sometimes, they even bring in gynecological metaphors.

Cars were meant to be driven. They are not restaurants with wheels. A car needs precisely two cup holders--one for the driver, and one for the passenger. Rear seat passengers don't usually need cupholders, because there usually aren't any. If there are kids back there, chances are they will spill their drinks all over your nice clean car, so they don't deserve cupholders. Most people drive alone most of the time--which means that one cup holder is usually enough.

Any automaker that designs more than one cupholder per seating position is wasting interior space that could have been used to hold more beer cases (Car and Driver) , pullmans (Consumer Reports), or whatever unit of interior volume you prefer.

Cupholders don't need to be large enough to swallow a 72oz Mega Slurp. Think of it as automotive calorie control. Cupholders should be large enough to hold a large foam cup of coffee or a regular 12oz soda can. Most cupholders are used as loose change collectors, anyway, and some of them even do duty as ashtrays.

Cupholders that fold away, like delicate plastic origami (Volvo, Saab, Subaru...) are cool because they can get out of the way when you don't need them. So what if they are "flimsy"--don't try to put a 72oz Mega Slurp in them, and they will be fine.

Let's hear more about performance, sound, ride quality, material quality, and build quality. Enough about cupholders.

Racedriven

Welcome to a new (new to me, anyway) automotive blog, Racedriven. Written by one Brian Vermette, Racedriven is mostly focused on motorsports, but does occasionally veer in other directions. Check it out.

Comment Spam

I have been bombarded by spam in the comments areas lately. To try to stop the flood, I have turned on the word verification feature. I apologize for the inconvenience.

If this doesn't work, I will have to switch to registered users comment only.