The United Auto Workers contracts with the Big 3 Automakers included "Job Bank" provisions. Laid off workers were paid up to 90% of their base salary for NOT WORKING! This provision cost GM over $400 Million in 2006 alone.
2007 brought some much needed changes to the Big 3 labor contracts, saving an estimated $1,000 per car.
Take the NUMMI plant in Fremont, California as an example.
As a General Motors plant, the UAW closed the plant four times with strikes and sick-outs between 1963 and 1982. In the final year, reportedly up to 20% of workers were absent without excuse. The plant employed 4,000 workers and it took an average of 34 hours to build a car.
After NUMMI reopened as a joint venture between GM and Toyota, absenteeism dropped to just 2%, the factory employed just 2,200 workers, and build time dropped to just 20 hours.
Thursday, March 25, 2010
American Car Quality
How well do American cars stand up to their international competition?
Well, Consumer Reports included just one American car in 2004 in their list of Top 10 Picks. In 2005, 2006, and 2007 there were NO American cars on the list. All 10 cars on the list were Japanese, including four hybrids - the Honda Civic and Accord, and Toyota Prius and Highlander. For 2008, only the Chevy Silverado 1500 pickup truck made the Top 10 list. The Chevrolet Avalanche pickup was the sole American car, equaling the number of Korean cars on the 2009 list. The trend continued with only the Chevy Traverse making the cut in 2010.
With all the marketing dollars spent on differentiating European cars on their "exceptional quality", "Ultimate Driving Machine" or "Joy", not one European nameplate appeared until Volkswagen returned to the list in 2009 and 2010.
POP QUIZ
1) What car do you drive today?
2) Which brands and models would you consider for your next car purchase?
If you currently have a Japanese car, your answers to #1 and #2 are probably the same. If you drive any other car, your answers were probably different.
Well, Consumer Reports included just one American car in 2004 in their list of Top 10 Picks. In 2005, 2006, and 2007 there were NO American cars on the list. All 10 cars on the list were Japanese, including four hybrids - the Honda Civic and Accord, and Toyota Prius and Highlander. For 2008, only the Chevy Silverado 1500 pickup truck made the Top 10 list. The Chevrolet Avalanche pickup was the sole American car, equaling the number of Korean cars on the 2009 list. The trend continued with only the Chevy Traverse making the cut in 2010.
With all the marketing dollars spent on differentiating European cars on their "exceptional quality", "Ultimate Driving Machine" or "Joy", not one European nameplate appeared until Volkswagen returned to the list in 2009 and 2010.
POP QUIZ
1) What car do you drive today?
2) Which brands and models would you consider for your next car purchase?
If you currently have a Japanese car, your answers to #1 and #2 are probably the same. If you drive any other car, your answers were probably different.
A Tale of Two GMs
General Motors expanded under Alfred Sloan's leadership in the 1930’s.
Sloan was a visionary who created the “Ladder of Success” pricing structure - Consumers move up the product ladder as aspiration and wealth increases from Chevrolet to Pontiac to Oldsmobile to Buick and ultimately Cadillac.
Sloan also introduced planned obsolescence with annual styling changes driving consumers to aspire to the latest and greatest styling and gadgets.
Ford resisted and kept the same styling for years, propelling GM to industry leadership for 7 decades.
In contrast, Rick Wagoner (1998-2009) focused on controlling costs. He consolidated engineering organizations w/o cutting headcount. Individual brand and model identities were homogenized by combining design divisions across shared platforms. Chevrolets, Pontiacs, and Buicks were essentially the same cars with minor trim and color differences between them. GMC and Chevy trucks differed solely in name. GM's brand strategy and the "Ladder of Success" that took seven decades to build was undermined in just one decade. This time around it was Ford that was introducing new models with innovative styling and the latest gadgets. General Motors filed for bankruptcy in 2009. Ford didn't and continues to regain market share.
Sloan was a visionary who created the “Ladder of Success” pricing structure - Consumers move up the product ladder as aspiration and wealth increases from Chevrolet to Pontiac to Oldsmobile to Buick and ultimately Cadillac.
Sloan also introduced planned obsolescence with annual styling changes driving consumers to aspire to the latest and greatest styling and gadgets.
Ford resisted and kept the same styling for years, propelling GM to industry leadership for 7 decades.
In contrast, Rick Wagoner (1998-2009) focused on controlling costs. He consolidated engineering organizations w/o cutting headcount. Individual brand and model identities were homogenized by combining design divisions across shared platforms. Chevrolets, Pontiacs, and Buicks were essentially the same cars with minor trim and color differences between them. GMC and Chevy trucks differed solely in name. GM's brand strategy and the "Ladder of Success" that took seven decades to build was undermined in just one decade. This time around it was Ford that was introducing new models with innovative styling and the latest gadgets. General Motors filed for bankruptcy in 2009. Ford didn't and continues to regain market share.
Tuesday, March 2, 2010
How to ruin a Good Business - Part 1
This is the first in series of blogs looking in the rear view mirror at the automotive industry in the United States.
Early in 2009 as it appeared that the Big 3 car makers were sinking faster than the Titanic, I started thinking about buying stock in GM and Ford. I believed the auto industry was nearing the bottom and was due for a turnaround. My reasoning was fairly simple. Sales were slow because potential buyers were struggling through a deep recession and kept their aging (but debt-free) cars longer than they normally would during better economic times. The Big 3 were stuffing the sales channels shoving 2009s at dealers who couldn't find room to store all the unsold 2008s.
In preparing a bid for the Saturn Motors Division, I researched publicly available SEC filing and investment research reports on the Big 3. While normal people were watching the Super Bowl, I was reading through thousands of pages of annual reports. Frankly, I was taken aback by how much unsold inventory was piling up, how much money each company was losing, and how daunting a task it would be to try keeping these sinking ship afloat.
My first reaction was to short Ford and GM stocks.
Early in 2009 as it appeared that the Big 3 car makers were sinking faster than the Titanic, I started thinking about buying stock in GM and Ford. I believed the auto industry was nearing the bottom and was due for a turnaround. My reasoning was fairly simple. Sales were slow because potential buyers were struggling through a deep recession and kept their aging (but debt-free) cars longer than they normally would during better economic times. The Big 3 were stuffing the sales channels shoving 2009s at dealers who couldn't find room to store all the unsold 2008s.
In preparing a bid for the Saturn Motors Division, I researched publicly available SEC filing and investment research reports on the Big 3. While normal people were watching the Super Bowl, I was reading through thousands of pages of annual reports. Frankly, I was taken aback by how much unsold inventory was piling up, how much money each company was losing, and how daunting a task it would be to try keeping these sinking ship afloat.
My first reaction was to short Ford and GM stocks.
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