To bail out or not to bail out?
The Question: Bailout or no bailout?
Postulate 1: It's not auto sales that's the problem
I heard a quote the other day from senator Tom Coburn, one of the Republicans filibustering the auto bailout plan:
"In 2007, GM sold 9.37 million cars worldwide. Toyota, that same year, sold 9.37 million cars worldwide. GM lost 38.7 billion. Toyota made 17.7 billion. Therein lies the problem."
Now wait a minute. What I keeping hearing is this: "The problem is that no one will buy American-made cars." In fact, this made the rounds on the 'tubes this week:
So what's the truth?
Turns out Coburn is right and the poster above (while catchy) is wrong. Google around and you'll find plenty of references (mostly from reports that came out in January of this year):
MSNBC
Washington Post
etc.
In 2007, GM (the biggest and most dramatic example of "trouble" in the US auto industry) beat Toyota in worldwide sales by only a few thousand cars, but they each basically sold 9.37 million cars.
As an aside, GM's sales are going down in the US, but they are going up basically everywhere else:
"Overall, we sold more than 9 million cars and trucks in 2007 for the third year in a row, and only the fourth time in GM history. Of those sales, a record 59 percent were outside the U.S. ... In 2007, our sales in Europe were up about 9 percent to a record 2.2 million units ... Strong demand for GM cars and trucks in the United Kingdom, Ukraine, Italy, Greece and Russia - where sales doubled to almost 260,000 units - made GM the fastest growing major automobile manufacturer in Europe in 2007 ... n 2007, we, with our local partners, became the first global automaker to sell more than one million vehicles there. Other highlights include 74 percent sales growth in India, and 30 percent growth in export sales from GM Daewoo in Korea. ... In our Latin America, Africa and Middle East region, sales were up 19 percent to a record 1.2 million units in 2007. All-time sales records were set in the important Brazilian market, as well as in Argentina, Chile, Colombia, Egypt and Venezuela."
From GM's 2007 Annual Report
It's pretty clear that GM is selling plenty of cars, and while the American market is tanking, they're growing rapidly around the world. Where's the problem, then?
Postulate 2: Maybe it's the employee costs?
A lot of folks assume that non-American cars are made mostly in non-US plants, but that's no longer true. Most Toyotas sold in the US are also made in the US. However, those Toyota plants are non-unionized. The hourly rate for union GM workers versus non-union Toyota workers is about the same, but when you add in benefits, there's a HUGE margin:
"Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively. ... the hourly compensation cost for labor, including benefits and retirees' costs, at the Big Three is $73 per hour, compared with $44 per hour at a Toyota factory with American workers in the U.S."
From blog.mises.org
It takes roughly the same number of hours for Toyota to make a car as GM, but the cost-per-hour is hugely different. GM's unionized workers have a sweet deal, but it may be a deal that runs their company into the ground. When you get the average profit or loss per vehicle (total profit loss/vehicles sold), you see this stark statistic:
"For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold."
From blog.mises.org
In other words, every time GM makes and sells a vehicle, they LOSE four grand. Unbelievable. They simply can't afford to research, design, manufacture, deliver, and sell cars at a price that makes a profit.
Postulate 3: Maybe it's everything EXCEPT sales?
Unions don't account for all of it. There are other issues, such as distribution costs (Toyota sells through a MUCH smaller network of dealers, apparently), supply chain efficiencies, the fact that a lot of GM's sales are cheap sales to rental fleets, and so on.
If, as it appears, GM is selling plenty of cars but hemmorhaging money everywhere, then it's hard for me to see doing anything to prop them up. It seems the demand is there, and they just need to go through a painful period of slimming down. You know, the kind of thing companies do when they go through a Chapter 11.
Postulate 1: It's not auto sales that's the problem
I heard a quote the other day from senator Tom Coburn, one of the Republicans filibustering the auto bailout plan:
"In 2007, GM sold 9.37 million cars worldwide. Toyota, that same year, sold 9.37 million cars worldwide. GM lost 38.7 billion. Toyota made 17.7 billion. Therein lies the problem."
Now wait a minute. What I keeping hearing is this: "The problem is that no one will buy American-made cars." In fact, this made the rounds on the 'tubes this week:
So what's the truth?
Turns out Coburn is right and the poster above (while catchy) is wrong. Google around and you'll find plenty of references (mostly from reports that came out in January of this year):
MSNBC
Washington Post
etc.
In 2007, GM (the biggest and most dramatic example of "trouble" in the US auto industry) beat Toyota in worldwide sales by only a few thousand cars, but they each basically sold 9.37 million cars.
As an aside, GM's sales are going down in the US, but they are going up basically everywhere else:
"Overall, we sold more than 9 million cars and trucks in 2007 for the third year in a row, and only the fourth time in GM history. Of those sales, a record 59 percent were outside the U.S. ... In 2007, our sales in Europe were up about 9 percent to a record 2.2 million units ... Strong demand for GM cars and trucks in the United Kingdom, Ukraine, Italy, Greece and Russia - where sales doubled to almost 260,000 units - made GM the fastest growing major automobile manufacturer in Europe in 2007 ... n 2007, we, with our local partners, became the first global automaker to sell more than one million vehicles there. Other highlights include 74 percent sales growth in India, and 30 percent growth in export sales from GM Daewoo in Korea. ... In our Latin America, Africa and Middle East region, sales were up 19 percent to a record 1.2 million units in 2007. All-time sales records were set in the important Brazilian market, as well as in Argentina, Chile, Colombia, Egypt and Venezuela."
From GM's 2007 Annual Report
It's pretty clear that GM is selling plenty of cars, and while the American market is tanking, they're growing rapidly around the world. Where's the problem, then?
Postulate 2: Maybe it's the employee costs?
A lot of folks assume that non-American cars are made mostly in non-US plants, but that's no longer true. Most Toyotas sold in the US are also made in the US. However, those Toyota plants are non-unionized. The hourly rate for union GM workers versus non-union Toyota workers is about the same, but when you add in benefits, there's a HUGE margin:
"Currently, UAW workers at Ford, GM and Chrysler earn an average of $28 per hour, plus benefits. At the Toyota and Honda non-union plants in the United States, the hourly rate, excluding benefits, is $26 and $24, respectively. ... the hourly compensation cost for labor, including benefits and retirees' costs, at the Big Three is $73 per hour, compared with $44 per hour at a Toyota factory with American workers in the U.S."
From blog.mises.org
It takes roughly the same number of hours for Toyota to make a car as GM, but the cost-per-hour is hugely different. GM's unionized workers have a sweet deal, but it may be a deal that runs their company into the ground. When you get the average profit or loss per vehicle (total profit loss/vehicles sold), you see this stark statistic:
"For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold."
From blog.mises.org
In other words, every time GM makes and sells a vehicle, they LOSE four grand. Unbelievable. They simply can't afford to research, design, manufacture, deliver, and sell cars at a price that makes a profit.
Postulate 3: Maybe it's everything EXCEPT sales?
Unions don't account for all of it. There are other issues, such as distribution costs (Toyota sells through a MUCH smaller network of dealers, apparently), supply chain efficiencies, the fact that a lot of GM's sales are cheap sales to rental fleets, and so on.
If, as it appears, GM is selling plenty of cars but hemmorhaging money everywhere, then it's hard for me to see doing anything to prop them up. It seems the demand is there, and they just need to go through a painful period of slimming down. You know, the kind of thing companies do when they go through a Chapter 11.