Making cars and politics
General Motors Chairman and CEO Rick Wagoner, Ford Motor Co. Chairman Bill Ford and Tom LaSorda, Chrysler Group Chief Executive Officer, the North American unit of German automaker DaimlerChrysler are planning to meet with President Bush in June.
There has always been one meeting with the traditional Big 3 with each sitting President. Why two American automobile companies and one European automobile company, but not an Asian automobile company? It’s not just the perception that Chrysler is still an American company, or that it is Tom LaSorda, the CEO of the American sector that is meeting with the President.
The “traditional” Big 3 occupy the biggest United States space of all the manufacturers and they have some unique issues that have the most immediate impact on the Big 3. Some of these issues may be pressing for other manufacturers as they continue in the United States, especially if the government cant help solve some of the problems the Big 3 are facing. Other issues involve currency manipulation and trade disparities by Japan.
I lived in Japan in the 70s when the yen was 360 to the dollar. We were loving it. My father was in the military, so he got paid in US dollars and we were able to buy all kinds of hand-painted, handmade articles. The dollar has declined substantially since then. According to Jason Vines, spokesperson for Chrysler, “Rick Wagoner, CEO of General Motors has stated that the currency manipulation gives the Japanese companies anywhere from $2,500-$5,000 cost advantage. This is not only an unfair pricing advantage to the automotive sector, but to all imported goods.” When asked what could be done Vines said Congress could make Japan stop the manipulation or could retaliate through tariffs.
What are some of the discussions the Big 3 should have with President Bush?
We all know about legacy costs. Each car manufactured by the Big 3 has an additional $1,000 – $1,500 because of health care costs. The Manufacturers are not asking for a health aid package for the auto nation, but a health reform for the nation. The Big 3 have about the same retirement program as the U.S. government has for their retired military. In fact, the second largest employer in Michigan used to be the military and some from that era have said that all General Motors was doing was matching the benefits of their competition.
My Father is retired from the military. He receives a pension, social security, and full health care, including $3 per bottle for each drug his doctor prescribes. My Great Uncle, God rest his soul, was a Captain in the Navy during the war. His wife, my Great Aunt Ann, is 90 years old and in assisted living. She gets social security, my Great Uncle’s pension, health care, and Tricare so that her drug prescriptions are only $3 a bottle.
As an adult, I appreciate the fact that they are economically self-sufficient and that all their income isn’t spent on prescriptions. As an adult, I also wonder how we are going to sustain the legacy costs of all the military and retired military in the United States. It’s got to be a substantial financial number at this point and getting bigger.
Health care is, inherently, a national problem that needs to be looked at as a national problem. Pensions are a national issue as well. The Pension Benefit Guaranty Corporation (PBGC), a federal corporation created under the Employee Retirement Income Security Act of 1974 (ERISA), requires every company that has a pension plan to pay $30 per person per year as insurance premiums. It’s one of the reasons that companies such as Hewlett-Packard and Verizon have frozen their pensions and are going to 401Ks. General Motors has 700,000 employees in their retirement plan and they will pay $21M per year for their coverage. Congress has effectively implemented another corporate tax on businesses.
Toyota doesn’t have this problem, and it will never be as big as the Big 3’s problems. According to a New York Times article, dated May 19, 2006, Toyotas American company has just 258 retired production workers; GM has over 400,000 retirees. By 2012 Toyota will have around 1,700 workers that will be eligible for retirement, 6% of the current labor force
The Times article quoted Gritton as saying, “We want to avoid commitments when we have no control over their costs,” said Pete Gritton, the head of human resources for Toyotas United States manufacturing operations. “We cant build in things in such a way that we won’t be able to keep our commitments later.” Toyota is right on a financial level and the workers that retire from Toyota will be picking up a larger share of their retirement and health costs than the Big 3, as well as paying part of their premiums. In Japan, and other countries, the government has socialized medicine and pension plans for retired individuals.
The Big 3 are touting ethanol as a way to save America. The dollar declined further last week and Wall Street took a beating, noting the cash liquidity shortage. E85 would keep 85 percent of the money spent on foreign gasoline in the United States. That would be around $700,000,000 a DAY. They need oil companies to comply. In fact, they need oil companies to do more than just comply. Right now, according to the Department of Energy,
Fords Vice President Sue Cischke, environmental and safety engineering, joined Members of Congress to promote bipartisan legislation that would offer a reimbursement of up to $30,000 to gas station owners who convert their pumps to renewable fuels.
The Alternative Energy Refueling System Act of 2006 (S. 2614) and it’s companion measure in the House–would provide incentives for gas station owners across the country to convert their pumps, giving consumers greater opportunities to opt for cleaner, renewable fuels such as those containing ethanol, compressed natural gas or bio-diesel, in an effort to reduce our nations dependence on foreign oil.
Hybrids are great and next year General Motors, Daimler Chrysler and BMW will be bringing out their two-mode hybrid. Ford already has hybrids on the market, as does Toyota. But hybrids just allow us to go further on a tank of gas. Look at the sprawl of suburbia and you will know that we are traveling more than ever before. CAFE was legislation that was put into place to reduce our dependence on foreign oil. Raising the miles per gallon of a vehicle does not do that. Raising the price of gas, or finding alternative fuels to transport us does do that. Since Toyota is the biggest competitor for hybrids it would make sense that the Big 3 does not want to talk about a future product in front of its main competitor. Nissan is the only Asian company to have a flex-fuel vehicle; the Nissan Titan. Expect ethanol hybrids to show up within two years. Not necessarily from an Asian company.
Manufacturers don’t need to wrap themselves in national flags. The auto business is too global for that kind of nationalistic sentiments. Heads of state meeting with industry leaders are normal and natural. It happens in the US, in Japan, and in Europe. Sometimes these meetings focus on a small group of manufacturers and sometimes larger groups. The difference is what those groups have in common and how that commonality affects the country.