Communist witch hunters called Americans who supported the battle against Francisco Franco before World War II “premature anti-fascists.” In other words, they were right for the wrong reasons. There’s a lot of that going around these days. For example, Chrysler and GM’s claim that they need to cull dealers is spot on. But trimming overheads, as the automakers claim, ain’t it. [See: number three after the jump.] By the same token, it’s also true that New GM is doomed to failure. But not for the seven reasons that Seeking Alpha sets forth. Still, Jason Mathew’s analysis is worth a closer look . . .
1.) $1400 in per vehicle costs went untouched to ensure re-election and voter satisfaction rather than shareholder value
Not exactly. GM’s “reinvention” is facilitating a rapid decrease in the number of GM employees (despite Senator Stabenow’s “jobs, jobs, jobs!” pro-bailout rallying cry). Many of these disappeared have agreed to buyouts that limit their pensions. In any case, as the employee count decreases, as the old guard shuffles off to the great assembly line in the sky, GM’s pension costs are going down. Pension costs for retirees come out of the pension, not GM’s bottom line. For whatever that’s worth.
2.) Bankruptcy court ruling did not establish labor rate parity with Toyota (TM) or Honda (HMC)
GM’s direct labor wages were already close to parity with the transplants. As TTAC’s Ken Elias taught us many, many moons ago, the domestic automakers set the bar for automotive assembly workers’ hourly pay. GM’s real excess labor costs: the Other Post-Employment Benefits (OPEB) paid out to GM’s massive retiree base (e.g. health care). The real labor problem: highly paid workers who don’t contribute bupkis to production (thank you UAW work rules).
3.) Reducing dealer count will have nominal impact on GM’s cost structure yet significant downside impact on market share
Dealer count, market share, dealer count. Chicken egg chicken. GM needed to cull dealers to eliminate overlap, lower inventory costs and kill brands (to focus branding, products, marketing, etc.). In theory, less inventory on the ground should reduce GM’s carrying costs, reduce bureaucracy (improve accountability) and speed-up cash flow/turnover.
Any way you look at it, there are too many GM dealers to support the bankrupt automaker’s diminished—and diminishing—market share. What’s not clear: whether GM can sell the same number of vehicles (at retail) with fewer dealers. Or, if you prefer, what is the right number of GM dealers? I’m not sure I’d want the same GM suits who were working the old dealer system without complaint to establish the new one. In fact, it’s a really bad idea.
4.) Government and UAW as majority owners = poor management
Ya think? But the United Auto Workers (UAW) likely won’t have, nor do they desire, a strong influence on GM’s management. For one thing, the UAW doesn’t want accountability. The more it interferes, the less it can bitch and moan and (when needed) duck and cover. They’ve done just fine without saying anything about GM’s current plans. Why start stopping now?
Besides, the UAW’s “independent” union health care VEBA owns GM stock, not the UAW itself. The UAW has publicly stated that it just wants to get full value for its stock and cash-out ASAP. Believe it or not, I believe them.
[Seeking Alpha’s scribe would have been better off just saying “Government = poor management” and be done with it.]
5.) GM will be at a strategic competitive disadvantage with no ability to financially engineer sales with 0% loans and extend consumers credit
Wrong. GM will not be at any disadvantage in this regard; GM pays GMAC for those financially engineered deals, and the government more or less owns both organizations. Bottom line: if GM wants to hold fire sales, toe tags sales, zero percent deals, cash back specials and get America rolling promotions, you, the taxpayer will pay for it.
6.) GM Europe operations will only get worse, supply base is weaker than the U.S. and surviving brand equity is weak
Huh? GM’s off-loading its European operations to someone at some point soon. Or not. Either way, the corporate mothership is busy washing its hands of the whole deal.
7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today
First of all, loopholes. Lots and lots of loopholes. Secondly, do we seriously expect the Feds to put its $50 billion investment in GM and Chryco at risk by regulating GM (a.k.a. themselves) to death?
The real problem for New GM is the same one that led it to its first bankruptcy: it doesn’t know how to make the products that Americans want to buy at a sufficient profit to take in more money than it spends. In other words, it can’t compete. To think that a government-run GM can make that happen when a privately held GM could not is the worst sort of folly. The folly for which I have to pay.
“Secondly, do we seriously expect the Feds to put its $50 billion investment in GM and Chryco at risk by regulating GM (a.k.a. themselves) to death?”
But at the same time, isn’t the gov’t just a beast with two heads that constantly bite at each other? I’m sure the Democratic party doesn’t want to regulate it’s investments to death, but I bet there are Republicans out there who would love to make the other party look stupid, regardless of the impact on America and its people. It’s not like the American people were ever considered in this whole ordeal anyway…
And in other news, Generalissimo Francisco Franco is still dead.
Pariah – In this case, GM/Chryco will have plenty of allies from other automakers to change the rules. And those rules will change via loopholes, credits, etc. that no one will figure out. Regulating the auto industry out of existence makes no sense. Think of higher CAFE standards as merely a target, nothing more.
“To think that a government-run GM can make that happen when a privately held GM could not is the worst sort of folly.”
Well said. A more useful analysis would be to list the 10 things that ARE changing to avoid a Ch. 11 for the New GM.
BTW: Getting “smaller” doesn’t count since a smaller GM has smaller revenues.
This is overall a good analysis. GM’s biggest problem for decades has been and will continue to be its lackadaisical standards and inability to excel at something except for being really cheap, and being real cheap has driven them into the ground financially.
Cars like the new malibu is a step in the right direction in that it meets basic consumer standards of what to expect from a midlevel sedan, now they need to propagate these standards across the line and come up with an effective differentiator. I would almost think trumpeting its American heritage may work ala Camaro etc as halo.
On the other hand, they are running against the clock. Even if they’re successful in creating somewhat compelling products, they’re working against their decades of decadence which has left a trail of ill will in terms of reputation. More than any technical challenge, I think the broader social hurdles and a persistent weak car market will be what does them in the end.
nothing has been done to overcome the 3x system over capacity
I worked for 30 years in the body shop at a GM plant. Believe me if there were work rules that would let me off even some of the work the industrial engineers had prepared for me I would have embraced them like my mother’s knee. Instead the main work rule we were all very aware of was “restricting throughput” i.e. not keeping up to production rates and otherwise not doing your job properly. Cross that work rule and you’ll be called to account in a matter of minutes. I have personal experience of this.
I’ve read now about these infamous work rules that screw up production efficiency at CAW/UAW plants for years now. No one ever specifies any however. Care to have a go Mr. Farago? Anyone?
The only work rules that I am aware of apply mostly to skilled trades. Electricians make some cogent arguments that no sane person would dispute. Do you want a machine repairman or janitor handle the very high electrical currents involved in a plant full of robots and resistance welding? There are more than a few people dead in the plants from just such folly.
When John Delorean died a while back, NPR ran an old interview. He said he had a recording of a GTO exhaust he would listen to all night long. We need geniuses (yes DeLorean was a genius, in addition to his faults) to make GM work. Not some pansy (think Roger Smith and his bow tie)Ivy League MBA who never lifted the hood of a car in his life.
Until you get real leadership (think Henry Ford or Lee Iacocca) GM can’t make it.
Not to stray, but Franco was certainly no worse than the republicans whom he fought in the Spanish Civil War – the republicans would be the equivalent of armed anarchists of today, only very violent, at least when it came to Spanish culture and values. It was a very brutal violent war. There is a reason communists from all over the world flocked to fight for the republicans, while Franco’s Nationalists were almost entirely Spanish (with some help from the German Luftwaffe)
He had his faults, but he was smart enough to keep Spain out of WWII, which the republicans certainly would not have done. Spain was also the only European country to become a democracy without a single act of violence – he left instructions to let the King of Spain decide.
I beg to differ
1) The U.S Pension Fund was fully funded, the gap was in health care, the divestiture of EDS funded it.
2) The UAW last UAW agreement allowed for the two tier wage system which will get them to parity.
3) Is an opinion, mine is the remaining dealers would pick up the retail slack, the big decline will be in money losing, residual destroying daily rental sales that Hyundai,Kia and Ford are racing to pick up.
4)Is an opinion, mine is the Feds are going to step back appoint some folks and get the f out of the way.
5)GM has always had to pay higher than the going rate to GMAC for subvention rates, this is not an added cost to the operation.
6) GM Inc will have 35% of the new company. As long as they pick up their share of the the new vehicle development cost, how does that effect the new company ?
7) Volt ? Cruze ? All the other manufacturer’s have exactly the same problem ?
R.F with minions like this, you need help.
@ Bigsby
Years ago, at the Oak Creek Delphi plant, one of the hourly supervisors had one of the first laptop computers. Every morning, an electrician was needed to connect the laptop to an ethernet cable, and every afternoon the electrician needed to disconnect the laptop.
In that same plant, I needed a box of floppies (…remember them?…) for an emergency repair on test equipment. The crib could not give me the box; a millwright needed to deliver them to my desk.
This was insane.
Of the myriad anecdotal stories I could tell, one of my favorites was a monthly grievance meeting that the union held. This meeting reviewed the complaints which the hourly filed, claiming breaches of work rules. Most of the claims were one union brother accusing another union brother of doing a job that crossed union work rules. For example, an electrician moving a power supply across the room was in violation…he was doing the job of a millwright. Of course, if the union bosses deemed an infraction valid, the company had to pay the millwright back wages.
I know that the above relates to the skilled trades. I could relate stories about the production workers as well, but those tales are not as blatant.
I feel that the UAW, the IAM, and the IBEW had killed the golden goose. That electrician who babysat the ethernet cable, as well as thousands of other hourly workers, have long ago retired with full benefits. There is no way the new GM can support them. Federal government may help, but I think this will become a hot potato in the next few years. For me, I’m trying to get out of Delphi while I’m young enough to make the transition. I feel sorry for the hourly (and salary) who will face the decline of this Roman Empire.
I’ve never subscribed to the govt. necessarily = bad management meme. As I like to point out – how could anyone, even a bunch of bureaucrats, F things up worse than the private sector managers of the last 30 years ?
@ Bigsby
First of all, +1 Stargazer…very compelling.
Second, as a 16-year old HS student I earned a summer internship in the Materials Dept at our local Ford plant.
At the same time, I was employed as one of the kitchen staff at a local restaurant (busy summer!)
I had gotten used to one simple rule at the restaurant: Everyone helps each other do each job because we are all working toward the same goal. Simple concept. Well run business.
Enter the UAW. While walking thru the plant to a meeting, I witnessed a 2 foot diameter puddle of oil on the floor and a worker in a folding chair with his feet propped up reading a magazine next to it.
The Materials Mgr and I had this exchange:
Me: “Um…shouldn’t somebody clean up that oil? I would never get away with taking a break next to a puddle of standing water at my job.”
MGR: “He’s a maintenance worker.”
Me: “Ohhhhh. So then he doesn’t have time because he’s just on a break from fixing something?”
MGR: “Nope. That machine breaks down about every three days, so he’s assigned to sit next to it and fix it if it breaks.”
Me: “Well then won’t he get in trouble for not cleaning up the oil.”
MGR: “No, because that’s a janitor’s job.”
Me: “So where’s the janitor?”
MGR: “I’m sure he’s off doing other cleaning. Hopefully there’s a work order and he will get to it in a couple days.”
Me: “But someone could slip. Where is the janitor’s supplies, I can clean it up if he’s busy.”
MGR: “No you can’t. If you clean it up , the Union will file a grievance against you for doing the janitor’s job.”
Me: “But if he can’t get to it right away…”
MGR: “If it takes more than a couple days for him to get to it, they may hire another janitor. If you clean it up, they see it as stealing hours from the janitors.”
Me: “Really? Can I at least go get some cones to block off the area?
MGR: “No, they may file for that too.”
Me: “So back to the maintenance guy…if something else breaks close to him, he can fix that while he’s waiting, right?”
MGR: “No. That would create another work order to be done by another maintenance worker who isn’t assigned to that monitor that machine.”
Me: …silent confusion…
This was my introduction to the modern day UAW, and I’ve seen much more since then. If the union had stuck to it’s original purpose…safety and fair wages…they might be respected. At this point, it’s institutionalized extortion.
@star_gazer
I see your perspective and certainly people can come up with similar ridiculous anecdotes about very specific instances of work rules from the other side of the Looking Glass. However these instances don’t impact productivity. No assembly plant has ever been crippled by work rules. The only way to interfere with production, for a time anyway, is to call an appeal to government safety regulations, a refusal to work because of unsafe conditions. Any other refusal to work is grounds for immediate dismissal.
Grievance procedure in the CAW and the UAW are much the same and contrary to your belief these are not under the exclusive care of “union bosses”. A grievance is a report about a violation of contract and must be highly specific. The union rep files it at the behest of the aggrieved worker(s): their participation is entirely voluntary. The grievance then goes to the local manager involved for resolution. He/she talks to the union rep/workers about the occurrence and if no resolution is agreed to, the grievance goes to the next higher level of management. And so on and so on up the stages and levels. This takes some time as there may be many grievances.
Are they all resolved? No. I have a few that are still apparently pending from 1996. LOL. Most end up in the “circular filing system” at the next contract negotiation where they are wiped out en masse. In a recent contract I heard that literally tens of thousands of grievances were thus disposed of. No money changed hands.
Most grievances and most work rules involve either seniority with regard to work assignment or job description violations. Most of these are serious in the sense of management favouring their toadies (we called the bag lickers), or trying to punish, through bad assignments, those who refused to be their toadies . I once was in a prolonged dispute with a foreman who thought I should be “friendlier” to him. As a absentee replacement worker he sent me usually not only out of the group but out of the whole department for my daily assignment, from the body shop to paint, to chassis, to hardware, as a way to make me see things his way. It used to be called “attitude adjustment”.
My experience is that work rules are applied in those situations where managers are vindictive and abusive. About the only way the worker has to respond is through appeal to work rules and other arcana of local agreements. It is a form of counter harassment. Generally managers get the kinds of workers that they deserve.
The workers I have known, myself included, are not against some extra cash and if work rules were as rich a vein as you suggest then I would be much better off now. Really, they aren’t. Work rules, like municipal by laws, are written in highly specific circumstances and then honoured by being ignored.
As a side issue skilled trades are highly protective of their skill sets and resent others doing their work even if it is a minor thing. Their idea is the slippery slope. Just a box of floppies today but something much more serious tomorrow. Unionised workers aren’t the only ones who resent doing something outside and usually beneath their job description. You should see the resentment on the faces of managers and engineers who have been called on to fill in for a bit of casual overtime in production.
But there is also a very relevant safety aspect. In the robot cells of the modern body shop there has to be a highly co-ordinated response to problems, involved entry plans, lock outs, and assignments. You don’t want to be caught in a cell when a quartet of robot swing into automatic mode. I once saw a fellow nearly lose his head when the robot he had just unjammed swung round to start the process again.
@greenb1ood
Work orders are management’s modes and have nothing to do with work rules per se. The way management organises work is through work orders. To do a job is to spend money i.e. paid time and materials. All such discretion belongs not just to management but to management assigned to that function.
It is the team idea. The team, whether a sport team or as in the military, functions most efficiently when everyone “plays their position”. Go to the deck of an aircraft carrier and you will get an idea of people doing their jobs and nothing else. It may appear chaotic to the casual observer but it is highly co-ordinated.
The puddle should be cleaned up in good time. If it isn’t then the one in charge of janitorial isn’t doing his job properly. Prioritization etc. As workie you only do what you are told to do. One of the first things I learned as a plant noob way back was to mind my own business. And this came from a crusty manager who was not afraid of the union. “Did someone tell you to look after that?” he asked “No” I replied, “but I thought I would help out.” “Thanks” he said with disdain, “but sit down and mind your own business”.
If you go around trying to help out the first thing that will happen is that the manager will ask you in no uncertain terms what you are supposed to be doing i.e. what is your function and why aren’t you doing it? Then he will call your supervisor who will come and write you up for being out of area.
Generally, TTACers don’t grasp that the assembly plant is a very highly organised process. It is, in other words, like a giant machine. As a worker etc. you have a very specified place in that “machine”. Only when all hew to the same plan does efficiency result. That is the logic of mass production.
The work rules were invented by Henry Ford, in order to prevent workers from being too individualistic in an environment that demanded people behave like machines. If you don’t like the concept, blame management, as it was their idea in the first place.
The Seeking Alpha piece was just political tripe, worthy of hanging on the circular roll in my bathroom. In contrast, Mr. Farago’s closing comment distilled the essence of the problem quite nicely and saved a lot of space: it doesn’t know how to make the products that Americans want to buy at a sufficient profit to take in more money than it spends.
There is no way for any auto manufacturer to reduce costs to a point that it could turn a profit from GM’s current price points. GM vehicles simply sell for too little money to be lucrative for anyone. Short of getting donated parts and slave labor, the cars just aren’t selling for enough money to cover normal operating expenses that anyone would have to pay.
Eliminating work rules won’t result in better cars that can be sold at higher prices. While discussing them is an interesting exercise and exposes aspects of the absurdity of GM’s bureaucracy, they don’t address the essential problem.
GM needs to sell cars that are so desirable and appealing that they can be sold without substantial and consistent discounting. The company should be sized so that it doesn’t overproduce at the volumes that would come from that pricing. Talking about anything else just falls into the usual trap of ignoring what is actually wrong. If cost cutting was enough, GM would have been a success story years ago, and the bailouts would not have been necessary.
Bigsby:
“It is the team idea. The team, whether a sport team or as in the military, functions most efficiently when everyone “plays their position”. “
You are assuming that everyone’s ‘position’ (task) on the team takes the exact same amount of time and effort to complete.
In reality, there are bottlenecks in every process. If I’m waiting to do my job because the guy next to either has a longer lead time or because he’s incapable to meeting the required lead time waste is created. If I can use my extra time to assist his work and still complete my own, the entire operation is more efficient. If I’m standing around waiting for him because I’m not allowed to help then either quality or efficiency suffers.
Work orders and job classifications may have began as a construct of management, but ask yourself why there no work orders for (non-management) salaried staff? Why is cross-training heavily promoted in the salaried ranks so that two specialized engineers can assist each other when a project is too large or too time-sensitive for one to tackle alone? Does teamwork always happen…no. Is it promoted and above all allowed…yes.
I digress. We can debate why work rules and work orders started, and whether they serve a function today, but the bottom line is that UAW leadership has and continues to abuse these concepts to resist any reduction of membership via gains in efficiency.
While I sympathize with your dealings with corrupt foremen and favoritism, the Union should be working on these problems instead of focusing on enforcing work rules and supporting a culture of waste and inefficiency.
I don’t blame the UAW for creating the rules…I blame them for taking advantage of them.
There is plenty of blame to spread around, but defending inflexibility as a means of gaining efficiency is flawed.
@ Bigsby
Before my response, I would like to validate my comments by stating that I have been with Delphi as a manufacturing engineer for over 20 years. I’ve worked side by side with production workers as well as skilled trades for my entire career.
That being said, I want to bring up two points. First, a grievance is never placed “in the circular file”. No matter how old, it is either dismissed or paid. Now, at contract time, a stack will be brought to the negotiating table, and will be “wiped out” by paying the union. These grievances, in my experience, are almost paid by volume, not by reviewing each one individually.
Second, absenteeism is overlooked in your comments. I agree with you that production is highest priority, but at the cost of having too many employees, which are needed to cover high absentee rates. Not only daily absenteeism, but long term as well. I know of a couple employees who are on medical leave because they do not like their jobs. They must come back to work every once in a while (once every six months? once every year? I cannot recall…), work a few days, then go back onto medical. Now, I know that the medical leave example is hearsay, but I bet that I can find out the absenteeism rate.
Please note that since our bankruptcy in 2005, the absenteeism rate had dropped, mainly because of the newer employees’ attitudes. The newbies are easily laid off, so they want to make hay while the sun shines. I lost a lot of hourly friends due to layoffs.
I can’t really address the use of grievances as a tool to punish the hourly. To tell the truth, if I wanted to dive into that political pool, I would have become a supervisor or manager. The pay would be better, but then I would miss my kids playing in the high school band.
@star_gazer
Thanks but you don’t need validity with me. I can tell quite quickly whether someone has seen the inside of a car plant other than as a tourist. I knew some fine engineers in my time as well. Mostly they shared frustrations with “the system” as well, often having to do with budgeting and lack of resources for their task.
Different plants have their sub -cultures, if you will, so I can’t speak for GM/Delphi with authority but grievances, while often settled with money, were usually about principles of unionism such as seniority. One reason that seniority is so dear to the workie heart is that as you get older chronic injuries develop. Even following OSHA guidelines brutal things can happen to the untrained human form in assembly work. It was a time honoured principle that the most senior and most injured get the less taxing work.
Absenteeism, for GM anyway, had little to do with hunting season or goofing off, a lot to do with serious injury. A group leader I once knew had half of his left arm almost cut off when he went into a side frame die to rescue a foul up and the side frame with its sharp edges fell on his arm. He had to have reconstructive surgery and was off work on compensation for the better part of a year. He shot right to the top of the absentee list as a “chronic abuser”. No kidding.
He had been a devoted company man, an iron man in terms of attendance to that point. Indeed he was a hater of the union, which he called a communist organisation. So much for that. Spend enough time in a assembly plant and you will see the purpose of a union. I myself am a rock ribbed Tory but I believe in the necessity of unions.
Note that he had gone into the fixture alone even though it wasn’t properly his job. Trying to help out. They tried to hold him responsible for not waiting for help. Another reason not to be a freelancer in terms of work rules. If you jump in to try to help -the old GM spirit – and things go wrong, at best you will be charged with time on your record, at worst you will be hurt and out of a job.
Being off for medical reasons, understandably requires the participation of doctors, many reports, and tests. There are company doctors as well. These are not sentimental people. Yet what they say and what the manager, who has to provide “light duty” for the injured, says are usually out of very different song books. For many managers I have known unless you are currently bleeding or unconscious you should be able to work. No such thing as soft tissue injuries exist for them.
As for Delphi having less absenteeism since 2005 it may have a lot to do with a younger crew of workers. People in better shape physically. Many worker injuries and consequently absenteeism have to do with repetitive stress hurts. There wasn’t a lift truck driver I knew who, after more than a few years on the job, hadn’t started to develop rotator cuff injuries.
Your idea of “the political” is just right. Like most hourlies I tried to steer clear as well. It makes working life a big pain. The few disputes I had with the manager went on for months; every day the guy was on your tail, watching, noting etc. After awhile it gets tiring. I stuck it out because I can be a bastard but many others either just cave or take a transfer.
My experience, you see, is that the idea of workers and the union running riot in plants is 180 degrees to the reality. I have had long struggles for what turned out to be rather minor and temporary gains when I won. The union is a support,like a lawyer, but they can’t do it for you. The union guys might like a good scrap with management but most hourlies just wanna do their job, get paid and go home to, as you say, play with their kids.
7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today
——————————————–
I think that’s the least of GM’s worries. I mean, if “financial institutions” means “any organization” (see official TARP explaination), then I have no doubt Chairman will change the definition of “gallon” (to something like 10 liters, assuming the definition of liter doesn’t change) before he leaves.
There is plenty of blame to spread around, but defending inflexibility as a means of gaining efficiency is flawed.
The difference is that one party is hired to work like grunts, and another hired to direct them in an efficient way.
Putting responsibility on the grunt side to come up with a solution assumes symmetry in an asymmetrical problem.
Also, while some flexibility is good, a mass production line does not perform the same kind of work as white collars so a direct comparison is not valid.