UAW RIP

11/16/2008

By way of an opening comment, let me say that I want to see GM, Ford, and Chrysler survive. I really really do. They produce some GREAT cars, the USA created the auto industry, I love cars, and I think each of those companies truly has the capacity to kick serious ass over time. Also let me say that I have NOT been impressed with management of the Big 3 over the last many years. I’d cry no tears to see new C-level management in all three companies.

I’m not a big fan of unions. As a friend of mine puts it, unions might be fine for coal miners and other workers doing really dangerous, risky, scary stuff – but otherwise, their time has passed.

‘Confusion’ barely explains (to me) what value the UAW provides to any segment of the auto industry. United Auto Workers President Ron Gettelfinger got a bunch of press yesterday, rattling off some truly incredulous, insane, inane things. To wit:

We’re here not because of what the auto industry has done, we’re here because of what has happened to the economy.

And we should simply ignore the fact that the Big 3 were sucking wind for a LONG time before the economy capsized? Gimme a break. Also:

Getting the automakers back on their feet means figuring out a way to turn around the slumping economy.

So the automakers are doing GREAT and FINE and nothing needs to be done other than just fixing the economy. That’s certainly “a theory”.

This one didn’t come out of Gettelfinger’s mouth, but I can only assume he agrees violently (emphasis mine):

The Center for Automotive Research, which receives funding from the auto industry, has warned that the collapse of the Big Three could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and more than $150 billion in tax revenue over the next three years.

If irrationality doesn’t make people jump out of their seats, LET’S TRY RAW FEAR! What the UAW and friends fail to grasp is that not only are they playing with a nuclear bomb – they’re sitting on the damn thing!

How about we look at some facts instead of pure demagogic drivel. Through 10/2008, 11.6M cars and light trucks (pickups, SUVs) were sold in the US (that’s about 40K per day – wow!). Of those 11.6M vehicles, 5.5M were sold by the Big 3 – that’s just under 50% of all car and light truck sales in the country. About 20K vehicles per day!

What organization, if any, might have the capacity to completely shut down the Big 3? Two: the Feds (assuming they first fire each and every government employee with a measurable IQ – and especially anybody with an economics degree) and the the United Auto Workers (assuming they’re that wildly insane).

What is the likelihood that half of the automobile supply in the USofA would simply disappear overnight?  The answer is – none. No likelihood. Zero percent probability. Basic supply and demand: what happens if you remove half the supply and keep demand constant? Prices will go THROUGH THE ROOF. Cue mushroom cloud, please.

If this nuclear bomb is detonated and prices, say, double in the course of a few days, what will happen?

• First and foremost, Toyota, Honda, et. al. will get a HUGE windfall on their hundreds of thousands of cars sitting on lots around the country, and everything coming off the lines. This will be a GIFT of gargantuan proportion to the competition.
• Second, the Big 3 dealers will see their inventories plummet (no more parts or warranty comfort, etc.) in value while their competitors inventory values will soar through the roof. Bam – the Big 3’s distribution network will cut and run. Joe-Bob Chevrolet will become Joe-Bob Honda faster than a 2009 Caddy CTS-V can do 0-60 (sub 4 seconds, BTW!).
• Third, the non-Big 3 will have to grow FAST to meet demand. How are they going to do it? They’re going to (a) keep keeping the UAW out of their factories, (b) hire any Big 3 employee who is willing to keep feeding their family (perhaps sad, but definitely true- it’s not like the UAW has those kinds of reserves), and (c) get new factories on line IMMEDIATELY to satisfy the demand gap – which they’re going to do buy buying existing Big 3 factories now that the companies are in bankruptcy and have no other viable assets to sell.

Here’s a chart that should scare the pants off both the UAW and anybody who wants to see the US auto industry survive and thrive:

As indicated in the chart title, those are loaded salaries. The Japanese numbers are apparently for their dozens of plants in the US. You don’t need a PhD in economics to understand that if your labor costs are so much less, you can sell a much more compelling product for the same price – or a much cheaper identical product for the same price. Never mind what Kia, Hyundai, Tata, and the Chinese automakers are paying their native workers [This Reuters article indicates that the major Chinese automakers are selling 6M units per year, but have the capacity to produce 10M vehicles per year – that’s potentially 4M cars of near-instant supply to mop up after the Big 3.]

Over the past century, the UAW and the Big 3 have clearly made promises that they can’t keep. They have both over-promised and soon they’ll be under-delivering in the worst way. It’s time to own-up, cut the cord, and jettison the detritus so that GM, Ford, and Chrysler can be run as the globally-competitive businesses they must be and can be.

Written by Shawn Broderick Posted in Business