Ford and GM say factories in US face axe

Ford and GM say factories in US face axe http://observer.guardian.co.uk/business/story/0,,2156191,00.html
James Doran in New York Sunday August 26, 2007
The Observer
Ford and General Motors have threatened to leave Detroit and take their car manufacturing operations overseas if unions do not agree to a massive pay cut for hourly paid workers.
The threat to quit the city they call Motown because of its rich automotive heritage would be a crippling blow to Detroit, which is suffering amid a prolonged economic downturn and has been hit by the sub-prime mortgage crisis.
Ford and GM are in the thick of negotiations with the United Auto Workers union, the most powerful labour group in the industry. The car makers maintain they must dramatically reduce manufacturing costs if they are to survive in today's global economy.
Their biggest burden is the current labour cost per vehicle - an estimated $71 (around 35) per man hour. Workers earn about $27 an hour with the remainder made up of overheads such as pensions and healthcare costs for the thousands of retirees on their books.
Ford and GM have made it clear that they expect to reduce the hourly cost from $71 to about $50 - a cut of about 30 per cent. The companies are keen not to cut workers' hourly pay, but they insist that other overheads must be reduced.
If a deal cannot be reached, Ford and GM negotiators have said the companies will have no choice but to move their North American operations to countries in Latin America and Asia where manufacturing costs are cheaper.
The current credit crisis is not helping the ailing US car manufacturers to reverse their fortunes. Many senior figures in the industry are calling for action from the Federal Reserve to spur markets and the economy. Bob Nardelli, the new Chrysler CEO, has been most vocal in calling for an interest rate cut to help boost consumer activity.
Alan Mulally, the Ford chief executive, said last week that economic conditions were proving to be a 'big headwind' working against the company's turnaround plan. He stopped short of calling for an interest rate cut but stressed the importance of 'focusing on economic growth'.
A GM spokesman said: 'From a GM perspective, the focus of the talks is on closing the competitive gaps and building a viable long-term future for the company and our people.'
Sources close to senior GM executives confirmed that the prospect of shifting operations away from North America was very real. 'We have seen it in every other industry,' one said. 'There are no sacred cows today. Globalisation means just that, it's a worldwide playing field.'
Dave Cole, chairman of the Centre for Automotive Research, a leading car industry think tank in Detroit, said: 'This threat is very real and the UAW is aware of it. Both GM and Ford have made it clear to the union that you do whatever you have to do to stay in business.'
The car makers are also discussing ways in which they can work together with the UAW to offload billions of dollars of pension and healthcare costs they have amassed. It is understood the talks focus on creating a 'Voluntary Employee Beneficiary Association', which would be part-funded by the companies to take care of retiree health care costs. The talks must reach a conclusion before their current contract with the UAW expires on 14 September.
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Offshoring everything for the sake of cost and greed will result in the downfall of the United States.
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So what is your solution? Because of labor costs (including pension benefits for people who have not worked in a couple of decades) Ford and GM have much higher labor costs than Toyota, Nissan, etc. Until Ford and GM can convince people to pay BMW 3 Series prices for Fusions and Malibus, they aren't going to make a lot of money on them. When SUVs and pick-ups were hot with little real foreign competition, the Big 2.5 could mask their labor cost problems by selling high profit SUVs and trucks. Now SUVs and trucks are not so hot and the foreign companies have saturated the market with competitive vehicles. GM can lay off their entire US labor force and they still will have high US labor costs because of all the people who have pensions. You can blame management for this problem, but most of the guys who agreed to the now ridiculous pension benefits had little choice at the time and besides they are long retired (with really, really huge pensions). I can't see where the UAW has much choice either. Since they let retirees vote, any hint that they might let GM and Ford off the hook for pension obligations will likely get the current UAW management fired. So, the UAW management has to be tough, even though they know they are likely to kill the golden goose. And the damn goose knows it is likely to be choked to death if it hangs around. If you were the goose what would you do? Fly away I bet.
Ed
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You are forgetting about the "greed" of the millions of American consumers who have no problem buying low cost imports from foreign companies that do not need to meet all of the American environmental, OSHA, and labor laws or deal with the trial lawyers? After all THEY are the ones sending the jobs of their children and grand children off shore. If Americans were like the Japanese, who prefer to buy products made by there own corporations, stores would not be full of imports and there would still be plenty good paying jobs here in the US. I guess we did not believe all of the signs that said, "buy American YOUR job depends on it."
mike

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Guys, every empire falls. Why would the US be different?
It's been a good ride but a short one. It's a global economy now. Have you ever seen the world map re-drawn according to various assumtions? In terms of population, the US is as big as California. In terms of wealth, it is half the world. Americans consume faaaar more than they produce. The scales are just balancing now.
Brad

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