The American Auto Industry
It was announced today that GM’s shares futures are valued at $0, as most expect the largest vehicle manufacturer in the US will go bankrupt, Ford and Chrysler aren’t far behind either. These companies have been around for decades, a year ago most would have laughed at the thought of one of them going under, now the possibility is very real. We’ve all known that they have been struggling over the past 4-5 years, but most don’t realize that there are a couple of issues at hand that have brought about the the struggles and possible downfall of the American Auto Industry.
These companies have made some mistakes, and other problems were partly out of their hands, but could have been managed if they would have been willing to put forth the effort. A large problem has been that back in the 90’s, the major American companies ceded the small car market to foreign auto makers and pushed forward with heavier vehicles, as gas was cheap and demand was high, they effectively put all of their eggs in one basket and when the price of gas shot up, the basket fell and most of the eggs were broken. They were so far behind technologically in the small vehicle market, they steadily lost sales and reported more and more losses. This was the proverbial nail in the coffin, but not necessarily the main problem. The recent credit crunch has also taken it’s toll as many people and even dealerships cannot get credit.
I wrote a small article a while back pointing out this problem and is not necessarily just an issue for the Auto Industry, but for several industries. Labor Unions and labor laws have just about killed our economical competitiveness. While labor unions were very beneficial and much needed back in the earlier 1900’s, they are now outdated and are a strain on the system. Labor unions have become so greedy, their production is down and their pay is way up, the auto industry can barely breath as each new contract brings a looming strike that could potentially cripple the company if the auto companies do not bow to the union’s demands. A company cannot be competitive and profitable when the janitor makes $30 an hour.
When the unions do strike, the companies cannot fire the employees for refusing to show up for work. I’d get fired for refusing to show up to my job, there is always someone to replace you. Also unions are not optional, if a company has been unionized, you are required to be apart of the union and pay union dues. Union laws such as these are unhelpful for both the worker and company alike. Personally, I’d like to negotiate on my own behalf, not have someone do it for me then tell me what I will do. Unions have played a major role in sending companies overseas as they have skyrocketed the cost of labor. While some companies are indeed just that greedy that they have moved overseas, others have either had to decide if they will fail or move elsewhere where labor is cheaper.
I also have a short story to share as well. My grandmother once worked for General Tire, she claimed that they were the best paying company in town, everyone wanted to work there. Working conditions were great, the hours were easy, and quotas each day were easily met, after the quota was met for the day, they sat around and did nothing and were paid for it, all because the company was unionized. However each year, the union asked for more and more money and threatened to strike each time when their demands were not met. Eventually the union priced themselves out of a job and the company packed up and moved elsewhere. My grandmother and thousands of others lost their good paying jobs due to the greed of a union, demanding more and more, far after what the fair pay would have been. My grandmother never worked for a unionized company ever again. I will will never work for a unionized company either.
As for the looming bailout, it should not happen. These companies can function just fine by going the route of bankruptcy, however the ideal solution is to put themselves up for sale and allowing themselves to be bought up by an American company. Its very clear that the people who have been running the show at these automotive companies have failed miserably and need to be replaced by more business savvy people who will rebound the company and bring about good structure change.