Friday, February 27, 2009


Paul Ingrassia in the February 19th Wall Street Journal:
"I frankly don't see how we're going to meet the foreign competition," said Henry Ford II, then chairman and CEO of Ford Motor Co., on May 13, 1971, right after the annual shareholders' meeting. "We've only seen the beginning," he predicted. Regarding American's increasing preference for small cars, Henry II declared: "Mini car, mini profits."

That was a couple years before Detroit agreed to let auto workers retire with full pension and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working. It wasn't long before even union officials realized they had created a monster.

In 1977, UAW Vice President Irving Bluestone said he was "flabbergasted" that so many workers were retiring at age 55 or younger. "We were aware that the trend to early retirement was escalating . . . but we were surprised at the escalation in 1976," Mr. Bluestone declared. "It is astounding."

None of this is ancient history. The 30-and-out retirement program persists -- a sacred part of the inflated cost structure that makes it unprofitable for Detroit to make small cars in America. Another example: Every Detroit factory still has dozens of union committeemen -- the bargaining committee, shop committee, health and safety committee, recreation committee, etc. -- who actually are paid by the car companies. This is a "legacy cost" that the nonunion Japanese, German and Korean car factories in America don't have to carry.

The union, though, shouldn't bear the entire blame for Detroit's disaster. It wasn't the UAW that pushed GM into the home-mortgage market where it has incurred billions in losses over the last couple of years. Nor can the UAW be blamed for Saturn and Saab, two brands that never made money, as GM executives have recently acknowledged. What they haven't explained is why their company would keep these money-losers around for nearly 20 years.

So why were these problems allowed to fester, when smart people recognized them all along? The answer is that the solutions were painful, requiring not just brains but considerable amounts of courage. UAW officials weren't brave enough to risk re-election defeat by agreeing to curtail the 30-and-out plan. Detroit executives weren't about to take on the union and risk a strike that could cost them billions. GM likewise felt hamstrung on Saturn and Saab by state dealer-franchise laws, especially after they spent $1.3 billion to shut down Oldsmobile a few years ago. . .

Which brings us back to the restructuring plans proposed by GM and Chrysler, the two companies currently getting government welfare. Missing from both are concessions from the UAW to reduce the cost of health care for retirees. Ironically, union retirees over age 65 continue to receive generous, company-paid benefits, while their former bosses in management have to rely on Medicare. The companies could -- and did -- unilaterally change the health-care plans for management, but they have to negotiate changes for union workers and retirees.


OBloodyHell said...

> What they haven't explained is why their company would keep these money-losers around for nearly 20 years.

Well, I have no idea about Saab, beyond retaining the option to always be able to tell a Saab story...

(sorry, couldn't resist)

...but for Saturn, it's probably one of the very few American brands that can get real testimonials and can depend on real customer loyalty.

I don't know a single person who owns a Saturn who isn't happy with it, from a reliability, performance, or service standpoint. Every single person I know who owns one would be happy to own one again, and it's probably at the top of their lists for consideration whenever they do replace the one they own.

I don't think it's a statistical universe, but it's enough that, were I looking for the kind of car that they sell, it's the only American brand I'd definitely consider, with one other possible other exception being Buick (I've heard mostly good things about them, too).

That's gotta be thought of as worth something.

I suppose the real question is, how to shift the brand into profitability while retaining that kind of loyalty and satisfaction.

But also -- they should be studying WHY it is that Saturn does so well, to see what they can do to instill the same things into other brands.

MaxedOutMama said...

My brother loves Saturns. That's all he's been buying since his first one.

As to the union fiasco, it's a determined attempt by corrupt union officials to retain power by denying reality.

Wait, that sounds sort of familiar....

Carl said...

I bought a car last year. My first choice was a Saturn Sky Red Line--I still think it among the best looking cars on the road. Like all American cars, the interior felt a bit cheap, but it drove well and I might have purchased it--except for the fact that it had essentially no trunk at all. There wasn't enough space to pack enough clothes for two people on a weekend get-away.

How could anyone design such a car? It wasn't until later I realized that this flaw embodied a fundamental failure of Big-3 management.