Developed nations do manufacture, but high school drop outs who stick tab a into slot b on a production line do not make $67/hr. Toyota, Honda and Nissan are ramping up their production facilities in the US. The looser is the UAW. GM will be forced to file now and that will send Ford an Visenton under. The fantasy life of the left wing, that the unions would be the political muscle of the revolution, will sustain yet another blow.

When they changed the big neon "Saginaw Steering Gear" sign to "Delphi" I knew no good could come of it.

Our manufacturing output continues to increase each year. The number of jobs decreases though, not surprisingly, because the labor cost is too high.

I would think Delphi would try to head to union-unfriendly places like South Carolina or Alabama to build plants. Those states would love the jobs. Delphi would just be following the lead of Bosch, BMW, and Toyota.

How about just getting rid of all the managers, bosses, CEOs, etc...and the other folks who don't do any work, and let those who know how to do the work, they're called workers by civilized folks, do the work, make money, and reap the benefits? I mean, given the fact that CEOs could care less about the workers, in general, and are more than willing to slash and burn anything which gets in their way in order to maximize that bottom line, I hardly see their usefullness. And given that they receive the most welfare than anyone else, I'd think the right would be all for this as they hate welfare. There need to be more unions, bigger unions, etc...so that America can work like it's supposed to, in a democractic fashion, not the fashion offered by John Jay when he said that "those who own the country ought to run it". So, we have two choices, allow those who own to run the country, the anti-democratic way, the way we have now, or allow those who join together to do the work, make the decisions TOGETHER, etc...i.e., the democratic way. Personally, I prefer the democratic way.KB

How about just getting rid of all the managers, bosses, CEOs, etc...

Because the rank-and-file have NO IDEA about how to run a complex organization.

While many companies could benefit from paring back their bureacracies, bosses and managers perform an ESSENTIAL function, without which all those workers would be sitting at home, collecting unemployment checks and waiting for their homes to get repo'd.

And given that [businesses] receive the most welfare than anyone else...

Simply false.

There need to be more unions, bigger unions, etc...

If bosses, supervisors and CEOs are just parasites feeding off the sweat and blood of the honest proletariate, then why do unions have supervisors, regional reps, and presidents ?

Posted by: Michael Herdegen at October 11, 2005 2:00 AM

Also, developing nations don't seem to have any great ability to manufacture, either.

Japan and South Korea didn't start exporting automobiles until well after they became second-world nations, and China has yet to manufacture a domestically-designed automobile, produced at domestically-supervised factories, that is desirable to the consumers of advanced nations.

While there are plans to start exporting Chinese autos to the U.S., (the "Chery"), they haven't come to fruition yet.

Posted by: Michael Herdegen at October 11, 2005 2:08 AM

KB: is that supposed to be a parody? I don't care how many executives you get rid of. You cannot compete in the world market for auto parts and pay the workers $67/hr. Not in this cycle of reincarnations.

"there are plans to start exporting Chinese autos to the U.S.,"

Yes, by Malcolm Bricklin, the man who introduced the Yugo.

kb:

Yes, the bureaucracy is a problem too, as big a one as the fact any idiot can do assembly work.

Michael:

Yes, as soon as they were developed enough to make good cars along came less developed peoples to make them cheaper.

kb--

Please respond to Michael Herdegen's and Robert Schwartz's points. Or at least ask your 11th grade teacher to help you.

And did your Chomsky-worshipping faculty member who gave you an A- or whatever read your writing? Semi-literate. My god, I'd be embarrassed.

kb-

They still teach 'Transistion to Socialism (Communism)' at your school? I assumed my old economics profs, ca. '72-73,would be doing something else by now. The beauty of tenure, I suppose. You live in a time warp and your knowledge of basic economics is not impressive. Relying on Michael Moore as a source of information regarding complicated issues is no way to go through life, son.

The problem with KB, as opposed to some of our other dissenters, is that he(?) speaks only in generalities and seems surprisingly ignorant. Here are Delphi's quarterly financials. In the second quarter, their gross margin (oversimplied, the revenue left after paying to manufacture the products sold) was a miserable 6%. No manufacturing company can survive at anything like that margin. By way of comparison, GM -- not a well-run company by any measure -- had a gross margin of 17% and GE -- a very well run company, though less dependent on manufacturing -- had a gross margin of 65%. Pentair, a small conglomerate of industrial manufacturers, had a 31% gross margin.

To my amazement, Delphi brought in its sales, general and administrative expenses for less than it's gross profit. This means that Delphi was paying for KB's hated executives and managers, as well as their secretaries, the salesmen, the phone system, office rental and the water coolers for about 6% of sales. Delphi basically broke even on EBITDA, which I think indicates a very well run company. Their balance sheet and, especially, their cash flow statement, is pretty ugly, with free cash flow in the second quarter of $-387 million after issuing $983 million of new debt. The main drain on their cash flow is putting money into new property, plant and equipment.

So, if KB wants to make any point at all, he needs to grapple with Delphi's financials and show how increased unionization is going to result in a lower cost of sale and higher gross margins.

Getting rid of all the managers, bosses, and CEO's in Detroit would be a good start though. If the rank and file have no idea how to run a complex organization, it's also been proven that none of the management at Detroit know how to either in the past 30 years. Delphi was simply the new name for the old GM Parts suppliers, and they inherited the same rot at management.

The idea that every time a business fails, it's because of labor, but every time it succeeds it's because of the personal efforts of executive management is false. Most businesses do well when the business cycle is up, and do bad when the business cycle is down. Most executives allow inertia to carry them.

There are very few executives who actually make a high level of effectiveness: Bill Gates, Jack Welch, Michael Dell, Laurence Bossidy, Herb Kelleher, Andy Grove. If you eliminate owner/founders of businesses and Jack Welch and his disciples, there are incredibly few.

Those people deserve the big paychecks. The rest you could easily eliminate 50-80% of their salaries, and whoever you got to replace them would perform just as well.

The US automotive industry had 30 years to turn themselves around. They have choosen to relearn the same lessons every 6-8 years instead of fixing their errors. The ultimate blame lies with the management. I'm fairly positive that if one had talked with any of the union rank and file over lunch at any time in the past 30 years, he will discover exactly what the problems are. The union workers know, and you don't need to pay them consultant fees.

kb--
Where are you?
Son, being high on Marx is no way to go through life, and neither is being drunk on that "workers of the world unite" swill you've been drinking.

Chris: I have no particular love of management, and of Big Three management least of all. Agency costs are a real and serious problem. Delphi was always problematic, saddled as it was with GM's legacy and its position as a captive supplier. It did try to do something about that, but didn't have much success. However, as I said before, spending 6% of revenues on sg&a is not indicative of spendthrift, run-amok executives. Dell's is about 10% and GE's is 26%, although GE at this point is a financial services firm with a manufacturing tail and thus we would expect sg&a to be relatively high.

Having said all that, you overly romanticize the man on the floor. Floor workers can be a great resource for rejiggering manufacturing, but even there Unions can be problematic if the rejiggering is likely to result in fewer employees or less over-time. But finance and marketing and global sourcing are real issues and are not solvable by people who are not trained to deal with them. Moreover, if the problem really is overly-expensive legacy pension schemes (as seems likely) then the guys on the floor may well know how to fix that problem, but why shouldn't they resist as hard as they can?

The GM-Delphi problem (I have yoked the two together as they are one entity for all practical purposes), is so big that it is hard to blame anyone person or even generation. But that has never deterred me. So here it goes.

First, the Democrat party and the New Deal that created the industrial union system because they believed that the unions would be the vanguard of the working class. The industrial unions turned into economic kudzu that choked the life out of every industry where they took root.

Second, GM management in the 50s, 60s and 70s, which had a dominant position in the market place, but which choose to pay off rather than confront the unions. Admittedly, GM would have faced the political wrath of the Democrats if they had chosen confrontation, but buy off, with future promises of benefits, they did.

GM management in the 70s and 80s, including the infamous Roger Smith, turned over control of the operation to bean counters and marketroids. In the 50s and 60s under Harley Earl and Bill Mitchell, GM led the world in car design. Even the Corvair, was widely imitated. The first ancestors of the current BMW 3 series were designed to look like Corvairs. Tail fins may have been silly, but they were widely imitated. Even Mercedes had them in the 50s.

In the 70s and 80s the new generation of managers trashed the tradition. They produced bland or ugly (think of the bathtub cars) cars, none of which worked or lasted. Think of the Vega -- made out of compressed rust was Dave Berry's line. My 1985 Chevrolet Celebrity began to rust within 6 weeks of its purchase. Gasoline engines that dieseled and diesel engines that didn't work.

In the 90s, GM was given a gift. The SUV craze was not invented by GM (or Ford for that matter), they only discovered it after they found out that Chevrolet dealers were selling out their quotas of Suburbans to upper class people. What did they do with the money? They continued to maintain 6 or 7 nameplates despite their now now shrunken market share, they did not upgrade their automotive technology*, and they continued to build bland, even ugly cars (the man who designed the Pontiac Aztec needs to be tracked down and killed), despite some success at Cadillac with edgier styling.

*GM's technology is in many ways stuck in the 1950's. A majority of their cars still have 2 valve pushrod engines. Honda's have 4 valve OhC engines with variable timing. They still have many models with 4 speed automatic transmissions, even some Cadillacs, despite the fact that Hondas selling for half the price of a caddy have 5 speeds and Mercedes uses 7. They have new models that have drum brakes!

Here is where they are today. 1. they have huge unaffordable union contracts, 2. they have too many name plates, and 3. they build bland, ugly cars that use obsolete technology.

Can they survive? Yes but only in a shrunken form. First they must chapter 11 and dump the labor contracts, including their guaranties of Delphi contracts. Second (so they don't have to flush the money down the union rathole), they need to sell some big chunks to generate some cash -- the Chinese love Buick -- maybe they want to buy it? Third 2 nameplates only Cadillac and Chevrolet. Fourth better cars.

Robert Schwartz:

If GM could do #4, they wouldn't need to do #1.

Posted by: Michael Herdegen at October 11, 2005 11:45 PM

"If GM could do #4, they wouldn't need to do #1"

They are carrying a $1500/car penalty for benefits to people who are retired -- they don't produce anything anymore. This will go up if they have to pay-off Delphi's union contracts. No business can thrive in a competetive world under that kind of handicap. They have to dump those obligations in a Chapter 11.