Why You Should Be Concerned About the American Auto Industry

For the past several weeks GM, Delphi and the UAW have been engaged in labor talks.

Everybody knows who GM is.

You may know that the UAW-United Auto Workers-is the union that employees of American car manufactures are members of.

Once owned by GM, Delphi makes parts for many car manufacturers, their biggest customer being GM.

GM sold Delphi in 1998, a cost-cutting move applauded by Wall Street.

After sluggish sales from GM, which resulted in continued production reduction, Delphi's $353 million loss in the 3rd quarter of 2003, many additional Delphi layoffs due to continued sluggish sales at GM, and some Delphi accounting errors, Delphi had announced at the end of Summer 2005 a plan to layoff 24,000 workers, and cut pay as much as 63%.

The UAW responded that they weren't going to meet Delphi's demands, and a strike has until very recently seemed unavoidable.

GM's days would be numbered without parts to build cars.

Delphi filed for bankruptcy at the end of 2005, asking for large concessions or to be let out of the contract and impose new terms.

Thusly, GM, Delphi and the UAW met at the negotiating table.

Yesterday's agreement states that GM is going to buyout the Delphi employees retirement, hopefully avoiding a strike.

GM and Ford have been losing a lot of marketshare to overseas competitors and aren't doing very well themselves, having yet to turn a profit the last several years.

Ford had the same problem with supplier Visteon last year, but Ford bailed Visteon out last year, a move GM initially had stated they wouldn't do.

So why should we care?

When the American car companies were the only game in town, Detroit admittedly made a lot of laughable crap, to put it politely.

A lot of us who grew up seeing this probably would like to see them all go away, it's like they are getting their just rewards, and hardly anyone can say they didn't bring this on themselves.

But I want to make you aware of something that might cause some concern.

For the most part, the electronics industry is dead in America. Most anything sold in America is made overseas. Even computers. Though they are assembled in the US, and most of them right here in Austin, internal components are built overseas.

But not just the electronics.

Wal Mart took a lot of heat a few years ago because the claim that they sell 'Made in America' fell short with the Huffy bicycles claim to be 'Made in America'.

Sure the products were packaged and shipped from an American address, but the components themselves were made overseas.

Schwinn, the long time American institution that manufactured bicycles in Chicago, sold out to a Japanese interest within the last 10 years.

From a consumer point of view, this is good because there are lots of low cost stuff we can buy.

From a Nationalist point of view, it's not very good at all.

What other countries can't do militarily, they are succeeding leaps and bounds in the marketplace.

The Japanese are seriously downplaying this issue in the press, but when they are the only game in town, then cars may very well get expensive again.

Whereas Japan is dominating the American car market, Japan puts heavy restrictions on what America sells in Japan.

A lot of this is due to an important Japanese lobby in Washington, DC.

This isn't about Japan taking over America as it is about the true financial strength and future of America. A lot of noise is being made about the war in Iraq, but something very important is going on right here in Detroit, MI. Past presidents have stated, 'so goes GM, so goes the nation'.

With the development of new technologies, such as computers, etc, it may be that one could say that Microsoft has taken over what GM can no longer do...but it may be a only a matter of time before those technologies are also sent abroad.

To their credit, Japan has opened up American factories in the US and in those factories the UAW has not been able to organize any unions.

In the 70s, when the American car industry was in its prime, it was cheaper to give in to the union's demands than to risk a strike.

This included, among many things-paying a pool of workers full pay and benefits to not work if they were not needed, and having GM eat the highest portion of retirement insurance.

Union benefits is what has been driving the cost up for GM. The profit GM gets from selling cars is very thin. This, coupled with the fact that GM has been offering deep discounts and rebates to attract buyers.

GM is doing the best they can under the dire circumstances they are in. Many analysts are unsure whether GM can turn it around.

In May of 05 billionaire Kirk Kerkorian became the third-largest shareholder in GM. Because he has a reputation as a corporate raider, this has caused lots of talk on Wall Street.

At the beginning of the year Kerkorian's assistant Jerome York, advised GM to cut pay from the boardroom to the factory floor.

Soon after, York was added to the GM board.

This year both Ford and GM stocks were downgraded to 'junk' status.

This is especially bad for GMAC, the financing arm of GM, which is the one part of GM that is actually making any money.

This is part of the a joke in Wall Street that GM is a company that is the largest provider of health care and financing, and also happens to make cars.

The junk status is going to cost GMAC more money to have money for consumers to borrow, which will lead to higher interest rates, passed on to the consumer.

GM is presently trying to work out a deal to sell controlling interest in GMAC.

Today's breaking news reports that GM sold an arm of their commercial financing business which netted almost $9 billion in revenue. This is not related to current plans to sell GMAC.

Freep.comis the website for The Detroit Free Press. This is the best free resource on the American auto industry.

Check it out the next few months, to see how this scary ride will end up. If you don't see any news on the front page, check out their business section.

Until the end of last year, The Free Press used to have a separate 'Auto News' section. It seemed to be the 'doom and gloom' section.

GM's recent press release, as printed in the Detroit Free Press:

GM, the UAW and Delphi Reach Agreement on Accelerated Attrition Program

DETROIT - General Motors Corp. (NYSE: GM), the United Auto Workers union and Delphi Corp. have reached an agreement to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement, which is an important contributor to GM's turnaround plan in North America, is subject to approval of Delphi's participation by the Bankruptcy Court.

The program is expected to be offered to U.S. hourly employees at GM and select UAW-represented members of Delphi's hourly work force. It will include a combination of early retirement incentives and other considerations to help reduce employment levels at both GM and Delphi in a manner that benefits both eligible employees and the companies.

"When we announced the capacity rationalization and employment reduction plan late last year, we said we'd be working with UAW leadership to develop an accelerated attrition program that would help us achieve needed cost reductions as rapidly as possible, while at the same time responding to the needs of our employees," said GM Chairman and Chief Executive Officer Rick Wagoner. "We are pleased that this agreement will help fulfill that important objective. In addition, the agreement will enhance the prospects for GM, the UAW, and Delphi to reach a broad-based consensual resolution of the Delphi restructuring."

The program will be offered to all GM hourly employees, but overall acceptance rates will depend on individual employee decisions. The program also permits the flow of UAW-represented Delphi employees back to GM until September 2007. In addition, eligible UAW-represented Delphi employees may elect to retire from Delphi or flow back to GM and retire.

Under the agreement, GM has agreed to assume the financial obligations related to the lump sum payments to be made to eligible Delphi U.S. hourly employees accepting normal or voluntary retirement incentives and certain post-retirement employee benefit obligations related to Delphi employees who flow back to GM under the plan. GM expects to record the cost associated with the attrition program in 2006. The cost will be incurred as employees agree to participate.

General Motors Corp. (NYSE: GM), the world's largest automaker, has been the global industry sales leader for 75 years. Founded in 1908, GM today employs about 327,000 people around the world. With global headquarters in Detroit, GM manufactures its cars and trucks in 33 countries. In 2005, 9.17 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn and Vauxhall. GM operates one of the world's leading finance companies, GMAC Financial Services, which offers automotive, residential and commercial financing and insurance. GM's OnStar subsidiary is the industry leader in vehicle safety, security and information services. More information on GM can be found at www.gm.com.