General Motors Death Watch 58: Supply Side Economics

[Kneel]

General Motors Death Watch 58: Supply Side Economics

23 February 2006
By Robert Farago

[As read by Robert Farago]

A couple of days ago, I was talking to an auto industry analyst about the world’s largest automaker. We were discussing the cracks in GM’s hull, trying to figure out which of The General's compartments were already breached, which are filling with water and which remain viable. A wi[:)][:)][:)][:)][:)][:)]*l tone in the analyst’s voice indicated head-shaking dismay. “I’m no longer hearing anything positive about GM,” he revealed. “The conversations range from how bad it is, to how bad it’s going to get.” I didn’t want to sound like a paranoid fantasist to a new source, so I tried not to out-pessimist the doomsayers. But it wasn’t easy.

GM’s supply situation is dangerously dire. If former subsidiary and mission critical parts supplier Delphi doesn’t reach an agreement with its unionized workers by March 30th -- the third and “final” deadline -- a judge will void the company’s labor contracts. Pundits poo-poo the possibility; they reckon the UAW will make concessions and GM will fork over the necessary union blood money to keep Delphi chugging along. But… over at Tower Automotive, the smaller but equally bankrupt GM supplier tried to cut $1.50 to $3 from their union members’ $13 to $15 hourly wages. The United Auto Workers (UAW), United Steel Workers and International Union of Electrical Workers (IUEW) said no. On Monday, a judge will void Tower’s union contracts. The inevitable strike will deprive GM’s Hail Mary GMT900 SUV’s of vital suspension components (amongst other things).

This ominous development reflects the indisputable fact that the UAW and its brother unions are not prepared to surrender a single dime in their salaries, pensions or health care benefits. Not one. Not ever. (I doubt UAW Boss Big Ron Gettelfinger has ever said the word "concession" in public.) What's more, the unions are literally spoiling for a fight. To wit: members of IUEW will vote today to authorize its leaders to strike Delphi as and when. That’s 33,000 Delphi workers ready, willing and able to walk at a moment’s notice. It's not posturing; it’s preparation.

The unions own GM. If organized labor strikes even one key supplier, they'll be giving The General a 90-day death sentence. While some analysts believe that's no bad thing-- the situation forces the unions to accept responsibility for the fate of the company paying its wages, leading them to take the hit needed to keep those wages coming-- nothing could be further from the truth. The UAW and its fellow unions are like a cancer: they will feast on their host until it dies. End of story. Why would they walk out on Delphi and send GM into Chapter 11? Because they can. Look at the Rust Belt. How avoidable was that? By the same token, General Motors gives in to union demands when it can’t afford to because that’s what they do.

GM didn't rush in, bail out Tower and protect its new SUV's because the supplier is only the tip of an iceberg that’s gouging a hole in the General’s hull. GM’s constant efforts to low-ball its suppliers, its poor credit (downgraded by Moody’s on Tuesday to B1, five rungs below investment grade) and the looming prospect of bankruptcy are all inflicting fatal wounds to its supply chain. TTAC’s Deep Throat reports that an inferior part for the GMT-900 recently forced GM to return to a “quality supplier.” The supplier refused to invest its own money to develop the part and demanded a contract stipulating that the automaker would pay a true market rate for the finished component.

I’m sure this isn't an isolated case. Why would it be? At this point, any GM supplier with half a brain won't reach into its own pocket to secure GM business. The automaker's current procurement process fails to assure parts manufacturers adequate financial compensation, doesn’t provide protection against program termination due to budgetary constraints or model “realignment”, and can’t possibly guarantee payment if GM files for Chapter 11. Clearly, GM is keeping a number of suppliers on life support (e.g. JL French). Hence the situation over at Tower Automotive; The General simply can’t afford to bail out all the suppliers who need bailing. It’s not too much of a stretch to imagine that at some point, one way or another, GM’s entire supply chain will collapse.

How’s that for dark? You want light? How about this: I’ve received dozens of emails from frustrated workers, designers and administrators inside GM. No question: there’s an enormous amount of creativity and passion locked-up inside General Motors. Once The General shakes off its union, deep-sixes its insufferable bureaucracy, dumps unnecessary brands and gets down to the business of building a limited number of great cars, it will build a limited number of great cars. When it comes to GM, the parts are greater than the whole.

www.thetruthaboutcars.com

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[Dispraiser]

I will never respect GM simply because I've always hated their vans more than any other vehicle on the road. Safaris make me want to vomit.

[igor]

Kneel.. you check the same blogs I do... just do it earlier than me

anyways this is quite a disturbing article, but sometimes a big shakeup is needed.

GM shoudl go under Ch11, break the contracts, fire everyone and hire day workers as Honda and Toyota do with their non-unionized factories..and pay those workers the market wage...

I know this is not just union's fault, but at this point, UAW and their bretheren are pi...ng the crap out os me by their bullheadedness... I know this is not ALL the workers.. but their idiotic leaders tell them that they will win and get their wages and all concessions should go past the unionized workers... we all know it's bull and it sickens me, that thos on top of the union are willing to scarifice the living of thousands of their members just to make a statement.

I wonder whether the situation at Ford NA is any better.

Igor

[violatedsohc]

This GM post, and the other one are very interesting. I wonder if there is a need for unions these days. Blood sucking pigs that the are, can anyone discuss something good that unions do these days that the national government isn't already trying to take care of?

[Carrera26]

Wow, I am really getting an idea just how bad this stiuation is turning out to be. I knew it was bad, but it's been bad for so long that I just kind of got used to the doomsday reports...

[igor]

Originally posted by violatedsohc
This GM post, and the other one are very interesting. I wonder if there is a need for unions these days. Blood sucking pigs that the are, can anyone discuss something good that unions do these days that the national government isn't already trying to take care of?

health benefits, pension benefits, living wage, vacation benefits, ..

basically without unions, everyone would be paid crap and no benefits.. a la Walmart.

Without public or required benefits and wage, unions are necessary..

Igor

[violatedsohc]

Unionized companies are not the only places that pay a living wage and offer benefits. I know of factories and companies in the US that are non-unionized that have great benefits and get paid a living wage. Wal-Mart is tough to put in the same category because the majority of their work staff is part time, and Wal-Mart is not a factory. In any event, not many places give bennie's to part timers.

I just don't think that a union is necessary in order for workers to be treated fairly and just (bennies and wage). I know Honda and Toyota are doing it, and you said so earlier.

[Carrera26]

Yes, those poor oppressed Honda workers, with their $8000 bonuses from last year...

[igor]

Originally posted by violatedsohc
I just don't think that a union is necessary in order for workers to be treated fairly and just (bennies and wage). I know Honda and Toyota are doing it, and you said so earlier.

I do not want to take this too off topic.. but the thing is ... if the government does not require it, and there is no union to force it, the corporation will have little incentive to provide it. Many Honda employees in the US are day workers.. picked up every morning.. make is very easy for Hda right now, when the Ridgeline and Pilot are not selling well.. they can stop one of hte line, by simply picking up less employees in the morning.. (I wish I had an official source for this to show, but I have a trusted personal cource).

It was said over and over again.. In a globalized world, where "third world" sweatshops exist, it is easier for corporations to gradually downgrade all their employees to the level of the "third world" sweatshops than to upgrade the sweatshops to a higher level.

The US requires very little taxes from employees. Does not require health benefits (well officially it does, but that gets ignored by offering the health benefits are almost full cost to the employee..), minimum wage is a joke and so is social security.

US either needs these things governed by the government, or needs the unions. I am not saying all peopel will end up at 5.15/hr and no benefits, but without benefits this would be possible, and positions that involve pushing a button at an assembly plant would be greatly at risk of this scenario...

Igor

[violatedsohc]

I can understand the need for unions but what's happening to GM is a good example of what happens when the union get's too greedy. I'll buy into the idea of a good union and how they can be necessary, but I have to think that it is the simmilar to the idea of communism. Unions are good in theory, but often enough they get greedy with power.

Not to mention how they can stand in the way of progress. For example, the way unions divide up work, so if I wanted to rearrange my office, instead of being able to just do it, I have to make a call to the physical plant and wait a week for them to show up and do it.