Wednesday, December 17, 2008

The US Auto Bailout....

Guest post by Sir Henry Casingbroke

A Japanese company (Toyota) and an American company (General Motors) decided to have a canoe race on the Missouri River.

Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was that the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale-boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might (and having no paddles), the lone designated rower was unable to even start the race, so he was laid off for unacceptable performance, all canoe equipment was sold, and the next year's racing team was outsourced to India.

The End.

PS: General Motors has spent the last thirty years moving its factories out of the US , claiming they can't make money paying American wages. Toyota has spent the last thirty years building more than a dozen plants inside the US.

The last quarter's results: Toyota made 4 billion in profits while General Motors racked up 9 billion in losses.

8 comments:

Spiros said...

"Toyota has spent the last thirty years building more than a dozen plants inside the US."

True, but Toyota's plants are in states like Tennessee, where unions do not exist, and wages are much lower than where GM has its plants.

Although even if GM was in non-union states, they would still have made a hash out of it, because they just aren't any good at designing, making and marketing cars.

rabee said...

Fantastic post.

Some, perhaps exaggerated observations, from LA/San Fransisco.

I have made a point of going to major shopping centers, industrial areas, and shipping docks. Being naturally shy, I've had to force myself to talk to a lot of people about their observations of economic activity.


Shopping is very cheap even at 0.67 AUD/USD.

Bought a whole year's wardrobe of designer cloths for 143USD. GAP has new men's shirts for $4USD (buy one get two).

I saw lines extending half a mile of job seekers applying for a job at a cinema.

Malls are almost empty, cheap grocery stores full. Low quality food like American brand eggs and questionable quality milk are replacing the organic (ie, Australian quality) kind.

Air travel is cheaper than a taxi and the taxi drivers complain about slow activity and hundreds of new drivers. Taxi drivers tried to rip me off on each trip.

In LA I'm constantly asked if Australian's are rich because specialty stores are full of Australians. The shop keeper at GAP told me that Australians from Melbourne seem to be his only customers and asked me about the gay seen in Melbourne.

I'm going to the LA docks today to see the situation with shipping and inventories.

Can't see any construction at all in LA. One Wachovia Mall has cairns that don't seem to move.

Went to Irvine and other UC universities. Academics are worried about funding.

I think that the lack of safety nets has amplified the effects of the recession. People are scared because being poor in this place is kind of miserable.

Move along, no Christmas cheer this year.

jc said...

True, but Toyota's plants are in states like Tennessee, where unions do not exist, and wages are much lower than where GM has its plants.

Nonsense, Spiros. GM actually was a decent firm, building okay cars in the 90's.

Having said there is no reason trying to blame the management. In a normal functioning market what normally happens is that if the management screws up an acquirer will come in buy the firm on the cheap from pissed off shareholders and off it goes.

Ask yourself why no one is prepared to take over the firm even at 2 bucks.

The reason is the that no one wants to go within a 100 miles of having to deal with the toxic, venomous UAW.


Rabee.

Can I ask... what designer clothes can you buy for 143 bucks.

That doesn't quite sound right to me.

Francis Xavier Holden said...

rabee - please explain - wardrobe? you might get one pair of designer pants for $143usd. Or are you talking a cheap pair of Chinos, sneakers and a t-shirt? I know most american males think that's smart snappy dressing but the rest of the world doesn't.

robert merkel said...

The labor cost problems of the Big 3 date not to current arrangements, but dumb deals the UAW and the Big Three's management did decades ago.

In any case, you hear lots of bleating from the right of US politics about the dastardly unions, but nothing about the other huge source of legacy costs for American automobile manufacturers - their hugely bloated, inefficient dealer networks, which are propped up by:


a) dumb contracts signed decades ago that they can't afford to buy out.
b) lots of state regulations.

Much of the employee liability of the Big Three wouldn't have existed if they'd been smart enough to get behind socialized medicine, but that's another story...

rabee said...

Designer by Australian standards

GAP

Armani Exchange

Express

$5 a business shirt-:) Buy one get two.

jc said...

Harry

Seriously where are all these socialists coming from? Do you let them out each evening or what?


The labor cost problems of the Big 3 date not to current arrangements, but dumb deals the UAW and the Big Three's management did decades ago.

Bullshit. Current labor costs are at $72.5 an hour vs $31 per hour at an average US manufacturing firm. Legacy costs and the job bankriase that to $100 per hour.

This is why the GOP congress never signed on.

In any case, you hear lots of bleating from the right of US politics about the dastardly unions, but nothing about the other huge source of legacy costs for American automobile manufacturers - their hugely bloated, inefficient dealer networks, which are propped up by:

Well you’re hearing it from me, seeing you must only read left wing material. If the quality of the management sucks there would have been a buyer that would have entered the market ages ago, fired all the management at GM and raised profitability.
It’s not as though the US was shot of private equity money only a few years ago. At the current market price of $2 dollars a share the purchase of GM would be a nibble in between meals even in this tight market. No one has entered the market to make a full acquisition because they know it’s a fools errand. I mentioned this earlier and it seemed it went totally over your head.


a) dumb contracts signed decades ago that they can't afford to buy out.
b) lots of state regulations.


Exactly union and state interference killed a great business.

Much of the employee liability of the Big Three wouldn't have existed if they'd been smart enough to get behind socialized medicine, but that's another story...

Here we go. Socialized medicine is now the problem. Socialized medicine is a soviet command and control system that will offer rotten results. The problem in the US is not having single payer where you buy your own healthcare without having your employer buy it for you. The other problem is having far too many state mandates in healthcare that need to be priced in. Mandates that we don’t even have in our private system.

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