Chain Reactions

Can the Detroit Three Survive?

Great article in today's Wall Street Journal titled, "Ten Hard Questions Facing the Car Czar." Of course, we don't actually have such a person yet, but taking the premise that Pres. Obama will soon name a federal car czar to oversee the U.S. auto industry bailout program, the WSJ asks and answers 10 key questions, such as: "How many jobs does the U.S. auto industry account for?" The short answer: 703,900 directly, and as many as 3 million indirectly if you include dealerships, warehouses and port workers.)

Here's another one: "How much more do U.S. auto makers spend on health care than foreign competitors?" According to the WSJ, the difference is in the billions of dollars. Quoting from the article:

In 2008, GM spent $4.8 billion on health care. That added about $1,500 to the cost of every car and truck it produced. Ford and Chrysler pay less than GM but are in the same range.

It's a different picture at Toyota. The company doesn't say how much it spends on health care, but analysts estimate that its health-care cost amounts to about $200 per vehicle. That's because Toyota provides health-care coverage for far fewer employees in the U.S. than any of the Big Three, and, most important, Toyota has far fewer retirees who depend on the company for health care.

One more eye-opener: "What do employees of the United Auto Workers costs auto makers in salary and benefits?" The difference is startling, largely due to health care and pension costs: $71 an hour for the Detroit Three, and $49 an hour for foreign-owned automakers. In other words, there's a $22 an hour difference in what Detroit is paying its workers (including hundreds of thousands of retired employees) and what Toyota, Honda and other transplants are paying.

Anyways, take a look at the full article, and let's hope that whoever ends up as Mr. or Ms. Car Czar, that they are prepared to make the tough decisions, not the politically expedient ones.

TAGS: Supply Chain
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