Thursday, December 18, 2008

Labor costs and the Big Three, part 3

Detroits disadvanatage when it comes to labor costs (legacy or otherwise) is not really the cause of their predicament, but a symptom. The bargaining pattern was set during a period in which the Big Three faced little competition. They could overpay production workers, add unnecessary salaried workers, and design cars without regard for or, perhaps more accurately, no incentive to push for improvements. To the contrary, when I was a kid, the Big Three were accused of planned obsolescence, i.e., they made cars that wouldn't last too long.

They have struggled against that, but have not done enough and are burdened about a generation of ill will. I am 52. I have purchased the following new cars in my adult life: Honda Civic, Volkwagen Jetta, Audi 4000, Volvo, Mitsubishi Eclipse, Mercedes C class, BMW 500, Mini and Mini S. (My wife does drive a Jeep Liberty). My sense is that American cars just aren't very good. I could be wrong but the Big Three earned that reputation and it can't be overcome by a bridge loan that leaves their substantial remaining sclerosis intact or an emphasis on "green" cars.


Anonymous said...

The American auto industry was built by supporting its dealers by building cars that helped keep them in business by propping up their service departments.

The foreign makers soon learned they could not compete playing the same game and committed to building cars that needed less service. People bought very few foreign cars in the 70's and before because they where junk and you had to wait weeks to get parts and service.

I think it was Honda that took the lead when it came out with the Accord in the late 70's and early 80's that started to convince people that a better car needing less service could be built at an affordable price. The foreign makers got on this bandwagon and their market shares have been growing since.

The big three where placed into a situation to decide if they would keep dealers happy by keeping their service departments busy or if they where going to please consumers.

They chose dealers and many consumers went to foreign cars.

The labor costs are not a problem if they remain at the same percent of cost of the vehicle. The problem is when the Union does not allow that fluctuation.

Dad29 said...

Oh, I dunno about 'quality' for B3 cars anymore.

Since about the mid-eighties, Detroit has made an effort which has been largely successful.

We've owned Chrysler, GM, and FoMoCo products. All of them have lasted 150+K miles, with normal maintenance.

Only "more-than-minor" m/t has been on wear parts such as alternators and a/c pumps, which usually required replacement around 110K miles.

We've never tried for world-record mileage, but the anecdotal stuff tells me that you can go well over 300K with almost any car made these days, if you want to keep it that long.

I think I'm a bit older than you, and I made decent money fixing US cars (paid for college! at MU!!). So I know whereof you speak.

Anonymous said...

Dad -

I stayed loyal to American 'til 1998. I had new cars every 1 to 2years, sometimes 3. The best mileage was with a 1990 Chevy Euro I bought for work that impressed me when I reached 160,000 with no problems. I put on many miles.

I was so impressed that I recommended a subordinate to buy one but he had nothing but problems with his.

Many people I knew had Chrysler mini-vans that did go over
300,000. They loved them but I never tried one.

After my wife died, I remarried to a woman that had Accords and BMWs. You have to admit that these cars are made well and look good. Matter of fact, the Accord she has now had more of it made in the USA then the US cars we looked at.

When you went to school I'm guessing is when a car was thought to be high mileage at 50,000. I made a few bucks back then working on cars until a big Chevy fell on me. The guy working in the bay next to me didn't know the cord he pulled some how fell on the switch of the hoist that was holding the car up over me and down it came. I still remember it very clearly. Back then, we all were mechanics usually out of necessity.

Recently, I saw a new Corvette and thought how sad it would be if they were not made any longer. I hope the B3 gets it together. My wife said she heard that sales have been good for them.

I do think you are older but we probably both remember the real cars of the 50's and 60's. Although, I do want to cry when I watch the auctions and see the price some car types get that I used to own.

I think life was better when we were younger, but the cars are much better now.

Terrence Berres said...

As I understand it, "planned obsolescence" meant there would be a steady stream of changes and improvments that would motivate people to trade-in their cars rather than drive them as long as they could. This also provided a steady supply of relatively new and low mileage used cars.

That it came to be perceived as a strategy of forcing people to buy new cars because the old ones would disintegrate is an example of the problems in Detroit. This probably didn't help confidence in used cars by Detroit makers, either.

A lot of people seem to feel they were in a kind of abusive relationship with Detroit, and are not likely to go back on the promise that this time they've really, really changed.

Dad29 said...

Geez, anony, what a way to end a career in auto mechanics! Happy to note you're alive to talk about it...

I am aware that German and Japanese cars are very good. The "worst cars" title was a 2-way tie between Peugeot and ANY British marque (or all of them except, perhaps, Rolls...)

Not even the 1950's Big Three could put junk like the Triumph on the road with a straight face.

You also remember, then, when cars were (roughly) priced at $1.00/pound. Yes, "high mileage" was 50K on the clock, and there were wing-windows which meant that you did NOT have to have a/c to keep your front window clear of fog during fall, winter, and spring.

Dad29 said...

Terry, you're correct.

Detroit needs a systems-overhaul, not just "labor cost" reduction.

Anonymous said...

I went to Toyota (77,000 miles and counting) in 2004 and I won't go back. I started with Chrysler (Plymouth Sundance and Dodge Intrepid), then went to GM (the Cutlass/Malibu), ended with Ford (Windstar). The 2001 Ford had 7 recalls and I replaced 3 power steering pumps, 2 fuel sensors and a fuel pump that stranded me at Menard's on a frigid January day while 7 months pregnant - all failures in under 42,000 miles.

The B3 can stick it.

Terrence Berres said...

"ended with Ford"

Even the fond memory of a 1965 Mustang convertible was eventually more than offset by similar experiences of being literally stranded by the company's products.

Anonymous said...

Vehicles made by American auto companies are "good" or at least comparable to those made elsewhere. The problem is perception. GM VP Bob Lutz has been saying for years that America's car companies are stuggling with a perception gap where the American companies build "good" vehicles but the public only remembers the clunkers of the 1980s.

Looking at 2008's JD Power Initial Quality Study (not a perfect tool, but it is the industry standard and measures customer reported problems with a new vehicle), we can see that the auto manufacturer's that Rick bought are below the industry average for problems per hundred vehicles. The industry average is 118 problems per hundred, Honda is at 110, Volkswagon at 128, Audi at 113, Volvo at 124, Mitsubishi at 149, Mercedes at 104, BMW at 126, and Mini at 163. For comparison, Chevrolet is at 113, Ford is at 112, and Chrysler is at 142.

The Big Three did earn their reputation for poorly made vehicles in the 1980s and into the early 1990s, but the current reality of vehicle quality no longer fully backs up that reputation. The problem the American auto makers face, and have been trying to combat for at least a decade is how to change their reputation.

Terrence Berres said...

"The problem the American auto makers face, and have been trying to combat for at least a decade is how to change their reputation."

Apparently no one in auto industry management used to drink Schlitz.