Buying U.S .versus Foreign Cars

**starman1148** · 08-05-2005, 07:42 PM

The lastest news is that GM is not doing well and could conceivably file for bankrupcy. This is on the heels of a Toyota campaign on TV which tries to make us feel all warm and fuzzy about how American they really are. Hyundai is building a huge plant or two here. Last time I checked we were spending millions to protect South Korea from North Korea and now Hyundai is coming over here and competing with GM and other companies who have to pay higher wages and benefits to all their retired workers. The problem with GM is that it's corporate executives have spent more time figuring out how to pay themselve more than trying to make a car that can compete with the foreign cars. All that being said do we want our two remaining auto companies to shoot craps ? Toyota takes all its fat profits back to Tokyo and all the good upper management jobs are in Japan ,while we get the blue collar jobs here Yipeeee! I for one am going to shed my German sedan for a GM sedan which is really painful but I think we have to take a stand before its too late. Other wise we have Germany and Japan owning the US Auto market ==whats wrong with that picture ? In the name of owning a slightly better ( well ok alot better in the case of a Toyota) are we going to turn our backs on what we know is long term a better future for our country?

**Melonie** · 08-05-2005, 08:07 PM

GM is saddled with having to pay 'union' wages for labor, whereas new auto plants owned by 'foreign' auto makers are not. GM is saddled with 30 years worth of accumulated 'union' retirement and health benefit obligations for retirees, which 'foreign' auto makers are not. The only legal way for GM to get out from under existing 'union' wage rates and existing retirement/employee benefit obligations is to go bankrupt.

GM production facilities and corporate headquarters are also generally located in 'Blue' states, where they are subject to high property taxes, high state corporate income taxes, high state unemployment and comp costs etc. In comparison, new plants built by 'foreign' auto makers are typically located in 'Red' states, where they probably receive a property tax abatement, perhaps don't even have a state corporate income tax, and where state unemployment and comp costs are significantly lower.

These days the real economics of the Auto business doesn't really have all that much to do with the actual direct cost of manufacturing cars. Instead the Auto business has to do with wage rates, tax rates, employee benefit costs etc. If GM is stuck with high costs in these areas, whereas 'foreign' automakers can escape a good portion of these costs, it would appear to be a foregone conclusion in regard to the future direction of the Auto industry.

Any real solution of course is impossible to implement, short of union members accepting pay and benefit cuts down to 'competitive' levels, and short of 'Blue States' cutting property and income tax rates and unemployment/comp costs down to 'competitive' levels. As a result, deciding to pay top buck for new Detroit wheels only postpones the inevitable. Welcome to the 'global economy', where 'union' wages and bennies and where Blue State tax rates simply don't cut it.
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madmaxine · 08-06-2005, 01:16 AM

American car companies need to do right by consumers. I love Chevys but accept they will fall apart. I really shouldn't have to, though.

Toyota has a large plant in Oakland, CA....some of Toyota's profits are going to Americans.....whereas Chrysler has plants in Mexico..um....what's up with that?

Of course, to quote Chris Rock, There's no money in the cure, it's in the comeback. If GM or Ford sells you a car that has to be replaced every 10 years, that's better for them than you keeping an import that runs for 20 years. (And they can't make an El Dorado with a bumper that don't fall off. LOL)
I wish I could re-print a verbal drubbing I got from a British woman who worked for Ford Motor vehicles in the UK- she pointed out that American vehicles are designed with terrible fuel economy & bad ergonomics, etc. But suffice to say, a big problem here is we are not getting as much car value for what we are being charged. People don't like being ripped off.

**montythegeek** · 08-06-2005, 05:52 AM

Gm signed everyone of those contracts, including the ones with the sweatheart benefits to both current and retired workers. They were not imposed by any court, or government agency.

GM also underfunded their pensions to cover the benefits. GM managers also supported local property tax issues (for the children). And designed the location of the plants in high tax states and failed to close plants when they became uneconomical.

They also designed bad cars, and were slow to change them. If they go broke and fall into other hands it is their own fault for being stupid.
They are not alone, the steel industry did the same thing. I know I worked there for 12 years.

**Casual Observer** · 08-06-2005, 06:06 AM

GM has had 25 years to change its management practices and develop a long-term vision of the industry, in the face of foreign competition--especially from Toyota. They have done nothing differently. They sucked up all the easy profits from the SUV market in the 90s and completely abdicated the passenger car business to the German and Japanese companies.

They have no one to blame but themselves. Even if you compare them to Ford, which while having its own problems is arguably run much, much better, GM is a monolith that is in need of massive restructuring.

Whenever I hear that we need to buy American products for the sake of buying American, it needs to be pointed out that the first rule of consumer spending is that quality sells, irrespective of your country of origin. This applies to every industry and every product, including cars.

**Melonie** · 08-06-2005, 08:16 AM

Whenever I hear that we need to buy American products for the sake of buying American, it needs to be pointed out that the first rule of consumer spending is that quality sells, irrespective of your country of origin. This applies to every industry and every product, including cars

You're probably overlooking the fact that the eggheads at GM have already crunched the numbers. The overall cost of producing a quality automobile on equal footing with Japanese and German automakers, when the higher costs of US 'union' labor and bennies, the higher costs of US property and corporate taxes, the higher cost of OSHA compliance etc. are factored in, would result in a vehicle which must be sold at a significantly higher price than Japanese or German cars in order to turn a profit. Thus doing so would be tantamount to committing financial suicide, having to sell quality US made cars at a loss in order to maintain price competitiveness with the Germans and Japanese. This is the reason that GM 'gave up' the small passenger car market and concentrated on trucks and SUV's where German and Japanese competition was originally non-existant.

I suspect that GM eggheads also realize that the 'vehicle manufacturing' portion of their business is on its last legs. German and Japanese competition has now entered the truck and SUV market, leaving GM with no remaining 'niche' to cash in on. I would speculate that GMAC , various defense industry subdivisions etc. will continue on as healthy cash machines for GM stockholders, while the GM 'vehicle manufacturing' division is allowed to go belly-up (transferring pension and benefit obligations to the US taxpayers in the process).

Jay Zeno · 08-06-2005, 08:51 AM

Wages in American factories of foreign automakers are on a par with factories of domestic automakers. However, the domestic automakers do offer more benefits. So there's a factor.

Foreign automaker plants in the U.S. are more efficient than American automaker factories. There's another factor.

Foreign cars, even when made in America, have a higher curb appeal and better reputation than domestic cars. That surely counts for something.

Slashing wages of autoworkers might sound good to some, but it's only one piece of the puzzle. Impoverishing workers for the benefit of stockholders and upper management, which is what this often is about, is not a wonderfully humanistic road to take.

From a domestic standpoint, would you rather have a Honda made in America or a Ford made in Mexico? It's more and more a complicated world.

**Destiny** · 08-06-2005, 09:10 AM

There is no such thing as an "American" car company. The only thing that makes GM, or Ford, American is that their corporate headquarters are in Detriot. Not only will you find Toyota's and Hyundai's built in the U.S., but Mercedes and BMW's as well. All of these car companies are global companies.

**starman1148** · 08-06-2005, 10:05 PM

Are we so cocky and smug as a culture that we will hand over the production of our automobiles to our former enemies and just ASSUME they will have OUR best interests in mind ? Think again, Toyota wants what is best for Japan and Japanese citizens, they are out to make as much money on us as they can. Japan has never allowed US manufacturers to play on a level playing field in Japan ( I am talking not just Automotive manufacturers). Is Nationalism a forgotten or dirty word ? I agree that GM has been run by greedy. self serving executives but they at least live here in this country and the profits remain here for the most part. Sending profits and the best jobs in the auto industry out of the US will ultimately lower all of our standards of living. Ignoring this is just as logical as saying the US government can continue to borrow money forever...dream on!!!!!

**Deogol** · 08-07-2005, 09:15 AM

Originally Posted by starman1148

Are we so cocky and smug as a culture that we will hand over the production of our automobiles to our former enemies and just ASSUME they will have OUR best interests in mind ? Think again, Toyota wants what is best for Japan and Japanese citizens, they are out to make as much money on us as they can. Japan has never allowed US manufacturers to play on a level playing field in Japan ( I am talking not just Automotive manufacturers). Is Nationalism a forgotten or dirty word ? I agree that GM has been run by greedy. self serving executives but they at least live here in this country and the profits remain here for the most part. Sending profits and the best jobs in the auto industry out of the US will ultimately lower all of our standards of living. Ignoring this is just as logical as saying the US government can continue to borrow money forever...dream on!!!!!

But but but... outsourcing is suppose to be good for America!

**FBR** · 08-07-2005, 12:56 PM

Its not just automobiles, its all products. In my experience, the average American these days couldn't care less where a product it made. And as the service sector continues to grow as a percentage of total employment, I see it getting worse. Sally or Johnny working at an insurance company or doctors office or wherever can't or choose not to see how the decline in our manufacturing base impacts them. It absolutely does but its a long term, subtle thing.

In terms of general consumer goods quality, I'm not impressed with the foreign manufactured goods I see at the store. Its difficult to find everyday stuff made in the US anymore, but when you do and then lay the products side by side the differences are very apparent. Yes, the domestic product is often more expensive but you get what you pay for.

Automobiles, being a much higher ticket item and often an emotional purchase, play at a much higher and different level than a shirt at the local Wal-Mart. The theory that foreign cars are superior quality-wise to American vehicles has pretty much been debunked as I can attest from personal experience. I drive a domestic luxury vehicle in the $60K range. Two of my still at home kids drive domestic small cars in the sub-$20K price range. Ive had zero problems with any of them. Sure, I could have purchased foreign manufactured cars in the same class but why? I'm going to pay several thousand more per vehicle and no problems is no problems. I'd rather keep the business here even if US vehicles do have a small percentage of non-domestic content.

One of the posters mentioned offshore companies building plants here. Its a two edged sword. On the one hand, I'm glad to see the jobs here as opposed to in another country. But there is another side to the story that that many people are not aware of.

Lets say Toyota decides to make a $1 billion plant investment here. Of that billion, its reasonable to assume that one-half would be in the building itself and the other half in tools and equipment to produce said products. Presumably, the building would have a fairly high US labor content although its a toss up where the raw materials and fixtures might come from. The $500 million in tooling will likely come from Japan or if by chance the automation equipment, robotics etc are built in the US, the components mandated to be used in the building of the equipment will be of Japanese origin. And the installed base of this equipment drives a whole market segment of replacement parts and service. All sending money back overseas.

I used Toyota as an example, but the same is true for Honda, BMW, Hyundai etc. Honda is more "US friendly" than the others from the standpoint of allowing US products into their plants but only by a small degree.

There are many other issues involving taxes and so forth which I dont have the knowledge to speak of intelligently. Maybe Melonie or others with her astuteness can comment on that. But my gut tells me that the exodus of our manufacturing base be it automobiles or whatever is a very bad thing.

FBR

**Casual Observer** · 08-07-2005, 02:47 PM

Think again, Toyota wants what is best for Japan and Japanese citizens, they are out to make as much money on us as they can.

Think one more time; Toyota wants what is best for Toyota. They're a multinational; their allegiance to Japan is very limited, much as the same way American multinationals have limited allegiances.

Japan has never allowed US manufacturers to play on a level playing field in Japan ( I am talking not just Automotive manufacturers).

And look at their economy; it's been in recession for twelve years. Their standard of living is lower than that of the US and their citizens can't even afford to buy many of the goods produced by their own companies. Moreover, Japanese and Taiwanese companies are moving manufacturing to China because they see the writing on the wall, too.

Are we so cocky and smug as a culture that we will hand over the production of our automobiles to our former enemies and just ASSUME they will have OUR best interests in mind ?

Are you so cocky and smug as an American to presume that American manufacturers have your best interests at heart and that somehow by your warped and misplaced dedication to poor management practices we can save a part of the economy that represents perhaps 1/100th of the US GDP? The leadership of the US auto industry was indeed that cocky and smug as to presume that they would always have market leadership--then when Japanese imports hit the shore in the 1970s during the oil crisis, they got their dicks stomped on and it's been downhill ever since. And rightly so--as a result, competition in the automotive sector has produced better cars from every manufacturer, including (perhaps especially) American manufacturers.

Again, consumers will buy any product at any price that delivers the level of quality they desire. The rules are different now in a globalized marketplace. If you're looking for an isolationist domestic economy, you're about fifty years too late.

Sending profits and the best jobs in the auto industry out of the US will ultimately lower all of our standards of living.

The last 35 years of our economic history clearly say otherwise. The auto industry has been in decline since the 70s, and yet our standard of living actually increased substantially, notably as a result of the affordability of consumer goods from foreign producers; standard of living isn't measured by wages but by the quantity and quality of products and services those wages can buy.

It's almost like no one has ever heard of the term, "comparative advantage" or that no one believes it exists.

**starman1148** · 08-07-2005, 07:37 PM

How can you say we have a higher standard of living than Japan thats ridiculous. The average Japanese citizen has full healthcare and a host of other benifits that a large percentage of our population does not. Japan is NOT in a recession WE have a national DEBT of over 6 Trillion dollars they have ZERO ZILCH NADA. The auto industry accounts for five percent of our GNP according to various sources but its more than that , it's a statement about our abilities as an industrial power. Under your premise should we have the Japanese build our military jets etc , where do you draw the line ? Should we just throw
in the towel and give up or what? I am not of that mindset .
One other thing how do you do all that cool formating in your message?

**Destiny** · 08-07-2005, 08:15 PM

Originally Posted by starman1148

How can you say we have a higher standard of living than Japan thats ridiculous. The average Japanese citizen has full healthcare and a host of other benifits that a large percentage of our population does not. Japan is NOT in a recession WE have a national DEBT of over 6 Trillion dollars they have ZERO ZILCH NADA. The auto industry accounts for five percent of our GNP according to various sources but its more than that , it's a statement about our abilities as an industrial power. Under your premise should we have the Japanese build our military jets etc , where do you draw the line ? Should we just throw
in the towel and give up or what? I am not of that mindset .
One other thing how do you do all that cool formating in your message?

Wrong. I'm not even going to bother looking up the facts to show you are wrong. I'm just going to suggest you do some research on your own before you post. The average American lives in far greater luxury that than the average Japanese, or European for that matter.

**Casual Observer** · 08-07-2005, 10:43 PM

How can you say we have a higher standard of living than Japan thats ridiculous. The average Japanese citizen has full healthcare and a host of other benifits that a large percentage of our population does not.

You're either a troll or a woefully ignorant poster, maybe both. Japan's standard of living, even by the biased UN HDI, is lower than that of the US.

Japan is NOT in a recession

It's not? Have you not been paying attention at all, Mr. "Japan is going to take over American manufacturing?" You're clearly way out of touch. Japan's economy has been on the skids for more than a decade because they can't stimulate consumer spending--even with effective prime rates of zero percent. The relevant text if you can't be bothered to click the link:

"There are three quarters now of negative growth, so Japan is really struggling in this recovery," said Paul Sheard, chief economist at Lehman Brothers Japan.

The data also show that two of the world's biggest economies are either in or close to recession after Germany said this week its economy shrank by 0.2 percent in the fourth quarter.

On an annualised basis, Japan's GDP shrank a real 0.5 percent in the fourth quarter, worse than a median market forecast of 0.5 percent growth, the government data showed on Wednesday.

The common definition of recession -- two straight quarters of contraction -- was only met because July-September figures were revised on Wednesday to show a 0.3 percent fall instead of an initial reading for 0.1 percent growth.

The economy contracted 0.2 percent in April-June.
emphasis mine

WE have a national DEBT of over 6 Trillion dollars they have ZERO ZILCH NADA.

You're trolling again or not even trying, here. Here's a clue:

Japan's national debt hits record Y781 trillion

Saturday, June 25, 2005 at 03:44 JST
TOKYO — The debt owed by the Japanese central government rose to a record 781,551.7 billion yen as of the end of March, up 78,403.8 billion yen from a year before, the Finance Ministry said Friday.

The amount is equal to about 6.12 million yen on a per capita basis and raises the possibility that the combined debt of the central and local governments has topped 1,000 trillion yen for the first time. (Kyodo News)

Here's another clue, this time with pictures and charts for the lazy. Japan's debt is now being added at a rate of 8% of GDP per year--that's much worse than the US, even as bad as our debt servicing situation currently is.

The auto industry accounts for five percent of our GNP according to various sources but its more than that , it's a statement about our abilities as an industrial power

A great article on the subject, with a realistic view of the situation.

Another relevant quote from the article:

“By 2006, 2007 we’re going to see a lot healthier industry. They’ll learn to cut costs and be more efficient, but it’s going to be two years of tough times. The products the industry is making today are outstanding, but not everyone is going to survive. We’re in a crisis environment. Some companies will take advantage of the crisis to do some very difficult things. You’re going to begin hearing about those things in the next couple of weeks.”

It's not a statement of industrial power; if Malaysians are building their own cars, does that put them on an equal industrial basis with the United States? A statement of industrial and economic power is discovery and research of new technologies and domination of their markets; automobiles are an old, matured market. The US owns the market for all manner of technology products in information technology, scientific instrumentation, orbital satellites, avionics and navigation systems, software, airplanes, medical technology--all new and developing markets and industries where our competitive and comparative advantage is greatest. Why do we care if we can sew socks or build mufflers as well as a Chinese laborer getting paid 90 cents an hour? Why do we care about low-tech, low-skill industries that don't play to our strengths?

Under your premise should we have the Japanese build our military jets etc , where do you draw the line ? Should we just throw

Another newsflash for you; Japan and the US have been codeveloping military airplanes since the end of WWII. The radar systems in F16 Block Ds and F15 Es? Those were developed in Japan in coordination with American firms. Does their F2 fighter look familiar to you?

Should we just throw in the towel and give up or what? I am not of that mindset .

You can have your head in the sand about global economic and geopolitical realities all you like, but denying that American automotive companies are not competitve for any number of valid reasons doesn't change the facts on the ground.

**Tigerlilly** · 08-07-2005, 11:05 PM

I usually try to buy US products and services whenever possible but since the war started, I am less strict about this if the product or service company is well known for supporting the GOP. Often I prefer to buy foreign in those cases.

**Melonie** · 08-08-2005, 11:34 AM

There are many other issues involving taxes and so forth which I dont have the knowledge to speak of intelligently. Maybe Melonie or others with her astuteness can comment on that. But my gut tells me that the exodus of our manufacturing base be it automobiles or whatever is a very bad thing.

Here's GM's apparent answer to their financial woes without doing too much damage to themselves in the media ... bankrupting selected American subdivisions ! GM's auto parts & component manufacturing division Delphi is first up at bat in an effort to either break union contracts or throw pension/benefit obligations overboard via bankruptcy.

(snip) "Clearly Delphi is under pressure here, and their threat (of bankruptcy) is a real threat," said Tim Ghriskey, chief investment officer for Solaris Asset Management. "Their first order of business is to try to renegotiate some of those (union) deals and terms to ensure the viability of the U.S. business."

Besides lower production from GM, high commodity costs and increasing costs for pension and health care benefits contributed to the quarterly loss, Delphi said. Non-GM business outside the United States performed well.

The company wants the right to close underperforming plants and cut about 4,000 inactive union workers, although the discussions include the entire U.S. work force, acting Chief Financial Officer John Sheehan told Reuters.

GM LEGACY

"We are not able to fix, sell or close a facility without the agreement of the union," Sheehan said.

Delphi has sufficient liquidity to finance its operations during the discussions using a draw down of a revolving credit facility, cash on hand and cash from operations, Sheehan said.

Miller declined to give a deadline for the talks, but said one consideration would be changes in U.S. bankruptcy law that reduce the flexibility corporations have in bankruptcy if they file for protection after Oct. 17.

"We can't wait until 2007 to resolve our issues, we are going to have to deal with them this year," Miller said. "Obviously we are not finished yet, but I am encouraged by how well (discussions) have gotten off to a start."

Troy, Michigan-based Delphi inherited union contracts from GM requiring it to pay wages at the much higher automaker level through September 2007, putting it at a competitive disadvantage against other parts companies.

About 34,000 of Delphi's 48,690 U.S. employees are represented by unions, including 24,800 in the UAW.

If Delphi reaches agreements with the UAW and GM, it would be the second such three-way pact in recent months after parts maker Visteon Corp. (NYSE:VC - News) struck a deal with Ford Motor Co. (NYSE:F - News) and the union in May.

Visteon on Monday posted a $1.2 billion net loss after $1.1 billion of charges from the agreement, which it expects to close by the end of September."

As to your basic question concerning the total eventual loss of US manufacturing facilities, I definitely have mixed feelings about that. As far as union workers go, I have very little sympathy for people who have dropped out of high school, who got into the UAW, and who has been earning 4 year college graduate wages (or higher) plus wall to wall benefits for all these years - but now being faced with the probability of having to actually compete in a free labor market where their actual skill levels and work ethic will be renumerated at a pay rate and benefit package more commesurate with the 'value added' they actually create.

These union workers have bled both their employers and US consumers for decades. If union auto workers had been willing to accept a more 'realistic' wage and benefit package in the 70's, the huge cost differential which allowed German and Japanese auto imports to be so profitable versus US cars would not have existed to the degree that it did, and German and Japanese automakers would never have had the competitive advantage to grow to be the dominant brands that they are today.

On the other hand, sacrificing the US manufacturing base ... and along with it sacrificing the educational, engineering, and management skills required to operate manufacturing facilities in the future, presents a strategic risk for the USA. If God forbid World War 3 should ever come along, with say Japan and China shooting at each other, and with Western Europe and the Middle East + Russia shooting at each other, if all of America's manufactured consumer goods were originating with these countries there's a very good chance that all of those manufactured consumer goods would stop immediately.

**FBR** · 08-08-2005, 04:20 PM

As always I appreciate your detailed respose Melonie.