Automakers Sputter In U.S. But Cruise Overseas
LIANE HANSEN, host:
This is Weekend Edition from NPR News. I'm Liane Hansen. There was more bad economic news this past week. The labor department reported that the jobless rate in July spiked to its highest level in four years. Workers in many industries are being hit hard, including those in the auto industry. Coming up, a reporter in Detroit tells us how autoworkers there are faring. But first, we explore why it is that General Motors and Ford seemed to be doing far better overseas than they do here at home. We asked Dustin Dwyer of Michigan Radio to look into it.
Mr. DUSTIN DWYER (Reporter, Michigan Radio): Here's the obvious scapegoat for Ford and GM's problems in the U.S: the factory worker.
Mr. DAN O'DELL(ph) (Employee, Ford Motors): You know, I made 50,000 dollars last year. Is that too much?
Mr. DWYER: Dan O'Dell has worked at Ford for 14 years. He's at the company's Roseville, Michigan plant about 30 miles west of Detroit. Odell's job has basically been eliminated but because he's a UAW member, the company can't just kick him out on the street. So Ford pays him to sit in a class and learn how to be a truck driver. Still, Odell says it doesn't make sense for executives and others to blame him for Ford's problems.
Mr. O'DELL: I don't make millions of dollars like the big guys. And you know, what did they do that deserves them to be millionaires when I'm the guy that does all the work? You know, I come to work every day, I'm on time every day, I don't miss no days, ever. And they're going to say I make too much money?
Mr. DWYER: For years, executives did say that. And they had a point, not just because of high wages but also because of costly healthy care and pensions that have to be paid as long as the worker lives. U.S. workers for Toyota and Honda receive a far cheaper benefit package.
Last year, the UAW signed new labor contracts with Ford, GM and Chrysler that will cut costs dramatically. New workers will be hired in at about half the wages today's workers make. There will also be new benefit rules. And health care for retirees, which costs the companies billions of dollars a year, will be paid out of an independent trust. It will take a few years to fully implement the new contract, but analyst Sean McAlinden of the Center for Automotive Research says that by 2011...
Mr. SEAN MCALINDEN (Senior Economist, Center for Automotive Research): Much of the General Motors labor force will work at a lower cost than Toyota's here in the United States.
Mr. DWYER: McAlinden says even that won't solve the domestic auto industry's problems. You also have to consider how much the shift away from trucks and SUVs has hurt these companies. In the 1990s, trucks and SUVs fueled record profits for Detroit automakers in the U.S., even with their high labor costs. These vehicles came with high sticker prices and buyers were more than willing to pay for costly extras such as leather seats and bigger engines. But this year, truck and SUVs sales are down 19 percent and the losses are piling up. Sales of small cars have been going up but the profit margins on these cars are slim and in some cases they sell at a loss. And McAlinden says there are other problems.
Mr. MCALINDEN: They also have too many factories and too much capacity and too many dealerships, given their current market share.
Mr. DWYER: These are all problems that don't really exist in GM and Ford's overseas operations. In places like China, Russia and Brazil, the workforce is young, the plants are new and running at full capacity, and sales are strong. Even in Europe, where GM and Ford have been operating for years, costs are lower because the government covers health care and helps with pensions. All of that explains why the companies make money overseas but not at home.
McAlinden says in the past year, the situation has started to change. Labor costs in China have doubled. And while GM still makes money in Europe, the surging value of the euro led to a sharp drop in profits in the most recent quarter. Meanwhile, the United States, with the help of a new UAW labor agreement and a restructuring that's been under way since 2005, suddenly looks like a good place to invest.
Mr. MCALINDEN: The United States is one of the best places on earth to still make automobiles' parts and components. For someone, energy is cheaper here, land is cheaper, labor - given its quality - is an excellent bargain. And the market - an enormous market right outside your doorstep.
Mr. DWYER: So McAlinden says, if Detroit carmakers can survive the massive losses they have right now in the U.S., and if they continue restructuring and planning for more fuel-efficient cars, those losses at home could turn to profits. For NPR News, I'm Dustin Dwyer in Grand Rapids, Michigan.