It was recently announced that Ford executives were in talks with Toyota executives.
Of course this “leak” was designed to deflect attention from the fact that Ford Motor Company will again lose more than $5 billion in yearly operations. In fact, Ford is losing money on each vehicle they sell. As they like to say at Ford, “We will make up for the loss with volume.”
What is wrong with Ford? Officials at the United Auto Workers (UAW) contend that it is a management problem and that all Ford needs to do is design and build vehicles that the consumer wants. This simplistic view of the problem ignores the fact that Ford spends approximately $1,500 on healthcare for each vehicle sold; that Ford has significant non-competitive funded and unfunded retirement costs and; that Ford must pay workers on layoff between 90 and 95 percent of their pay as they watch Oprah from the comfort of their Detroit couches.
With a newly elected Democratic Congress, we are likely to see more and more federal legislation designed to bail out U.S. automakers. This will come in the form of covering healthcare costs of U.S. automakers’ retirees or in picking up the retirement costs of those auto workers that were lucky enough to leave the sinking ship euphemistically called U.S. auto. The federal government should provide no support to U.S. auto—the free market works. In this case, it has rewarded the superior performance of Toyota and punished the petiful actions of U.S. auto including GM and Daimler-Chrysler. In May of 2000, Ford’s stock was selling for more than $48. Today Ford’s stock price is hovering between $7 and $8. The market is telling Ford executives and union representatives something. Unfortunately, neither is listening.