Thursday, December 28, 2006

Toyota Talks to a Deaf Ford

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.

Ernie Goss


Anonymous said...

Hi Dr. Goss,

Should the Ford and GM line employees bear the price for poor management with lay offs. Why aren't the managers laid off for poor performance?

I watched a democrat senator state the following, which rings true. Simply put, should the government or business pay for employee medical costs? The company in this comparison was Wal-Mart.

The point was should Wal-Mart bear the medical costs of its employees or should the government? It seems ignorant to assume no one needs to bear these costs. Since Wal-Mart fails to have the stomach to support its workers, the government must. If the government must support these health costs, then it will get the money needed through taxes.

On another note, I don't think the healthcare industry should be gauged on a free market pendulum. If healthcare is to become free market, then we will have to extinguish all forms of healthcare insurance.

Actually if we went to a free market system, I fear we would soon in time rid ourselves of all forms of insurance, crippling our American society.

Ernie Goss said...


The difference between Wal-Mart and American auto is that the automakers are asking for a direct bailout of healthcare contracts that they agreed to over the years. Wal-Mart is not asking for a bailout.

Regarding your assertion that the healthcare industry is not subject to the same market forces as other industries----I agree. The problem we have now is that the system driven by a patchwork of market and non-market forces. Healthcare needs an overall. Bailing out American auto is a separate issue.