Ever since Henry Ford's revolutionary offer of $5 minimum wage for a day's work, the State of Michigan has led the nation in providing excellent wages and benefits to its factory workers.
This has allowed factory workers to live well, educate their children and provide a high standard of living for most Michigan residents. An overextension of progressively generous manufacturing wages has now become a weakness in today's competitive global economy.
The downward spiral of automotive industry bankruptcies has begun to reduce wages and legacy benefit costs within Michigan auto manufacturers. Of course, cost cutting alone will not turnaround Michigan's automotive industry-driven economy. Perceptions of management, labor, political leaders and educational priorities must evolve to generate the revenue growth necessary through producing world-class products and services.
For example, General Motors (GM) is tied closely to its biggest supplier, Delphi, who is entangled in bankruptcy. The bankruptcy court has told Delphi, GM and the union to come up with a plan by August for getting Delphi out of bankruptcy. The whole Delphi affair has angered UAW members. With union emotions running high, calling for a strike that doesn't make sense could happen. A strike could be enough to push GM over the bankruptcy cliff.
GM is burdened by legacy costs of health care and other benefits for a total of 1.1 million employees, retirees and dependents. At the end of 2004, the latest date for which figures are available, GM's pension funds (both inside the U.S. and out) had $100 billion in assets--which is wealth belonging to GM's employees, retirees and dependents. To that you can add $19 billion that GM has banked for its employees. In contrast, the shareholders of GM recently owned $13 billion in market value. The bottom line is GM's hourly and salaried employees, present and past, essentially own the company. A GM bankruptcy would allow the company to reduce its liabilities to a manageable size while continuing to sell its products.
Make good cars and buyers will come is a myth
Today, General Motors makes very good cars that few people are buying. There are many reasons for this lack of revenue creation and declining market share. The reputation of manufacturing poor quality and unreliable cars is not easily changed, especially when this year's Consumer Reports lists all top ten recommended automobiles made by foreign producers. Consumer Reports rates GM's improvements as "inconsistent" and ranks most of its cars as also-rans---even while J.D. Power gives many of GM's cars top grades.
Buyers are smart and two-thirds of them do comparison shopping on the Internet.
The lack of innovative styling of GM's stable of automobiles has not engaged prospective buyer emotions. The lack of styling, coupled with the perception that GM doesn't make cars as reliable as those of foreign producers, results in a lack of buyer interest. Most buyers are giving up on GM vehicles and turning to foreign cars. Consumer memories are long and their motivation for returning to GM small.
What's good for General Motors is good for Michigan and, perhaps, the U.S.A.
Source: The Tragedy of General Motors, FORTUNE, February 20, 2006
