"The Real Problem with the American Auto Industry"

[dtownfb]

This article appeared in today's (12/17/2018) CNN Business page. It looks at the US auto industry through the lens of plant capacity for the domestic and the growth of foreign automakers plants in the US. It speaks to the true issues GM, Ford and Fiat Chrysler face which is a rapidly changing market and plant over-capacity. Couple this with a continuing decline in market share and high legacy costs, they can no longer absorb fluctuating sales. BTW, overall US car sales were down 5% in 2017 after a record 2016 (fairly even this year).

I guess now is not the time to invest in Ford or GM.....

 

[knerml]

GM's short term future lies in China, where 70% of their revenues originate.

 

[KGMtech]

The root of the problem with the NA original players was their assumptions.

They assumed that whatever they designed and built would be warmly received by their captive market. Regardless of what it lacked in quality, design, reliability, value relative to what other products were coming into that formerly captive market.

Not so much an issue today, but now the consumer is King and all automakers rush around trying to capture the sales before the fickle consumer follows the next fad.

 

[edyvw]

Originally Posted by KGMtech
The root of the problem with the NA original players was their assumptions.

They assumed that whatever they designed and built would be warmly received by their captive market. Regardless of what it lacked in quality, design, reliability, value relative to what other products were coming into that formerly captive market.

Not so much an issue today, but now the consumer is King and all automakers rush around trying to capture the sales before the fickle consumer follows the next fad.

The root problem is that cars were and still are designed and engineered by accountants.

 

[rshaw125]

People forget that GM wanted to file bankruptcy before the financial crisis. GM wanted to shed the old inefficient factories and the legacy costs that were holding GM back. But there was a Washington deal that kept this from happening.

 

[spasm3]

Originally Posted by rshaw125
People forget that GM wanted to file bankruptcy before the financial crisis. GM wanted to shed the old inefficient factories and the legacy costs that were holding GM back. But there was a Washington deal that kept this from happening.



If i am correct if they had filed bankruptcy, they would have been allowed to renegotiate the union contracts.

 

[PimTac]

The legacy costs are huge. They pay out more in retiree and dependent healthcare than they do for current workers.

Their bond ratings are at or near junk status.

 

[JMJNet]

GM filed bankruptcy and the stock became worthless at that time.
So all the shareholders were screwed.

When they reissue the stock, they started from 0 and did not give any value back to the share that became worthless.

So, never invest in GM stock!!!!

 

[Traction]

Seems to me, they are always trying to design, build , and sell cars to people that know NOTHING about cars. Sad, since it's mostly the consumer's fault.

 

[maxdustington]

Originally Posted by KGMtech
The root of the problem with the NA original players was their assumptions.

They assumed that whatever they designed and built would be warmly received by their captive market. Regardless of what it lacked in quality, design, reliability, value relative to what other products were coming into that formerly captive market.

Not so much an issue today, but now the consumer is King and all automakers rush around trying to capture the sales before the fickle consumer follows the next fad.
The people who remember their glory days are dying and the millennials who replaced them had experience with their 90s and pre-bailout vehicles. My dad bought his first imported vehicle (Sprinter) at 60 years old but still buys GM trucks without even exploring other makes. I wouldn't even consider an American car unless it has a V8 and if I bought a truck new it would probably not be a GM even though those are the only trucks I've even really known.

 

[2heeldrive]

Originally Posted by Traction
Seems to me, they are always trying to design, build , and sell cars to people that know NOTHING about cars.


...which means they have a vast market... because most people know little or nothing about cars.

 

[rshaw125]

Originally Posted by spasm3
Originally Posted by rshaw125
People forget that GM wanted to file bankruptcy before the financial crisis. GM wanted to shed the old inefficient factories and the legacy costs that were holding GM back. But there was a Washington deal that kept this from happening.



If i am correct if they had filed bankruptcy, they would have been allowed to renegotiate the union contracts.


Yes they wanted to file bankruptcy in 2005/6. Political pressure would not let it happen. GM had to continue on bloated and inefficient.

 

[Leo99]

Originally Posted by KGMtech
The root of the problem with the NA original players was their assumptions.

They assumed that whatever they designed and built would be warmly received by their captive market. Regardless of what it lacked in quality, design, reliability, value relative to what other products were coming into that formerly captive market.

Not so much an issue today, but now the consumer is King and all automakers rush around trying to capture the sales before the fickle consumer follows the next fad.


I've always thought this. People that bought American just because it was American made did a lot to allow the Big 3 to become complacent. While the Japanese manufacturers had to work hard to generate sales and rely on quality to sell cars.

My daughter bought a Buick Encore. It's a cute little SUV she paid about $17k for. Lots of tech and goodies in it. Fits her dogs in the back with the seats down. Small enough for her to zip around Philly. Better buy than a CH-R or HRZ or whatever Honda and Toyota call their small SUVs. 1.5L turbo. It's slow. But it suits her.

 

[fdcg27]

Originally Posted by dtownfb
This article appeared in today's (12/17/2018) CNN Business page. It looks at the US auto industry through the lens of plant capacity for the domestic and the growth of foreign automakers plants in the US. It speaks to the true issues GM, Ford and Fiat Chrysler face which is a rapidly changing market and plant over-capacity. Couple this with a continuing decline in market share and high legacy costs, they can no longer absorb fluctuating sales. BTW, overall US car sales were down 5% in 2017 after a record 2016 (fairly even this year).

I guess now is not the time to invest in Ford or GM.....


I don't find this convincing.
The real issue has long been that foreign competitors produced a more advanced and higher quality product while the Big 3 were always a step back in both.
Playing catchup is never enough and none of these firms had the vision to leapfrog their foreign competitors. Overcapacity is never an issue if your product offerings and build costs are kept in line and labor costs are only a small part of the cost of a finished vehicle. Legacy costs have no impact unless you're shrinking your company because you can't come up with competitive product and must discount heavily, as the Big 3 did.
This was a failure of senior management and its roots lie in the seventies, when these American companies found that mediocre was good enough.
They never did see the changes that were coming commencing in the eighties, when mediocre was no longer good enough.

 

[PimTac]

"I don't find this convincing.
The real issue has long been that foreign competitors produced a more advanced and higher quality product while the Big 3 were always a step back in both.
Playing catchup is never enough and none of these firms had the vision to leapfrog their foreign competitors. Overcapacity is never an issue if your product offerings and build costs are kept in line and labor costs are only a small part of the cost of a finished vehicle. Legacy costs have no impact unless you're shrinking your company because you can't come up with competitive product and must discount heavily, as the Big 3 did.
This was a failure of senior management and its roots lie in the seventies, when these American companies found that mediocre was good enough.
They never did see the changes that were coming commencing in the eighties, when mediocre was no longer good enough."




Great analysis. The seventies were a horrible time for the Big 3. After the Saudi oil shock, they just kept making cars but they were poorly built and engineered. The labor force didn't care as long as they got paid. The Malaise as it's called.

The Japanese entered the market but their cars were not the greatest yet. They learned very quickly though. They capitalized on fuel economy with their 4 cylinder engines while the American companies stuck with V8s.

A whole generation experienced this including yours truly. Brand new cars rusting on dealers lots. Many had parts missing or put on in a sloppy manner. The salesman's most used line those days was "we will take care of that before you get it. "

The American companies have been a step or two behind since then.

 

[Chris B.]

It doesn't help that all they make is junk. I have owned over 20 GM vehicles and with the exception of 2 or 3, they were all garbage. I'm on my 1st Honda Accord and it is FAR better built that ANY GM I have owned or driven. I'll buy GM again when they stand on their own 2 feet and produce a quality vehicle.....so in other words, never again.

 

[PPWarrior]

Originally Posted by Leo99
Originally Posted by KGMtech
The root of the problem with the NA original players was their assumptions.

They assumed that whatever they designed and built would be warmly received by their captive market. Regardless of what it lacked in quality, design, reliability, value relative to what other products were coming into that formerly captive market.

Not so much an issue today, but now the consumer is King and all automakers rush around trying to capture the sales before the fickle consumer follows the next fad.


I've always thought this. People that bought American just because it was American made did a lot to allow the Big 3 to become complacent. While the Japanese manufacturers had to work hard to generate sales and rely on quality to sell cars.

My daughter bought a Buick Encore. It's a cute little SUV she paid about $17k for. Lots of tech and goodies in it. Fits her dogs in the back with the seats down. Small enough for her to zip around Philly. Better buy than a CH-R or HRZ or whatever Honda and Toyota call their small SUVs. 1.5L turbo. It's slow. But it suits her.



Good only for the warranty period. After that, all the gaskets are going to start leaking. Even the ones int he doors.

 

[Ded Mazai]

What always amazed me is how the Americans could design cars using inches. Just recalculating the units back and forth could lead to mistakes, and confusion, and waste of time. Need to have metric and imperial threads, wrenches. Simply amazing.

 

[StevieC]

Originally Posted by Chris B.
It doesn't help that all they make is junk. I have owned over 20 GM vehicles and with the exception of 2 or 3, they were all garbage. I'm on my 1st Honda Accord and it is FAR better built that ANY GM I have owned or driven. I'll buy GM again when they stand on their own 2 feet and produce a quality vehicle.....so in other words, never again.

I'm glad you said it because all the GM "garbage" that came through my dad's shop was always the same sorts of problems year after year decade after decade. The GM owners in the family that bought and got burned by them but continued to buy anyway finally got tired after decades of poor quality vehicles and have now moved to other brands such as Kia/Honda/Toyota. Not that these OE's are perfect but they don't seem to keep repeating the same issues over and over like GM seems to do. And yes Chrysler is just as guilty. Ford on the other hand is a bit of a mixed bag from my experiences. They can make some really great vehicles and they can make some really terrible ones. I'm personally glad they are getting out of cars and sticking to what they do best SUV's/Trucks. Although they have to fix that ***** escape. The Boxier version was much nicer looking.


I think it's like someone touched on above. The problem with the Big-3 is that they are run by the bean counters and not by the sales/engineering teams and I think that is because their hands are forced by their crazy high costs they have over non-unionized plants like Toyota for example.

 

[PimTac]

"Good only for the warranty period. After that, all the gaskets are going to start leaking. Even the ones int he doors."




Are you talking about engine gaskets as well?