Are The Big Three Auto Makers Doomed?

The auto industry seems to be next on the list of industries that will need federal support in order to maintain its existence in the United States. The Center of Automotive Research in Ann Arbor, Mich., estimates that the failure of the US auto industry would lead to the loss of 2.5 million jobs which is just more bad news in regards to the weakened US economy. Congress is set to debate this week on the fate of the Big Three, GM, Ford and Chrysler. GM has already warned that it may run out of cash and be forced to declare bankruptcy before the end of the year.

They’re a dinosaur in a sense,” Senator Richard Shelby, R-Ala., said on NBC’s “Meet the Press” on Sunday. “I hate to see this because I would like to see them become lean and hungry and innovative. And if they did and put out the right products they could survive. But I don’t believe that the $25 billion they’re talking about will make them survive. It’s just postponing the inevitable.”

President Elect, Barack Obama said that “My hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all of the stakeholders coming together with a plan - what does a sustainable U.S. auto industry look like?”

Democrats are insisting that the plan include conditions that must be met by the auto makers taking these loans that include committing to producing more fuel efficient vehicles using new technologies and to restructuring their business model to assure the long term viability of the industry.

Toyota operates a plant in San Antonio Texas where they manufacture their Tundra pickup truck model. GM operates a plant in Arlington, Texas where they manufacture many of their SUV’s. Toyota’s plant is a few years old and has the most advanced processes employed anywhere in the world. Through advanced process engineering they have taken up 30%-40% less space than the typical auto manufacturing plant that has comparable output according to the plant’s manager, Hidehiko “T.J.” Tajima.

Now, let’s take a quick snapshot of what the two auto-makers are dealing with, something that the politicians that are in favor of propping this industry up seemingly don’t have access to.

• Because of the many jobs the new Toyota would create, the state gave a total of $133.25 million in direct incentives, including a reprieve from utility bills and a discount on property taxes, along with road improvements worth $57 million. The city, along with other agencies, spent $18 million screening 100,000 job applicants for the plant.
• On average, GM pays $81.18 an hour in wages and benefits to U.S. hourly workers, including pension and retiree medical costs. Toyota hires non union labor, and does not have the overhead of the enormous pensions negotiated by labor unions and enjoy hourly wages that are nearly have that of GM.
• In 2005 GM lost more than $2,331 for every vehicle they sold, and Toyota made close to $1,500. That’s really the number that matters most, and it’s a very difficult number to fix due to the overhead that GM has because of the massive pension plans and the increased production costs due to union labor.

Republicans are mostly opposing this bailout while the Democrats are in favor of it. What this means is that if this aid is not provided this year, it surely will make it to the auto industry when the democrats assume control of all legislative branches in Washington.