Tuesday, January 24, 2006

General Motors and Detroit's Dilemmas

“Detroit: a real welfare state.” This quote is from a Detroit News Columnist on 12/8/05 appearing in the WSJ. If you aren’t following what is happening in Detroit, you probably should be because the symptoms in Detroit are creeping through some parts of the Rust Belt. The article continues “auto industry factory workers wages were reaching $76 an hour. There was a deficit of $1.4 billion dollars in the city’s general fund, a shrinking population in Detroit proper of approximately half of what it was after WW2 with property taxes rising to about $8500.00 on a $250,000.00 home. (Think Peoria) The union monopoly over labor make it hard for management to respond to the needs of fiscal discipline, and the public and private health care and pension liabilities are rapidly rising. A former auditor calculates that in order to make ends meet, the city will have to lay off half of the 12,000 worker’s paid from the city’s general fund or cut wages by $27,000.00 each employee.”

Some worker costs are over twice that paid in comparable jobs in the US, let alone wages paid in say, China. Across the US, General Motors has some 5,000-6000 laid off workers in “job banks” where they still collect full pay and benefits, without working for GM, costing GM approx. $800 million a year. This ill-advised job bank was created in 1984 because of the concern of the unions that too many jobs would be replaced by robots.

Production has risen by 31% since 1995 but GM’s market share has dropped to 27%. GM plans to shed another 25,000 workers or more by 2008 and close at least three more factories.

How do communities go from once being called a “model city” by Lyndon Johnson’s subsidy-rich Great Society to being called by some a “welfare city”? Incompetent elected leadership to manage public bodies, incompetent management in the private sector, a change in demographics and the unions demands for ever more for themselves and the people they represent. And evidently “visions” that things would always be the same as the 1980’s.

Locally, as a contrast to Detroit, Peoria County went from a $1 ½ million deficit in their general fund in 2000 to what is shaping up to be $20 million dollars on the plus side at the end of 2006. How have we done it so far? We did it with stronger leadership by elected officials and unions willing, sometimes reluctantly, to work with management plus a large dollop of common sense, often seen lacking these days in people. Local strong leadership in the private sector has led to a better than average economy resulting in more tax dollars and less qualified workers unemployed. The city, aided by some significant changes on the council floor and necessity, appears to be handling financial problems in a more efficient manner.

A book “Made in Detroit” by Paul Clemens is not “politically correct” as you will soon see if you read the book. I plan to blog on this writer’s facts and opinions shortly as I feel he is writing about some situations becoming more prevalent nationwide.

If you go back into my archives, I said my blog site would not be “politically correct”; I feel that our FAILURE to face up to REALITY is the MAJOR PROBLEM IN THE USA today and has been for the past decade or so. One reality is that good times do not go on forever; good times don’t come at all for some people, and demographics are changing more rapidly than at any time in the past century. Most of our kids and some parents don’t pay much attention to history and not much is set aside or preparations (like getting a good education and developing a good work ethic) made for the unexpected “rainy day”.

This nation can only hope that the generation of “game players” will at some point turn this ability to the workplace. Many have but they aren’t the ones I worry about.


Anonymous said...

..its not the worker's wages, rather the percentage of worker's wages that go to health insurance etc.

prego man said...

It's not the workers wages... it's not even the health insurance costs... it's that the big-wigs continue to pull down multi-million dollar bonuses, and can't even hire engineers that can come up with a winning design.

As soon as the majority of pin-heads in this world realize that the big-wigs and heavy hitters continue to suck the blood from the working man and woman, the sooner we can get back to work like real Americans are meant to.

Stormin' Norman said...

God bless little animals and Caterpillar Inc.

Mahkno said...

No... its not the percentage of workers wages that go to health insurance. It is the total cost of health insurance and pensions for all the retirees, competing against companies whose health insurance and retirement plans are covered by national plans. Does Toyota in Japan pay for private health insurance? No. It is a national health insurance plan whose costs are spread over the entire economy and not shouldered solely by Toyota (via taxation). Same with basic retirement.

Our auto companies are at a competitive disadvantage. You either get higher costing cars, or the quality suffers, or both.

Add in poor design and an inability to recognize a changing market and you have a prescription for problems.

Signing a contract that allowed for layed off employees to collect 90% of their salary and benefits was utterly stupid as well. Look for that go away next year when their contract is up.