As Detroit Asks for Help: The Silent Elephants in the Room

Posted by: David Kiley on November 19, 2008

Inside the hearing room on Tuesday where the CEOs of GM, Ford and Chrysler asked for government loans to help them bridge the Recession, there were two elephants in the room that got no time for testimony. And I don’t mean missing Republicans.

In all the chatter and posturing about how Detroit got into the financial predicament they are in, and whether they deserve to be supported, there was no talk about the lack of energy policy or healthcare policy that ushered Detroit into this mess.

There was no talk, for example, about the fact that Japanese automakers in their home country do not have to handle the healthcare costs of employees or retirees. Japan has national healthcare. A private room in a hospital in Nagasaki costs about $100.00 to the patient. A non-private room costs about $15 to $20. Germany has a form of national healthcare as well.

The reason the U.S. doesn’t have national healthcare, at the same time it has much worse statistics on mortality and disease prevention than these countries, is a failure of Washington, not Detroit.

Europe and Japan both have energy policies that keep gasoline too pricey for people to load up their highways with Hummers and Tahoes. The average size engine in Europe and Asia is less than two liters. The average size engine in the U.S. is about 3.5 liters.

It’s not that GM and Ford can’t produce cars that get 40 mpg. They already do. They make them in Europe and Asia where the energy policies dictate the marketplace. They make money in those regions in part because they don’t have the healthcare cost overhang.

It’s not that Detroit is blameless. Management has been mostly hideous. But the game-board they have been playing on has been equally hideous.

The closest a Senator came in the hearing to take some blame was Ohio Democrat Sherrod Brown who admonished his colleagues for shaking a finger too vigorously at the CEOs after Congress failed in 2005 to pass tougher fuel economy standards that would have better prepared the companies to cope with $4.50 per gallon gas earlier this year.

Not even the CEOs brought up the healthcare disparity between Detroit and the companies like Toyota and Honda as Senators kept throwing those companies’ performances up to them. Why? GM’s Wagoner told me once, as he was walking down Pennsylvania Ave., that you don’t raise issues that are politically impossible when you are trying to get something out of Washington. That day, I asked Wagoner why he didn’t make more noise to the President about instituting gas taxes as a way of getting Americans to buy more fuel efficient vehicles—-like they do in Europe and Japan. “Because it’s a non-starter” he told me.

I’ll be looking at the silent elephants again today in the House of Representatives.

Reader Comments

AJ

November 19, 2008 8:50 AM

Absolutely!!! This should be on the front page of Business Week. Don't tell me there is no business model for automakers that makes sense, foreign auto has been making money forever. Why? Because of the exact reasons you point out in this article. Top execs saw this coming for years, but did nothing. It is unbelievable how stupid and greedy 90% of top executives in corporate america are. But in their defense I suppose I would continue down a path that put tens if not hundreds of millions of dollars in my pocket because I knew government would bail me out because my company was "too big to fail" What a joke.

D. A. Lambert

November 19, 2008 9:21 AM

This is the lamest pontification on on the bailout that I've seen to date.

The "elephant in the room" seems to be pink, since the Toyotas and Hondas in competition with the big three are generally produced in U.S. plants which fall under the same "government plans" and not Japanese or European.

From Kiley: I would point out the following. The executives and R&D for the vehicles are done in Japan and Germany. I'd point out that in the case of Volkswagen, they are losing huge money in the U.S.
IN the cases of Toyota, Honda or Nissan, these companies have been in the U.S. a far briefer time than GM and Ford and have far fewer employees and very few retirees.

Jason

November 19, 2008 9:42 AM

I've been saying for weeks that instead of cutting a check we should allow the unions to join medicare or another government run healthcare system. then allow companies that have organized labor to remove healthcare from their overhead.

Thank you for exposing the true problem with the american auto industry....and by the way Sherrod Brown is a Democrat.

matt p

November 19, 2008 11:57 AM

oh my gosh!

Someone else gets it!

Holly Garfield

November 19, 2008 2:25 PM

Two big elephant guns are also in the room. First, the countries in Europe and Japan are each the size of a small to medium US state. These countries don't have the endless miles to drive that the size of the US requires. Second, the US is still primarily a free market society. Health care is among the free markets, and that isn't about to change. Also the health care system statistics are not always what they seem. For example: the US has a higher infant mortality rate primarily because babies that are at least born alive here aren't even taken to term in much of Europe. And a non-private room costing $15-$20 is not going to happen in the US. Someone has to pay, whether it is the government through higher taxes or through private health insurance. The author doesn't mention how much Europe's and Japan's taxes are increased due to national health care. The money ultimately comes from the worker. So this tells me that the author is not making fair comparisons.

From Kiley: Holly...we are running a debt of almost $10 trillion. I would submit that our taxes are just as high as Europe's, but we aren't getting nearly the societal benefits of those countries. It's not that we aren't paying taxes that are as high...it's that we are sending the bill to people who aren't born yet.

Ted Ryfiak

November 19, 2008 3:52 PM

Excellent observations - pretty much on the money.
Something else to consider: Think first - Name a business in the US that will not be negatively impacted in some way by the elimination of the millions of automotive jobs.
It would be the PATRIOTIC thing to do to keep US auto jobs here. Most foreign cars are subsidized by their governments in some way. We just tax the heck out of our corporations.
This is what they should do:
Automotive Bail Out Conditions
1] All upper management removed with no “Golden Parachute”.
2] Upper management replaced with successful non-automotive managers.
3] No existing union contracts honored.
4] No vehicles under 20 mpg built.
5] All vehicles must be 100% US made content to bring jobs back here.
6] All profits go immediately back to pay off bail out.

Joshua

November 19, 2008 4:06 PM

Just because these companies where not required by law to make more fuel efficient cars doesn't mean that they couldn't have and shouldn't have, which would have put them in a better position going into this tough economy. Their companies failure is two fold: first their managers failed to realize that they needed to think for the economic future and retool to build more fuel efficient cars, secondly they let the unions have a field day running up their cost of overhead. either way it is not the job of the people to bail them out. They should take the bankruptcies that are coming to them and use it as a time to redefine their companies in a new economy. It might hurt form a while but they'll be better for it in the long run.

cy

November 19, 2008 4:10 PM

I think it is against these 3 big brothers profit line to push that fuel efficient policy. Remember the most selling vehicles are Ford F serious, and other SUVs. That is how market drives the lobbists who drive the policies. When our oil companies post billions $ profit when everyone else is suffering, I want to say let us make a law that oil companies bail auto makers out. That sounds more fare than we get the hit. The hard question is: Is there any dream car truely an American brand?

CTR

November 19, 2008 4:16 PM

Finally! An article that has some sense to it! Thank you for pointing out what many people and obviously Congress continue to ignore as a contributing factor to the predicament that Detroit is in today. The Big 3 CEO's for years tried to get the Bush administration to address the health care liability that they have and he would not even meet them for lunch. The general (misguided) public like to point out the huge discrepancy between average labor costs per vehicle for the Big 3 vs the imports and this is a justification for letting them fail, that this shows how highly inefficient they are. Of course the labor costs are higher for the domestics - they pay for and provide health care for their workers and retirees, and fund their pensions - which is no small feat when you consider how many workers and retirees they have. People need to give them credit for having these "legacy" costs - which have been pushed upon them by our government for years (and who have refused to reform them as the costs have spiraled out of control). For years it has affected the domestics' ability to compete with imports (whose governments cover the health care and pensions for their workers, as well as institute protectionist policies for these industries).

Jay

November 19, 2008 4:57 PM

So very true.

If we as a nation had taken the right steps 30 years ago and passed a major increase in the Federal gas tax think of what we would be driving now! But instead we as a nation wanted our cake and wanted to ate it also so we pasted CAFE instead.

The only way Americans will DEMAND high mileage cars is if gas prices stay above $3 a gallon.

Also, like the part about national healthcare.

I personally would love to see national healthcare and higher gas taxes. I doubt highly however that our government leaders will have the guts to pass either! Shame on us!

T

November 19, 2008 6:02 PM

Asia and Europe are full of countries with high population density. This allows for mass transit. Beyond the 10 largest cities in the US, mass transit remains too expensive for City Councils to seriously undertake. Cities like DFW and Oklahoma City are too spread out and as a result, the population density remains low.

From Kiley: This s true. I do not believe that the U.S. will seriously consider a mass transportation infrastructure investment for just this reason. Our urban and suburban planning has been a disaster. We are a car nation, which is why the investment in keeping the auto industry afloat is so important.

Paul

November 19, 2008 7:11 PM

Japanese companies do have to contribute towards healthcare. They match the employee contribution, which is taken from salaries each month. It's 4% each, acccording to this: http://www.npr.org/news/specials/healthcare/healthcare_profiles.html

I agree, though, that the problem lies with Washington. Just about all major industrialized countries have national health systems. The US chooses not to but pays almost double what Britain and Japan spend on healthcare relative to gdp.

kg mik

November 19, 2008 8:08 PM

How true. Common sense has gone out the window and all the big CEO are crying the blues. This country needs to get its act in gear and follow other successful plans. The people are suffering and the powers that be don't want to accept the blame. I for one am looking to Canada for peace of mind. Just saw SICKO and it was right on. Think it should be required viewing for all business.... might make thinkers out of management. Find ways to save our American companies and our way of life. We use to be the Great Nation... are we now?

Lack of National Healthcare Not The Fault of Congress

November 19, 2008 11:00 PM

The reason why the US doesn't have national healthcare is ultimately not the fault of Congress. It is the fault of an immature American public which cannot even discuss it in an intelligent, adult manner. In particular, the conservatives/Repubs call anyone who mentions it a commie -- even while they're purchasing discounted medicines courtesy of Canada's national healthcare system.

Rob

November 20, 2008 2:54 AM

I've worked in both the US and Europe and while the article is good in at least addressing the existence of the "silent elephants" the coverage is disingenuous. Having a national health plan doesn't make health care costs go away. Look at a European paycheck and you'll see how a national health care system is funded. It's not "free". The US health care system is a mess. It's horribly expensive,offers rather poor coverage and certainly qualifies as a national priority. Simply nationalizing it won't make the cost magically disappear though!

Julie

November 20, 2008 4:20 PM

Most people here are completely missing the point. The Big 3's over reliance on trucks isn't the cause of the problem. It's one of industry volume. US sales have contracted by about 30% this year and not one single domestic or foreign automaker saw it coming. Toyota invested hundreds of millions of dollars to build a fullsize pickup plant in Texas and it's been shut down for three months straight, less than two years after opening!

The Big 3's problem isn't quality and it isn't the product porfolio because if you take the time to review the facts instead of being stuck back in the 70's or 80's you can find plenty of safety and quality awards for Ford and GM in 2008 alone!

The Big 3's problem is three-fold. First, there are legacy costs because they are saddled with the union. They shouldn't have to pay a UAW worker $100,000 to leave their job and when a plant has to shut down to avoid over producing, UAW workers shouldn't receive 95% of their pay, yet these are the exorbitant costs brought on by the UAW. Second, they only recently figured out how to profitably build small cars. Third, is simple...it's the economy stupid! Significantly fewer consumers can actually get approved for a loan to purchase a $20,000 vehicle

A lot of the import automakers have leased acres and acres of property on the West Coast to store all the vehicles built overseas that are now arriving in the US, but they have no dealer orders for them.

Toyota has already adjusted their earning forecast down by over 50% and now they are being hit with a double whammy because the global economy is slowing down.

A few FACTS to consider:
GM offers more than 20 vehicles achieving 30 mpg or more on the highway. More than any other domestic or import manufacturer.

GM also offers 6 hybrid vehicles with two more due out before the end of the calendar year. More than anyone else.

For those who argue GM doesn't build vehicles people want, here's another FACT: GM sells more vehicles in the US than any other automaker!

Whether you buy foreign or domestic vehicles, take a look at what the stock market did yesterday & today and think about how much lower it will go when millions of people find themselves unemployed. If you think foreclosures are bad now, they will get much much worse. You may find yourself surprised at the impact it has on you as a small business owner (fewer people will go out to eat, get their hair done, go to the spa, pay for dry-cleaning, get their pet groomed, have their car detailed, etc.)

Wake up America....this is going to affect everyone!

B.Rogers

December 2, 2008 10:40 PM

D.A Lambert:
Toyota and Honda don't pay for benefits since they hire mostly temp workers.

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