Monday, December 15, 2008

What Can Save Our Auto Industry?

The American auto industry has moved away from a capitalist and entrepreneurish system to one based on the demands of consumption. The UAW kept making demands for wages that had nothing to do with the ability to produce a product that the consumer would buy. The management is also not invested in the product but in the value of the stock. Stock value is what has determined their pay, bonuses, and options. The focus has not been on what product will sell at what price but on how much can we suck out of the industry.

Capitalism is based on investment and risk. The investment has been minimal and the risks have not been accounted for. Constantly borrowing to pay wages and benefits without concern for the profitability of the operation is what put the industry in the situation they are in.

To prevent a total collapse of the industry (including suppliers) a rework of operations is necessary, without that no matter how much money is sunk into it, it will collapse completely. Salaries and benefits of management must be based on performance and not stock value or how long they can manage to borrow money to keep afloat. Wages need to be based on the profitability of the product produced. The product lines need to be evaluated as to salability and reduced to those that are profitable.

Once the SOP of the industry is changed then and only then should the government step in with loans to allow the industry to achieve profitability and stabilize the economy.
It is interesting that in the last 30 years Ford Motor Company has been moving production to other countries while Toyota has built 12 new plants in this country. This has produced a $4 billion profit for Toyota in the last reporting period while Ford has lost $9 billion.

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