Tom-Tom: 7 Myths About The Car Bidness

By Denise McCluggage

We are a country of contradictions.

We the people cheered and chanted slogans (as the history books say) as Sarah Palin turned “elite” into an expletive. Our applause swelled as she lauded the icons of soccer moms and a couple of Joes named Six Pack and The Plumber.

Denise McCluggage - The 7 Myths About The Car Bidness
Denise McCluggage - The 7 Myths About The Car Bidness

Yet now the faces of those same cheerers redden with fury and fists pound the air over any plan Congress might have to keep pay checks flowing to Joe the Machinist, Joe the IP Installer, Joe the Tire Blower-Upper and millions of their co-workers. (All of whom buy six packs, get faucet drips fixed and send those pay checks rippling through corner groceries, fast-food chains, clothing stores and soccer ball merchants.)

These cheerers were only pink when the money in multi-millions was hastily dispatched to banks and financial institutions to save folks in corner offices whose very toying with stuff called “leveraging” and “derivatives” stressed the world’s financial dealings in the first place.

The message is simple: pin-striped suits over shirts with colored-collars are somehow jake with us for receiving great chunks of bail-out money. What was that about “elite?” Forget it. But plaid-shirts, hard hats and lunch pails are not so “just like us” after all. What happened? Well, you auto workers are not Joe the Likeable, growls the mob. You are union! Bad as elite.

This crowd wisdom is that union’s caused the problem with the car companies and so whatever bad they get they deserve.

So let us try to untangle some of the misconceptions about our Big Three in Detroit. (Well, Big Two-and-a-half). First let me establish some bona fides. I’ve been writing about Detroit and the cars they make since 1952. That’s about half the life of the oldest cars there. And I have, in my time, spit out the word “Detroit” much the same way Sarah Palin pronounces “elitist.” I’ve criticized “Detroit Iron” and complained about slow-moving management and silly decisions. (Aztec!?)

But I’ve discovered that Detroit must be family – when others criticize it with distortions of the facts and sheer ignorance I rise up, arms akimbo, and say: “Wait just a darn minute here!” So herewith I consider seven myths about that collective noun “Detroit.” The idea is to give you drivers of cars a different view of the scene so you can better judge whether or not this huge industry should be cut a loan that may or may not pull them out of the ditch.

Remember that auto companies are not simply dealers in paper wealth and re-packagers of IOUs: they are producers of things. Goods. They are wage-payers to people who work hard, buy bass boats and barbecue grills, have haircuts and pay for their kid’s birthday parties at a fast food joint. These workers have mortgages and college fees. And they pay taxes to the state and the Feds. As that money changes hands it has a multiplier effect. The people they pay then pay others and so its goes. It’s called The Economy.

Without Joe AutoWorker’s pay check a lot of that multiplying would slop as if it had disc brakes. And then the flow changes direction: unemployment insurance, Medicaid, aid to dependent children etc.

It’s something to think about.

Here begins the 7 Myths.

1. Detroit builds cars nobody wants to buy.

I watch as talking heads in a New York TV studio lay this line out as chiseled fact. I fume. But to most of these heads a car is yellow with a checkered waste band. Would they believe that for years the two best selling vehicles in the U. S. have been not cars at all but pick-up trucks? The Ford F-series and Chevy Silverado relinquished their top spots only briefly when gas broke $4.00 a gallon and the Honda Civic shot to the top. A live-to-the-day public returned to old trucking habits when gas prices fell as fast as they had soared.

Take November sales figures. That “Nobody” bought enough “Detroit” vehicles to put ten of them in the top 20 list of best sellers. Toyota and Honda produced the most popular cars with Chevy’s Impala and Malibu 8th and 13th respectively. How about the seemingly ubiquitous Prius, the Toyota gas-electric hybrid that everybody says “everybody” wants? The two Chevies together sold 22,320 in November; the Prius sold 8,660.

When Detroit, perhaps wrongly, decided not to go the hybrid route and stick with its lucrative emphasis on the SUVs and pick-ups electric-hybrids were 7% of the market, SUVs and trucks claimed 62%. The decision may have been short-sighted but the stockholders (see #7 below) don’t do the long view.

Trucks, SUVs, crossovers, Minivans – that is what American buyers wanted up until the gas prices bent upward like a broken forearm. Buyers, a fickle lot, can change their buying habits in a nanosecond; it takes car makers at least three years to change what they put in the show rooms.

Second blow: gas prices dropped and shoppers again wanted to be buyers but thanks to the financial world cracking at the axis all the ready credit had gone south like a Canadian in a blizzard.

Let me toss out some facts: Ford now offers more hybrids than any other American car maker. Chevrolet has more models good for 30 mpg than any other car maker. Toyota makes a really big pick-up (the Tundra) and a really big SUV (the Sequoia). Nobody is game enough to bring a small 50-mpg turbodiesel to the U.S. because “Americans won’t buy diesels.” (Another myth altogether.)

2. Detroit spends millions of dollars in advertising pushing buyers to buy what they want them to buy, not what the buyer wants

And those pitiable buyers who really wanted a plug-in electric or a 4-cylinder sedan without A/C end up with an Escalade or a Navigator. Happens all the time. Therapists buy land in Tesuque off the proceeds of treating these emotionally-damaged manipulated consumers.

Generally speaking, people want what they want. They might not know what that is until it jumps off a magazine cover at them, or parks in front of a neighbor’s house or – yes – is spotted in an emotionally appealing ad on the telly. Emotion is the driving force, true. Emotion and money. And emotion about money. But ads for a V8 muscle car will not sway a hybrid fan.

I am amused by some car ads, annoyed at some and ignore most and I suspect my response is fairly general. But who knows? I went to buy a cinnamon scented candle and came home with a 24” computer monitor. Don’t listen to me.

3. Only the Detroit Big 3 are in bad shape; the Asians and Europeans are doing fine.

Nonsense. Everyone is hurting and will hurt more. It’s a long pipeline from build-order to delivery and once the flow has started its hard to turn off the tap. Overloaded dealers signaled time out and cars piled up at the ports. Even Toyota, rarely given to incentives, put one of the Prius.

4. Governments don’t help the Asian or German car companies.

Wanna bet? Aid is being handed out without fuss from Asian and European governments to their carmakers. But what is little known is the “aid” U.S. governments at state level have lavished on foreign car companies. Tax benefits that would drop your jaw have drawn the likes of BMW, Mercedes-Benz, Nissan, Toyota and Honda to build factories mostly in the south. These states offer a ready work force of non-union labor and state laws that help keep it that way.

It’s no surprise that the congressional delegations of the Southern states are the most outspoken against the $25 million loan package for Detroit. “Our car companies are doing just fine,” as I caught one smug Senator say on TV.

And you better believe it. Tennessee, I was told, is paying Nissan for moving its U.S. headquarters to Nashville from California 90 million dollars a year for ten years. That comes within a few dollars of being a large amount of money.

5. Detroit workers get $70 an hour and workers at the “foreign” plants get about $44.

Maybe you’ve heard that so often you believe it. Forget it’s not true. The figure is one of those accounting things that demand costs be assigned somewhere. The actual average hourly wage is $28, and that includes the $14 that new hires now get. Where does the $70 come from? Benefits for each worker is part of it and retirees are the rest of it. That all gets amalgamated into what GM pays for labor per hour.

So about retirees. You should be so lucky as to be Joe the Retired from GM. Your pension, your health benefits are fantastic. You’d think you died and gone to Sweden.

However GM has about 500,000 retirees drawing benefits. (Toyota, a younger company, has some 300.) This weight of paying people who once worked for GM but haven’t for years is referred to as “the legacy” and accountants say adds about $1200 to every GM car. That’s a race horse running with a Sumo wrestler for a jockey.

I kidded a GM retiree that the way to solve GM’s retirees problems is to hire some stealthy Ninja types to slink about and smother them all in their beds. And $1200 comes off each GM car. “Don’t print that,” he said, not entirely unserious. “It’ll give someone ideas,”

6. Unions caused it all.

Shame on you UAW, you’ve seen that Joe BlueCollar can be guaranteed a steady job making good money in safe working conditions and can extend that good life beyond his working years into retirement. Prosperity is not just for those smart eager Ivy League kids avidly hitting the financial districts with their MBAs to deal with high sums and chancy paper, combining some to sell off to someone else to re-combine and sell again. Making money.

But not making anything that needs a nut put to a bolt, that can be turned and looked at, that can be listened to and put to use. Working in a plant that can be, and was, converted quickly to making tanks and airplanes to win WW II. Of course that will never be needed again. (And if it is, hey, we can buy them from the same place we buy our TVs and blue jeans and anything else that needs a manufacturing establishment. Maybe from the guys we are at war with. How Milo Minderbinder that would be.)

But, yes, unions were maybe too successful at a time when the car companies would agree to almost anything to get on with raking it in. (There was such a time.) Thus the great health plans and the retirement benefits and job banks. Some of the benefits a properly-functioning government just might have made available to everyone if that hadn’t seemed too, well, Sweden.” But a change has occurred. The adversarial culture of Labor vs Management has smoothed into more cooperative model, facing mutual problems rather than hand-wrestling over them. This face-it-together approach is that of the Asians and European makers. It was in such a mode and facing some realities that brought the 2007 concessions from the union setting a lower wage and more limited benefits for the new hires. (But the retirees were still protected.)

The UAW has benefitted the workers at the “foreign” car plants in the U.S. too. Without the strikes and the acrimony along the way (and without paying any dues) these employees often get “me too” agreements with their managements.

7. Stockholders want the companies they invest in to build the most reliable, economic and carbon-correct cars possible.

Holy Kerkorian, you’re funnin’ with me!. Most stockholders don’t care if a company is making frying pans, broom handles or cowbells (more cowbells) as long as they are making money for them. They want their dividend check regularly and ever larger.

Time and money needed for research and development of something new and lightweight, new and renewable, new and emission free? The stockholders will screech (and threaten take-over and law suits) if it is suggested that their money be affected. Toyota took a long time and lots and lots of money (and government help) to develop their hybrid system. Which has yet to be profitable. Would American stockholders tolerate that?

So those are seven myths.

Now what can be done with the auto industry?

First, it should be noted that what was “wrong” with the Detroit Three was already in the early stages of being addressed when the increase in gas prices and the decrease in credit availability struck just behind the knees. The new UAW contract with serious concessions is a case in point. And a closer working relationship between designers, engineers and fabricators in place for several years now has made a positive difference.

And the product is changing. Quality standards of GM and Ford, particularly Ford, have improved to a par with world’s best. (Alas Chrysler, since its acquisition by what is not a car company but a financial conglomerate, has not kept pace.)

But perception is everything and the public perception of Detroit’s improvements has lagged. And then, too, those improvements can be spotty. Again, Ford leads the class in consistent improvement.

Gas mileage has generally been improving with each new model. Even GM’s SUVs, redesigned a couple of years ago, were not only better looking and better made they were more economical.

GM, having decided that electricity as a final drive was the way the world was headed, showed the Volt, a sleek electric-hybrid plug-in at the 2007 Detroit show. Now, nearly two years later a less sleek but more likely to happen Volt was at the LA show. Why so long? And why now so expensive? (In the $40,000 range.) Because the core of electric cars are batteries and batteries with their exotic make-up are a serious problem. They are costly, they are heavy, they are risky (laptops have been catching fire) and they are toxic. A breakthrough in batteries is needed and breakthroughs can’t be scheduled.

When things get dire enough look for a phoenix. A lifeline was thrown to the financial folk with no demands, no limitations. Not even a firm suggestion. And the expended money didn’t do exactly what it was supposed to. The American car builders have already been dealt with more firmly that the money people, hands slapped with a Congressional ruler and told to try again. (And not fly again in a company plane!)

I think the fact that a loss of income for the auto workers and the millions of others who will lose jobs in a ripple effect means the loss of income tax revenue to the government. And that would alone cost more than the loan. So it is not a matter of help or no help, it is a matter of how help is given, what conditions are laid out and how the conditions are to be enforced.

It is commonly suggested that Chapter 11, a sort of controlled bankruptcy, and resulting reorganization is the way to deal with the problem. It certainly would let the stockholders know where they stood. Out in the cold. And change some other contractual obligation.

Airlines, it is argued, while in Chapter 11, have continued business and come out the other end. But with an airline you buy a ticket, take the flight, pick up your luggage and it’s ended. A car purchase involves a long time relationship for service and warranty work. Few would consider promising some $30,000 to a company in bankruptcy. (When was the last time you sought a warranty on a plane ticket?)

But bankruptcy-like conditions could be imposed – reorganization demanded and conditions made clear. It is not that Detroit is not trying, not progressing, it’s just that there’s a century of sludge that must be dealt with.

There are too many brands. And changing that means dealing with dealers. It cost GM billions to do away with Oldsmobile. (Maybe with so many dealers going belly up the problem will be self-solving.)

New relationship with suppliers must also be determined. Now it is all on lowest bids and that can lead to reduced quality and warranty costs. Life-time costing has to enter the negotiations.

The alternatives to aiding Detroit with its economic tentacles so far-reaching in the total economy is simply unacceptable. Whether that aid comes with impossible conditions – for instance the equivalent of telling McDonald’s it must make Big Macs from tofu and fries from zucchini sticks – we shall see. Encouraging the loss of weight, the speeding up of decisions, the paring down of expenses and the actual listening to those innovative middle-level people would be all to the good.

A long way from “Detroit Iron”.

And about pay differentials:

Here’s my suggestion for making the wages of Detroit workers and those employed by the foreign-owned “transplants” commensurate with each other.

It will satisfy the insistence of the southern Congressional delegations that the higher wages of the Detroit autoworkers represented by the UAW be made “comparable” to the wages paid the transplant workers who have been trained to think “union” is what the Confederacy fought against.

To wit: Raise the wages of the non-union workers to match those of their union colleagues working for the Big Three.

With the economy constricting and reduced spending abetting that trend putting more money in the pockets of the southern workers would encourage healthful spending. A direct and meaningful incentive. Cutting the pay of the union members after the concessions already made would curb their ability to keep up with current demands let alone buy new stuff. Decreasing take-home pay of millions of workers now is counter-productive to the new incentive plans.

And how can Senator Shelby (R. Ala.) oppose a raise for the downhome folks who built his Mercedes-Benz?

This Post Has 11 Comments

  1. Excellent, knowledgeable commentary by Denise. I wouldn’t change a thing (except for one errant apostrophe) and I am surprised at her depth of understanding since I have always pigeon-holed her in the motorsports/euro imports slot.

  2. BRAVO, Denise! This is one of the best commentaries on the current state of the automotive industy I’ve read and you really hit the proverbial nail directly on the head! It’s good to know that there is fire in the “old girl” [said with true affection] yet. I have been reading your columns and stories for 30 years and never get tired of them. They are always fun to read and right on the money. Well done.

  3. There are a handful of great writers among us, and an equally few number of truly skilled drivers. Denise is one of the few who make both look effortless.

    Plus, despite the fact that she’s been writing since I was five, she’s one of the hippest people I know.

    It was good hearing from Frank, too. It’s great to see him back out on the road.

    Congratulations on your best issue yet, Glen.

  4. Yup on everything. Wait . . . you went out to buy a cinnamon scented candle and came back with a 24″ monitor? If I didn’t know you I would be suspect.

  5. OUTSTANDING “State of the Union” automobile treatise. It should be required reading for every member of Congress, and every member of the media. The only question that I have is that with all the money the BIg Three spend on their Communication Directors, PR firms, and lobbyists, why haven’t they been able to tell the story to America properly?

  6. Way to go, Denise! This article reflects your understanding of the (much more difficult than some Southern Senators would have you believe) auto business, and your willingness to fight fire with fire and stand up for the “Big Two and a half” despite the fact that you cover the entire industry and need them all — including the imports — to work with you. Not everybody would take that risk which, of course, is what makes Denise Denise! Thanks from a guy who cares like you do and who’s still counting on getting his pension from one of those companies.

  7. Denise – Bravo from this scribe, too.You’ve done a superb and timely job of destroying the “urban legends” surrounding this crisis and putting the whole issue into perspective.

    The only caveat that I’d add to your analysis is that American auto companies have been spending tens or hundreds of millions each year attempting (rather successfully) to prevent government-mandated improvements in fuel mileage and safety requirements. Instead of being ahead of the curve, as many foreign manufacturers have been, Detroit hired the highest-powered lobbyists on K Street to fight every increase in mileage and safety (leaving Volvo, BMW and M-B to introduce such safety features and adding those to Detroit’s lineup only after the public demands them). Detroit has primarily fought to keep the status quo while many foreign car companies have created the demand – which, in turn, caused the public to identify them with such engineering advances.

  8. Katz’s uninformed or misinformed comment shows me that he is part of the urban mythology problem, not the solution.

    Where does one start? Let’s see, foreign car companies built gas-sipping cars because their national laws, especially fuel taxes, required them to meet their local demand; their countries’ industrial policies eased if not forced exports to the U.S. The only true volume economy car from Europe was the VW Beetle and that died when its price rose and it couldn’t meet U.S. regulations; successor FWD VWs have never gotten a toe-hold in the U.S. market. BMWs, Audis, Porsches and Benzes are hardly economy cars.

    And just what safety advances, other than Volvo’s three-point belts, does he credit them with? Among other things, the single most important safety advance in modern (i.e., post-war) automotive history has been the simple lap belt, which Ford pioneered in mass production as a safety feature. Ford and GM and their suppliers were developers of airbags. GM pioneered telescoping steering columns and catalytic convertors.

    Further, what evidence does he offer that Detroit automakers paid any more for lobbyists (a necessary evil) than import companies, and even if they had, considering their size, employment, production, etc., so what? What nonsense Mr. Katz writes.

  9. I don’t wish to get into a pissing contest with you, Mike, but when you label me as uninformed and writing nonsense, I feel compelled to reply – especially when you seem to have gotten some automotive safety history wrong and have obviously not compared lobbying costs by GM and other behemoth auto companies.

    While Ford & GM have produced a number of terrific and fun cars, and, in their early histories, came up with some safety features, they have certainly not, over the past 40 years, been known as being on the cutting edge of safety and fuel economy. Let’s look at the facts, not urban legends or getting on the defensive.

    Seatbelts? While Ford first offered 2-point belts as an option on some of its cars in 1955, it was Volvo, in 1959, that first added 3-point belts as standard equipment on production cars in Sweden. Ford, Chrysler and GM cars were still offering 2-point belts as an option until 1964, when they first offered the 2-point belts as standard for front seat passengers. It was some years later before Detroit offered 3-point belts as standard.

    Air bags? Ford first experimented with them in 1970 and GM introduced them as an option on higher end cars in the late 1970’s. But it was Mercedes-Benz, after patenting their own air bags in 1971, that first offered a full SRS with airbags in 1980. Porsche, with the 944, was the first to make both driver and passenger air bags standard on any model. During the 70’s, Detroit fought efforts by the government to make them standard by a date certain.

    Crumple zones? Mercedes-Benz was the first to put this into production in 1959.

    Crash testing of vehicles? Again, M-B, which began doing that in the early 1950’s.

    Safety cages? Saab was the first to introduce this in a production car in 1949.

    Electronic stability control (ESC)? M-B first patented ESC in 1987 and was the first to offer it in a production car.

    Anti-lock braking systems (ABS)? M-B again, in 1978, when they installed ABS in production cars. It was not until eight years later that GM first offered them on Cadillacs. ABS was first developed for airplanes – and BMW experimented with a Rube Goldberg version of ABS in its IMSA 3.0 CSL’s in the mid-1970’s.

    Catalytic convertors? Sure, GM was the first to install them…but only in direct response to EPA’s new emissions requirements, which Detroit fought tooth and nail to delay deadlines for limits on emissions.

    You want evidence that Detroit spent, proportionately, more for lobbying? OK. In 2008, GM, with revenues that year of about $182 billion (posting losses of over $82 billion), spent about $9.8 million for lobbying . By contrast, Toyota, which generated $230 billion in revenues and $15 billion in profits, spent about $4.8 million on lobbying. Ford, the same year, spent $5.8 million on lobbying, with revenues of $172 billion, and a $3 billion loss. By contrast, M-B spent $604 thousand lobbying in 2008. And BMW and Porsche, combined, spent zero on lobbying last year.

  10. David, this blog is not a proper format for our debate. I was mistaken in characterizing you as uninformed but clearly in my professional experience–which goes back almost as far as Denise’s, to 1953–you are misinformed or under-informed. If there is a way for us to discuss these issues privately, please let me know, and I can explain what I mean.

  11. Mike, I’m happy to discuss this with you privately. But you began this by using a public forum to characterize me as uninformed and I felt it appropriate to use the same public forum to refute your personal comments about me. Since we don’t know and are completely unfamiliar with each other, I don’t have your personal e-mail or know how to otherwise contact you for a personal discussion.

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