Avid Editor's Insights

Why General Motors Can’t Compete (Bankruptcy Edition)

Posted by ageofpericles on April 18, 2009

Crossposted From Age Of Pericles

Which one slashed his own salary?

In his inauguration speech, President Barack Obama waxed poetic about topics like sacrifice. While he clearly understands such a concept as an abstract, real-world follow-through has been limited to the upper quintile of American economic society; both Edward Liddy (AIG CEO) and Rick Wagoner (GM CEO) cut their own salaries to $1, yet both were harangued as convenient targets of populist anger. In GM’s case, it’s time for another party to make a sacrifice- big labor. The fact of the matter is that deposed CEO Wagoner’s salary had little impact on GM’s economic viability, while tremendous labor costs are drowning the company in red ink. Let’s look at the numbers.


The Harbour Report, a document published annually by the Oliver Wyman Group, uses various metrics to gauge automotive plant efficiency. It costs a pretty penny at $595.00 for the 2008 edition, but various statistics from the 2005 release are available online. Toyota compensates the average non-skilled assembly line worker at $27 per hour including end of year bonus, while GM pays out $4.35 more per hour at $31.35 including idled workers. GM spends 34.3 man-hours on building a typical car, while Toyota spends only 27.9 man-hours. The difference between Toyota’s wage expenditures ($755.30) and GM’s wage expenditures ($1075.31) is a whopping $322.05 difference per vehicle. Not factored into this set of calculations is the fact that GM actually pays more than $70 per hour in labor costs due to legacy costs from pensioners.


That, however, is only the tip of the iceberg. General Motors’ employee healthcare cost per vehicle ($1525.00) outpaces Toyota’s ($201.00) by $1324.00. On wage and healthcare costs per vehicle alone, GM is at a $1645.05 disadvantage right off the bat. Once again, that figure doesn’t include non-healthcare retiree pensions. $1645.05 is almost 6% of the average cost of a new car (app. $27,800), but more importantly, it’s the difference between making and losing money on each car sold. In 2005, GM lost $1,271 on average per vehicle sold. If Chapter 11 bankruptcy proceedings can help bring GM’s labor costs in line with Toyota’s, then the American automotive giant stands to begin turning a $375.05 profit per car. After suffering an operating loss every year beginning in 2005, wouldn’t that be refreshing? The US economy will certainly benefit from a profitable manufacturing giant pumping in investment capital and job opportunities on its own soil. The staff at the Age of Pericles only hopes that rescue efforts don’t require more taxpayer dollars than they have already.

Crossposted from Age of Pericles (ageofpericles.blogspot.com)

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