Why Are the Big 3 Automakers Losing So Much Money?

automakers

The unraveling of Ford, General Motors and Chrysler have become lessons in how not to manage a company. Although the situation for each corporation is different, here are some of the shared reasons why car sales statistics are falling and the big 3 US automakers are losing money.

High Labor Costs

Chief among them are the labor laws and costs. The three companies all have powerful unions and they have exercised great power during negotiations. As such, workers for Ford, GM and Chrysler make more dollars per hour than in most other companies.

In addition they also have extensive health coverage. It’s been estimated that GM spends over $1,600 per vehicle on health care alone.

It is also worth pointing out that GM has an extensive retirement program. What this means is that the retirement pay for workers are huge. This doesn’t even include health care coverage for active and retired workers.

Another reason why the big 3 US automakers are losing money are labor laws. For example, paid holidays, line relief and other measures total more than $1.000 per car. There is also a law stating that when a factory shuts down, the car company has to pay them about 90 percent of wages.

Large Bonuses

The labor unions aren’t the only ones to blame. The CEOs and executives also gave themselves large bonuses. As with the labor unions, this practice was acceptable when the companies were making money.

It can be argued that the CEOs and labor leaders couldn’t have foreseen the problem. However, their penchant for fat bonuses and overly generous labor benefits is what is making it difficult for the car companies to get bailout funds. This is one reason why the big 3 US automakers are losing money.

These bailout funds come at taxpayers’ expense, and understandably don’t feel like giving aid to these CEOs.

Foreign Competition

Other problems stemmed from competition overseas notably Japan. Unlike the big 3, Japanese automakers were able to create fuel efficient and cost effective cars.

During the 50s to the 60s, US car companies built large gas guzzling vehicles. It was acceptable then. Fuel prices were at reasonable levels back then. During the 1970s however, the oil crisis hit several countries, including America. Industry observers point out that GM, Ford and Chrysler should have learned their lessons there.

They didn’t. Instead the US car companies continued to make gas guzzlers, all the while the Japanese were chipping away at their market share. So the lack of innovation is why the big 3 US automakers are losing money.

High Gas Prices

During the 1990s the three were able to make profits with their SUVs. But then came the high oil prices. With oil hovering in the $100 range, people started looking for more fuel efficient cars.

The Credit Crunch

This was followed by the US housing and credit crisis. It plunged the US into recession. Thousands of people have lost their jobs. As people tightened their belts, people stopped buying cars and SUVs. With low sales and huge debts, the car companies are now faced with huge financial losses.

There are many more reasons why the big 3 US automakers are losing money. But the bottom line is that a lot of the problems could have been avoided if they had a little foresight.

Related Posts