Long May You Run

No comments
Regrettably, I pay my bills and won't be favored with a government bailout. I admit this is rather disappointing. After all, much of my expenses are for my kids. Why not add it to their tab?

I've posted my share of political observations, and so I'll avoid the political entanglements as best I can. To the point: the inevitable bailout of Ford, GM, and Chrysler. The interesting provision that is talked about on Capital Hill is that the Big Three must first show what changes they will make to ensure that it's not just bonuses and pensions that are fattened by "government money," but an improved business model. Well, what would that look like?

1. Bust the Union. That's the unspoken requirement that first comes to mind, is it not? First, I'm a capitalist. I'm all for people making as much money as they can. "As much as they can" is further clarified as "as much as someone is willing to pay." The amount that someone is willing to pay I'd say has to meet two tests:

1) There is sufficient income to pay each wage earner.
2) The benefit to the wage provider exceeds the costs of the wages paid, namely a profit.

Wage providers can pay as little as they like. Prospective employees are free to choose if the wage is sufficient for the work required. Providers can also pay as much as they like, far in excess of what others may earn for similar work. That's their choice.

The classroom example is the wage disparity between professional athletes and school teachers, a particularly sensitive subject regarding their relative worth to society. In short, high performance athletes are very few, and significant funding is available because fans are willing to pay for the entertainment. By contrast, teachers are... aplenty. Granted, good ones are rarer. But, to pay this far greater number of teachers a significant wage is cost prohibitive. As it is for the vast majority of other professions.

So, the obvious. Automakers with plants in "employment at will" states make larger profits because the wages paid are appropriate for the skills required (of which ample people are capable), though still a quite respectable wage. The Big Three, despite tiered suppliers that are frequently non-union, overpay for the value of the labor provided, and... a sufficient number of auto buyers believe that their products suffer by comparison to imported brands, resulting in lack of sufficient income. The two tests above are not met, and they come begging to the taxpayers.

2. Better products. Clearly, they need to improve, mainly in reliability, and secondly in appeal. After all, European imports may be sought after by those that can afford them, but most European brands suffer similar reliability issues, plus they cost more to repair. I don't think anyone would concede that American ingenuity and engineering offers a disadvantage to foreign competition. We just have yet to prove it and build a reputation that holds across a particular brand's makes and models. I doubt any Congressperson will demand any improvement in this area.

But here's how to score some political points. Desirable products is certainly a factor. I'm not the most environmentally "green" person, but I'm coming to terms with my own wastefulness, and can see benefits in doing what we can to help the trash pile. I mean, the earth.

Neil Young once wrote a fine song in appreciation of his car, called "Long May You Run." In general, I think Americans want a car large enough to haul more than themselves and a cupholder, and, apparently, Neil feels the same. (<--- it's an interesting article). The southern man may need him around, anyhow, after all. (A few of you will get the reference). American ingenuity is certainly fueled by "where there's a will, there's a way," or "necessity is the mother of invention." Your choice. That said, I expect the automakers to propose nothing of consequence, but rather point to unfair trade practices, the onerous costs of regulation, and Congressional demands for increased fuel efficiency as leading causes of their blight. Same old story, only this time they want cash. 3. Better distribution. Several years ago, I read a book called The Goal: A Process of Ongoing Improvement. (It's actually an easy read and not as h0-hum as the cover suggests). Without being tedious, the story walked through the production process of a manufacturing plant and largely examined the inefficiencies (and resulting costs) of materials that were on hold, waiting for the next available production step. Bear with me.

When it comes to about everything, Americans as a society are basically like 2 year olds in that "I want it... NOW!" Hence the billions of credit card debt and defaulted home loans. When we go shopping, for anything, we want it... now. I don't know that we're built to find virtue in patience.

Having worked my way through 1 Ford Tempo, 3 Dodge Spirits, 1 Pontiac Grand Am, 2 Dodge Stratus, and 1 Chevrolet Malibu as company cars over the years, it's evident that American employers support American automakers. The process of getting a company car involves filling out an order form for choice of colors and waiting for the car to be delivered to a local dealership. It takes about 8 weeks. At any given time, I could check on the status of "my" car online to see how it was coming along. Basically, it had my name on it from birth.

When I finally was no longer able to qualify for a company car, I bought a Nissan (which can rightly be assumed to be a comment on my satisfaction with those driven previously). The sales lot had hundreds of cars and trucks, and I got it...now! (Well, okay, then...).

A quick Google search indicates that for each of the major automakers (foreign and domestic), there are 7-8 dealerships in the metro Atlanta area. Let's assume there are 200 new cars on each lot, each valued at $25,000, and 8 dealerships. That's $40M of inventory, just in the Atlanta market, per auto brand. Multiply $5M (value on one lot) by 50%? for the automakers costs, and multiply again by the number of dealerships in the country. It adds up. Then consider the amount of financing required for material costs, tiered suppliers, labor, shipping, etc. for product that is unsold and sitting on lots.

Wouldn't it make more sense to have a sampling of vehicles on each lot? I know... dealers would protest that it would reduce sales - no whimsical buyers, more time to reconsider the debt obligations and back out... But really, why not test drive a vehicle, then order the one you like the way you want it as a standard industry practice? "Made to order" is perfectly suited to "just in time" manufacturing processes used by many industries that minimize capital outlays by avoiding standing inventories.

This isn't exactly new for consumer products. Buy Ethan Allen furniture (assuming you can afford it), and you wait until it is manufactured and delivered.

The Big Three... a key American industry... hundreds of thousands of jobs... I get it. As one commentator put it, "if the union believes so strongly their wages are not the issue, have them invest their pension funds in the automakers." Like my old Malibu, it's a non-starter.

We'll see what the Big Three try to sell Congress that warrants billions of dollars they haven't earned. But it's interesting to follow the logic another step or three.

Given the inconveniences of the recent gas shortage in the south, no one really wants to think what a real energy deficit would mean to our way of life. But looking down the figurative road a ways... when energy costs rise to the point where it's not economically feasible for consumers to shop by going from store to store to store, one has to wonder how well the amazon.com approach (for example) might work towards all consumer products. The efficiencies gained by ordering all sorts of products and having them delivered on a scheduled basis to a nearby, central location, such as your house, may someday be a necessity rather than an option.

In a bleaker vision of the future, perhaps the dream jobs of many kindergarten kids will to be a truck driver, or a plumber, or another tradesman that is one of an allotted number of occupations permitted to drive the open roads.

Sing us out of here, Neil!

No comments :

Post a Comment