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post #1 of 4 (permalink) Old 06-08-2004, 04:58 PM Thread Starter
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U.S. automakers in price squeeze

From the Detroit Free Press:

U.S. automakers in price squeeze
As expenses go up, they can't charge any more
June 4, 2004

BY JEFFREY MCCRACKEN
FREE PRESS BUSINESS WRITER

The U.S. auto industry is facing the same dilemma that other troubled industries like clothing makers have for decades: They can't raise prices despite rising costs, a just-released comprehensive study shows.

Like those other beleaguered industries, automakers have to respond by continuing to send more work and jobs overseas, say experts.

Clothing and appliance makers have been dealing with overseas competitors for years and responded in the 1980s and '90s by moving work to low-wage countries like China, Taiwan or Mexico. Today, U.S. automakers are facing the most intense competition ever from foreign automakers like Hyundai or Toyota, limiting the ability of General Motors Corp. or Ford Motor Co. to raise prices.
While the cost of nearly everything from health care to food has gone up the last decade, the auto industry has been able to raise its prices by only 0.1 percent since 1994. By comparison, the price of personal-care products rose 10 percent since 1994; food prices rose 25 percent and college tuition prices rose 61 percent. Health care, a multibillion-dollar expense at Detroit's three automakers, rose by 43 percent.

Meanwhile, automakers are putting thousands of dollars in new technology, like DVD systems or safety equipment like air bags, into each of their newest cars and trucks, but can't charge much more for their products than they did a decade ago. That's the conclusion of the study done by the international consulting firm AlixPartners and presented last week to 75 top auto executives.
The study, which also tracked profits, production and other trends at 22 automakers and nearly 150 auto suppliers worldwide, again shows that the U.S. auto industry, headquartered in Detroit, is undergoing massive shake-ups and cost-cutting in the face of global competition from China, Japan and Korea. Automakers like GM and Ford are following decades-old cost-cutting paths taken by appliance makers like Whirlpool or clothing designers like Polo, say business experts.
To be sure, this is good news for U.S. car and truck buyers, who are able to buy new vehicles with better safety features, better technology and more gadgets than ever and not pay much more for them. This pricing pressure was evident this week when GM announced $5,000 rebates on 2003 and 2004 models through August, while Ford offered $5,000 rebates on its 2004 Freestar minivan.

For automakers, suppliers and their millions of retirees and employees, this pricing pressure means dramatic changes that result in lower wages, smaller benefits and fewer North American jobs. GM, as one example, has shrunk from 213,000 employees in North America in 2000 to 190,000 as of Dec. 31, 2003. Its Asia Pacific workforce has grown from 11,000 to 14,000 in the same period.

"The U.S. automakers have to do more with less. The industry has become globalized so they can't just be competitive with U.S. automakers; they have to be as efficient as automakers in other countries. It means the auto industry has to transition, so the number of workers in the United States shrinks, including blue-collar workers in the plants, to call centers and accounts payable," said John Hoffecker, head of AlixPartners auto practice in Southfield, which oversaw the study. "The automakers have to reduce costs every year by taking out people or leaning on suppliers for lower prices or buying more parts overseas, the way toymakers or bikemakers did in the past."

He said this dramatic change in the auto industry -- where more parts are made overseas in lower-cost countries like China or India -- is the same thing other industries went through.
"Whenever an industry goes through this kind of transition, there are challenges and changes and shake-ups. The good news is our country has always handled this in the past. It's the natural evolution of industry in this country," said Hoffecker.
Hoffecker's study notes that China, with a population estimated at 1.3 billion people, has roughly 151 million people working in manufacturing and willing to do the same manufacturing that is done in the United States. That's more manufacturing workers than in developed nations like the United States (34 million), Japan (22 million) and Germany (14 million) combined.

Manufacturing workers in China make about 3 percent of what U.S. manufacturing workers make, or about $250-$300 a month, according to the same study.

"With apparel, a lot of clothing makers realized they must go abroad and make it in Bangladesh or some other undeveloped country if they want to get their clothes sold in Wal-Mart," said Peter Morici, a University of Maryland business professor and a former economist at the International Trade Commission.
The elimination of textile or apparel jobs has devastated some cities in the south, namely in North and South Carolina. An investigation by the Charlotte Observer newspaper found that in just one year, 2001, about 23,000 textile jobs were eliminated in the Carolinas, or about 11 percent of the industry's Carolina workforce.

Morici and other experts said the auto industry likely won't move overseas as fast as the apparel industry. This is because building new cars and trucks is "more complicated and requires more skills and more machinery than making underwear," said Fred Crawford, a New York-based apparel and retail expert with AlixPartners.

"But that said, the move overseas will happen, it just may take longer," Crawford said. "Early on, workers in China could only make knock-off shirts of bad quality. But after a decade, they got to a point where they could copy anything done here."
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post #2 of 4 (permalink) Old 06-08-2004, 06:31 PM
 
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Diversity has always been the key to any company's ability to survive. The big three have to start making other products. Though Mitsubishi as a car company is having problems right now, as a whole organization, they are in the top 5 grossing companies in the world. Maybe we need to start seeing other products coming from Ford, GM and Chrysler.

I know that even with the company that I'm with now, the market for our primary business has been on the decline for years. But we diversified and continue to grow. Much like the company that I still have part ownership of. It was a bustling textile manufacturer back in the days, but to survive it has evolved to do other work.

It's survival of the fittest. Though it's sad, that's just the way capitalism is.

Which brings me to another thing. I think the airline industry needs to suffer the same fate. I believe that we need to let some companies fail. As long as there is a need to fly, some other company will crop up and find a way to make money.
post #3 of 4 (permalink) Old 06-08-2004, 08:29 PM
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Whoa, 0.1% in 10 years! that's hardly believeable.

I always remember the early 90's as a time when $10,000 could buy you a pretty decent new car. Now, the choices are limited to Echo, Kia Rio, and Accent?

Edit:

1994 Base Intrepid: $ 17,600
2004 Intrepid SE: $ 21,385

1994 Mustang Coupe: $13,695
2004 Mustang Coupe: $18,150

Hmmm, seems more than 0.1% to me. I'd say that matches inflation almost perfect.

Last edited by RJ; 06-08-2004 at 08:33 PM.
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post #4 of 4 (permalink) Old 06-09-2004, 02:37 AM
 
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Inflation was almost non-existent from the mid-90's till now.

That .01% must be achieved by using funny math. Maybe Arther Anderson does their accounting.
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