The Homa Files

Excerpted from IBD, “If No Givebacks, Then No Bailout”, November 17, 2008

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Today the total market capitalization of the Big Three has fallen to about $7 billion. Is it better for the owners of those companies to suffer a total loss or for taxpayers to lose $25 billion?

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American carmakers in 1960 owned 90% of the U.S. auto market. This year, for the first time ever, that share slipped below 50%.

Japan’s Big Three — Honda, Nissan and Toyota — make anywhere from $900 to $1,600 in pretax profit on each car they make in North America (mostly in southeastern states, with non-union contracts). America’s Big Three, by comparison, lose anywhere from $400 to $1,500.

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Thanks in part to managerial incompetence, but mostly due to pricey union contracts, it costs American carmakers too much to build cars here; they can’t compete. These aren’t temporary problems. They’ve been brewing for decades, as management agreed over and over to labor deals that now financially strangle the industry.

When you fold in health care, pensions, hourly pay, vacations and the rest, average total compensation for a Big Three autoworker is $73.21 an hour, according to data cited by University of Michigan economist Mark Perry.

Toyota, Honda and Nissan pay a still-generous $44.20 an hour in total compensation — a cost edge of nearly 40%. Is it any wonder that Ford, GM and Chrysler can’t compete? Or that, after paying their workers, they never have enough cash left to retool?

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=311818292128101

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