Today is Monday, July 24, 2017

Former auto company official offers thoughts on Detroit 3 loan request

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As a 35-year veteran of the automobile industry and a native of Middle Tennessee, I would like to weigh in on the facts surrounding the requested bridge loan for the Detroit 3 automakers.

I grew up in Carthage and went to Detroit to work for General Motors in 1966, having graduated from David Lipscomb College. It was a time when many of us had to leave this area to find good jobs. My wife Jan and I lived in a number of locations through out Michigan and Ohio and I spent a career in the GM Financial organization, working toward things that would make General Motors more cost effective and profitable. It was, however, in the face of ever declining market share as Japan and Germany, having been able to start with a clean sheet and U.S. Government Aid following World War II, cranked up their car production in order to fuel their economic recovery plans. 

When I started with GM we produced 52 percent of all of the cars in the world, and we had hundreds of thousands of workers, both hourly and salaried. 

In fact, there were often government rumblings of breaking up GM, in the days of active anti-trust legislation. We were, over these years, faced with environmental legislation that impacted plants and products, safety regulations, fuel economy mandates, labor legislation, and a powerful union which aggressively pursued the interests of its membership and thereby, built a strong and prosperous middle class in America. All the while, our German and Japanese competitors were aided by an industry friendly government which provided subsidies and currency manipulation, as well as trade protection, to ensure that the playing field was never level.

Did we make some mistakes? Of course, as all businesses do since only hindsight is 20-20.

Let me provide some of the facts however:

Critics and pundits ignore the substantial changes U.S auto makers have made already.  Over the past 10 years GM has reduced its US hourly workforce by 52 percent, or 69,000 workers, its salary workforce by 14,000, and reduced the executive ranks by 45 percent.

Quality and productivity gaps have been closed and new products have included a number of fuel efficient crossovers and the Chevy Malibu is a customer hit, leading its segment with a 33 mpg EPA rating. They have committed to the versatile, all electric Volt by 2010 and continue to work toward hydrogen fuel-cell vehicles.

In 2007, more than 9.3 million people bought GM cars and trucks, keeping the brand in a dead heat with Toyota as the world’s largest automaker.  It was the second-best sales year in GM’s 100-year history.

Contrary to myth, no GM hourly worker makes $81/hour or $72/hour as various opponents and talk show hosts are making it appear – GM has thousands and thousands of retirees who were contractually given health care for life as part of their total wage package. Health care that was much cheaper then than is now the case, and thankfully, people are living longer, thanks to good health care, than was expected a number of years ago.

These are all good things in our society, but those costs are a part of the total “Labor Costs” of the Detroit 3. Therefore when you divide these costs, plus the costs of working and laid off employees together, then divide them by the hours expended by hourly labor hours, you arrive at a large number when compared to Toyota and Honda, who do not have these legacy costs since they are either government borne or they have yet to reach that stage. 

There is also a popular myth that the Detroit 3 are “idiots” for investing in pickups and SUV, but the reality is that Toyota, Nissan, and BMW have all spent billions breaking into this full sized market because it is historically large and profitable.

Automakers are business men who are compelled to build what the public wants – and trucks and SUVs are what we all wanted – until gas went to $4/gallon. It is also a fact that the more fuel efficient full-size pickups from GM, Ford and Chrysler all have higher EPA fuel economy ratings than Toyota and Nissan’s full-size pickups.

Finally, we all need to note that U.S.-based companies have 105 assembly and component plants in 20 states, including Kentucky and Tennessee. They purchase $156 billion in parts, materials and services, supporting millions of jobs in all 50 states and these suppliers are dependant on the survival of all three, a collapse by one would be likely to bankrupt hundreds of suppliers and stop the flow of parts to the other two. 

The overall fact is that a government bridge loan will enable the domestic automakers to continue as an engine for prosperity and as a creator of both vehicles and technologies that America needs. Millions of jobs will be saved and enormous benefits will result for years to come. Hold their feet to the fire for a plan prior to receiving on penny in taxpayer money. They expected that, they just did not expect to be required to produce one at the initial hearings.

They have collectively paid billions in state, local and federal taxes and now failing to support them with a loan – not a bail-out, a loan – will surely have an impact upon us all, which will have unforeseen and unintended repercussions for decades to come.

Editor's Note: Bob Chaffin resides in Lebanon.

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