Now even fewer reasons to buy a GM car

[Xame]

GM has announced a buy out offer to all it's hourly workforce. Objective, get rid of as many senior workers so that they can hire cheap labor. I guess this means one can expect increased problems with GM vehicles.

I do have to wonder something. You get rid of the people who can afford to buy your product, replace them with people who don't earn enough to buy your product. Do that long enough, and who can buy your product?:P

Some data I read about the GM press release. The senior workers are about +50 years of age and making $28/hr and benefits (grandfathered in under some old contract). The new workers that they are trying to replace them with make $14/hr. This is all part of the union contract that has been around for some time. GM is trying to offer the senior workers an early retirement package to accelerate the union contract to cheaper labor so they can take it as a one time charge on there books (a way to not pay taxes in the short term and allow them to have some free cash).

The risk/reward to the worker is that (A) the next offer from GM might not be as generous, and (B)is the cash buyout worth more to them then the risk of a plant closure. Everyone agrees (management and union) that the senor union people are getting payed well over what is the norm in the auto industry.

Now for my personal take on this, To build a car you have four items: the raw material costs, design/engineering, labor and overhead (lawyers, paperwork, taxes, shipping, etc.). Now raw material costs can only go so far until you end up with a cheap car so they are pretty much fixed in the consumer's mind of how much and what quality you need to use. Design/engineering is a basic cost that makes your product different then your competitors. This is also a very small cost of the car (about 3% at many companies goes to R&D) and GM reuses many designs in different models. Overhead is just a cost of doing business. You want to sell cars in the USA, you will pay a given amount to do so legally and pay your taxes/risk costs.

Last is labor. It is a sizable cost after materials and one of the only things left to move for management. Lately most of labor is being converted to low skill jobs by computers/robots/automation. This is a way for companies to shave the cost of the car and improve quality. Also a job that once took 10 people now just takes 1. Thus GM has a problem, in a world that most manufacturing in the US is taking less and less people to generate the same level of output; GM still has a lot of employees that it is required to have by old contracts. The alternative is to move the jobs overseas where you don't spend on automation but instead use cheap labor. In either case, GM's rivals are already in this state of having a lower base cost for producing a car (Toyota, Honda, Nissian etc) and thus are killing GM in a pricing/design war that GM has been losing over the last +20 years.

I personally blame both the greed of management and the greed of the union in where GM is today (<29% of the US market and even less of the world market). Both thought the other was the enemy and now they both lost.