The beginning of the end?

[Duke W.]

Re: The beginning of the end?

Problem is, however you figure it, the total cost, wages and legacy costs still add up to the total hourly cost. Frankly, I as an independent business owner, dont totally understand the legacy cost idea anyway. I was always under the impression that retirement benefits were supposed to be paid for when the employee was activily producing, under some investment, insurance, etc. plan that paid the cost after retirement. What the heck is this paying a retiree out of current operation capital. Sounds like Social Security. Any plan like that is a recipe for disaster. You are assuming that the company will stay in business forever, just like SS assumes someone will be working to pay my SS. It should have been a self supporting program in the first place. When I quit working, thats it pal. If I havent saved and provided for future income, no one else is going to do it, nor do I expect them to. Thats the real world. Problem is ya`ll that aint in the real world, will want me to bail you out.

In theory companies make contributions to defined benefit pension plans while while the person is employed, and upon termination or retirement they are presented with a document that tells them what they will earn at a specified age, and there may be options to take a smaller sum at an earlier age, or if they are old enough (typically 55 and have 30 or more years service), they may be able to take retirement payments immediately.

However, if a company's financial performance is poor they may not be able to make the requisite contribution for each employee, and at this point the pension plan is "under funded". Assuming financial performance improves in the future, the company will try to "catch up" and fully fund the pension plan, later.

The other variable is investment performance - will the the contributed capital and cumulative investment return be enough to pay out the promised benefit for the benficiary's lifetime? If not the company is obligated to make up the difference.

There are a lot of variables here, which creates a lot of potential liability for companies with defined pension plans, which is one reason why they are disappearing and being replaced by defined contribution plans like 401Ks, but the thing that really killed defined benefit plans was when the Congress passed a law in the eighties that required employers to "vest" employees in their defined benefit plans after only five years of service rather than ten, which was the prior required employee longevity for vesting.

Using IBM as an example, they terminated their defined benefit pension plan for new hires beginning in the early/mid nineties. Then about two years ago they stopped funding the defined benefit plan for employees who hired in under the defined benefit plan. So at that point everyone's benefit was "frozen" and more years of service will not increase their benefit under this plan. Figure that the last IBM new hires who came on board under the defined benefit plan will probably create a "legacy" that may last over 50 years, but in 40 years so few will be alive that IBM's liability will be minimal.

As far as retirement health care is concerned, I think most companies that offer this (and they are disappearing fast) pay for retiree medical benefits out of current cash flow, and the liability is virtually unlimited, which is why most companies that offer retiree health care are rapidly increasing required retiree contribution to maintain coverage.

Defined benefit pension plans and employer provided "health insurance" came into common use during WW II when there was a labor shortage, and corporations had to complete to attract and retain qualified employees.

Back then average life expectancy was about 65-70 years and there were not all the very expensive medical procedures and equipment that drive costs up way faster than inflation, today.

Nowadays, you might be able to survive for a few more months or years with expensive treatments that may cost hundreds of thousands of dollars, but these did not exist 50 years ago, so the cost of medical care was not over the top.

On average Americans consume 80 percent of their lifetime medical care in the last year of life!

Our whole ethos about death and dying needs a major overhaul.

Duke

[Wayne W.]

Re: The beginning of the end?

I actually like small cars. I plan to get a Mini once my Toyota "rice burner" hits 200,000 miles. Can anyone with a GM say that? Maybe, maybe not.

All right I`ll start it. 87 Cadillac Deville with a 4100 of all engines. 300K miles on original engine and trans. Also had a 90 Nissan that ate a timing chain and destroyed everything in it at 40K. Cost? over $1200 in parts and I did the work myself. Nissan place admitted it was a common occurence. Friends Nissan truck, 5 cent aluminum plug in the head, filled the engine with water literally, destroyed. Almost everything I have has 200K on it. I dont buy them until they have 100K+. This is going to be a useless excercise because everyone has had good and bad experiences. There are going to be as many on one side as the other.

[Chuck S.]

Re: The beginning of the end?

On average Americans consume 80 percent of their lifetime medical care in the last year of life!

Our whole ethos about death and dying needs a major overhaul...

I recently made a comment to my best bud that made him retort that "you are one cold-hearted SOB. When my bride proposed marriage, I tried to dissuade her with full disclosure..."You don't want to marry me, I'm a mean old sonofabitch"...she thought I was exaggerating.

But, Duke, my advanced age and selfish nature causes me draw the line at euthanasia!

[Joe L.]

Re: The beginning of the end?

FOR RELEASE: 2008-12-12

CONTACTS

GM Announces Significant Production Cuts for Q1 '09

Moves In Direct Response to Rapidly Deteriorating Market Conditions


DETROIT - General Motors announced today a significant reduction of planned production for the first quarter of 2009 due to the ongoing and severe drop in industry sales, which were down 36 percent in November overall and 41 percent for GM (2007 vs. 2008). The impact of these and recently announced actions to adjust production with market demand, will result in the temporary idling of approximately 30 percent of GM's North American assembly plant volume during the first quarter of 2009 and will remove approximately 250,000 units from production.

The speed and severity of the U.S. auto market's decline has been unprecedented in recent weeks as consumers reel from the collapse of the financial markets and the resulting lack of credit for vehicle financing.

The following U.S., Canada and Mexico operations impacted by today's announcement include:

U.S.:

Ft. Wayne (Ind.) - Chevy Silverado, GMC Sierra Light Duty Regular and Extended Cab
Flint Assembly (Mich.) - Chevy Silverado, GMC Sierra Heavy Duty Regular and Crew Cab & Medium Duty
Wentzville (Mo.) - Chevy Express, GMC Savanna
Lansing Delta Township (Mich.) - Buick Enclave, GMC Acadia, Saturn Outlook
Pontiac Assembly (Mich.) - Chevy Silverado, GMC Sierra Heavy Duty Extended Cab
Spring Hill (Tenn.) - Chevy Traverse
Fairfax Assembly (Kan.) - Chevrolet Malibu/Hybrid, Saturn Aura/Hybrid
Arlington Assembly (Texas) - Full Size SUVs: Chevy Suburban, Tahoe & Tahoe Hybrid, GMC Yukon, Yukon XL & Yukon Hybrid, Cadillac Escalade/Escalade ESV & Escalade Hybrid
Lansing Grand River (Mich.) - Cadillac STS & CTS
Orion (Mich.) - Chevy Malibu, Pontiac G6
Detroit-Hamtramck (Mich.) - Buick Lucerne, Cadillac DTS
Shreveport (La.) - Chevy Colorado, GMC Canyon, Hummer H3 & H3T
Bowling Green (Ky.) - Chevy Corvette, Cadillac XLR
Wilmington (Del.) - Pontiac Solstice, Saturn Sky, Opel GT
Canada:

Oshawa Consolidated - Chevy Impala
Oshawa Truck - Chevy Silverado, GMC Sierra Light Duty Extended and Crew Cab
CAMI - Chevy Equinox, Pontiac Torrent
Mexico:

Silao - Chevy Silverado, GMC Sierra Light Duty Crew Cab, Chevy Avalanche, Cadillac Escalade EXT
Ramos 2 - Chevy HHR, Saturn VUE, Chevy Captiva
San Luis Potosi - Chevy Aveo, Pontiac G3
As a result of these assembly plant actions, GM will also continue to assess its powertrain and stamping capacity needs and make adjustments as appropriate.

General Motors Corp. (NYSE: GM), the world's largest automaker, has been the annual global industry sales leader for 77 years. Founded in 1908, GM today employs about 252,000 people around the world. With global headquarters in Detroit, GM manufactures its cars and trucks in 34 countries. In 2007, nearly 9.37 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling. GM's OnStar subsidiary is the industry leader in vehicle safety, security and information services. More information on GM can be found at www.gm.com.

Terry-----


Several months ago in another forum I said that over the course of the next 18 months, or so, we are going to see a change in the automotive industry which is FAR more radical and traumatic than anything else we've ever seen in our lifetime or will ever see again in our lifetime. So, I'm not surprised by any of this news; I'd only be surprised if things like this were not occurring. In fact, I really think that what's been announced here is only a "teaser" of what's to come.

There are all sorts of "postulations" on the reason for it all. However, I believe that the "beginning of the end" for the US auto industry occurred a LONG time ago and through a then relatively little-noticed government rulemaking. If you recall, when the CAFE standards were first instituted, the government allowed that "trucks" would be held to a less stringent requirement than "cars". That was all-well-and-good and understandable. However, the big mistake was allowing vehicles that would be used as, basically, passenger cars but built on a truck platform to be classified as "trucks" under CAFE. That set the automakers on a "collision course" with disaster.

This made the US automakers very happy because they could shift the public into high-priced and high profit SUV's. After all, folks want big vehicles with plenty of interior room and power and gas was cheap. In fact, for many years it was never cheaper on an inflation-adjusted basis. Beyond that, credit was relatively cheap and auto loans were pushed out to as long as 72 months from the old-time standard of 36 months. So, just about everyone could afford to go out and buy and SUV.

Many years ago I predicted that all this insanity was going to come to a crashing end because it represented something that was UNSUSTAINABLE (by the way, I used that term WAY before it became a "buzz-word" in the common lexicon.

Yes, I know that folks will say that gasoline is cheap again. I say enjoy it while you can. I FULLY expect the price of gas to increase to levels higher than we've EVER seen within the next 2 to 4 years.

You can also expect RAGING INFLATION in the next 2-4 years. That's the "down-the-road" pain that all of the financial "remedies" that are being taken today will cause.

[Chuck S.]

Re: The beginning of the end?

It seems like a couple (three?) years ago, when the Prius was just finishing its lease-loaner trials, that I fussed and fumed here that GM was sleeping for not having a hybrid, fuel-cell, or other economical green car ready for production. Terry McManmon will remember the thread because he posted that the Prius was moving from loaner trials to production.

Now GM is begging Congress for help because their privates are firmly clamped in a vise produced primarily by...high fuel prices. Prius is, of course, a stellar sales success. Toyota is hurting, but not threatened, because they wisely kept a full line of dependable products while GM and Ford pretty much abdicated the car competition for the "greener" SUV pastures you described.

[Terry M.]

[Joe L.]

Re: The beginning of the end?

Another important factor I forgot to mention is this: in order to buy that big SUV folks could TAKE OUT HOME EQUITY LOANS on their ever-appreciating property value. These could be relatively low interest, long term loans. Some might even end up being tax deductible, so the government helped to pay for those big SUV's. Once-upon-a-time I said that there was no way that property values could continue to escalate. Many friends told me I was wrong. In the last 6 months, or so, it's turned out I was right---big time.

So, this "financing mechanism" for big SUV's has "evaporated"---big time.

[Lyndon S.]

Re: The beginning of the end?

Yeah
We are already seeing the hyper inflation start an it will get to the point as Terry said when we will need a wheelbarrow full to buy that loaf of bread. The good news is that will run its course, then prices will fall, and you will have hyper deflation , that is when the bread will cost a nickel. Bad thing is you want have a nickel, that is what some economist are already saying will happen in this scenario that were in.

________
Kelly

[Richard S.]

Re: The beginning of the end?

Yes the UAW is a big problem no doubt. I did some work and the Union rules would not even allow me to put on a simple wire nut. It took 4 hours for them to get to it, and it required 3 guys! The work rules are totally out of control. I ended up turning out the lights and using a flash light to get the job done or I would never get back home. This was at their tech center several years ago.

A lot of people are over- looking the governments culpability in all this.

1. GM wqs building cars people wanted but the price of gas forced people in to the small cars they really did not want but were forced to reduce gas consumption to save money or lose their house. GM's business model required them to sell x number of SUVs to support all their legacy costs and cover loses on little cars no one wanted.

2. CAFE standards resulted in ending certain car lines with the ability for better gas mileage than those SUVs. My wife's 94 Roadmaster wagon with an LT1 gets over 24 mpg on the highway and did so years ago. The government said that was not good enough. The corporate CAFE standards had to be met or they would be fined. They had to sell small cars at a loss to sell enough in order to cover CAFE standards. That became a double edged sword since all their profit jacked up the price of the vehicles people really want to drive. I sold my Regal GSE (Great Car) to buy a Chevy Aveo because of the price of gas. The UAW gave millions to those who insisted on CAFE standards. Shame on them!

3. The government's energy policies virtually guaranteed high gas prices. I won't get in to all those details other than to say when was the last time a new refinery was built in this great country. UAW gave millions to those who again guaranteed that the cars GM needed to sell to remain viable were basically legislated out of favor at a minimum.

Bottom line is GM will never be viable with the the UAW. Management has made major mistakes but their hands were tied buy the unions and the government. If gas remained at 1.00-$1.50 a gallon GM would have been fine and we would not be forced to drive the little pieces of crap the government is forcing us to drive based on the hoax of global warming. When I brought the Aveo home my liberal wacko neighbor asked how I liked it. I said it is only good for one thing. Saving me money on gas.

What would all of us rather drive. A Pontiac G8 GT (Great Car) Corvette, or some little econo box. Last time I checked there has never been a classic collectable Japanese Accord or Camry and talk about boring! My wife insisted I buy her an Accord. Hated it from the day we brought it home. Never bought another.

If I had the money I would go out right now and buy a brand new G8 GT just to show support for GM. Alas the government takes over 40% of my income too or I would have one in my driveway right now.


Bill

Indeed there are many factors contributing to the current situation in which GM and others now find themselves. With respect to government culpability, if the comparison is against other US based "foreign" car manufacturers and their actual or perceived success, then my question is; wouldn't the CAFE standards, price of gas, decisions to build vehicles people don't really want, and government taxes be the same for all US based manufacturers?

[Sandra H.]

Re: The beginning of the end?

For anyone interested, there is a really good book that lays out how this country (and world) got to the point it is now....."Bad Money" by Kevin Phillips. He predicted this whole mess years ago and was dead on. Interesting reading.
Sandy

[Chuck S.]

Re: The beginning of the end?

,,,Once-upon-a-time I said that there was no way that property values could continue to escalate. Many friends told me I was wrong. In the last 6 months, or so, it's turned out I was right---big time.

So, this "financing mechanism" for big SUV's has "evaporated"---big time.

Or...As the traders on the NYSE like to say, "Trees don't grow to the sky."

I think real estate values will continue to grow. How long it takes for the normalization process will depend on where you live, and how far out of whack housing prices were. But, now that the "irrational exuberance" fostered by government-encouraged cheap money has ruptured, housing prices will first normalize to fit demand, and then revert to more traditional growth rates.

Actually, inflation is less likely now than deflation...we'll be able to watch the battle between government printing presses and the shrinking economy indirectly.

Unemployment will be the ugly side effect of all this. When manufacturers or service providers can't sell anything at market prices, they have to find a way to stay in business. They either reduce production costs and profit margin to make their goods (services) cheaper, and possibly net sales, or they reduce payroll...no point in keeping people around if you're warehousing the stuff you're making.

If there are no jobs because manufacturers (or service providers) have gone into "hibernation mode" to survive, then there is no money for anyone to buy goods and services. The process feeds on itself in a downward spiral...and that is called depression, not recession.

[Lyndon S.]

Re: The beginning of the end?

[Chuck S.]

Re: The beginning of the end?

Or...As that real-deal, "iron-sided", red-white-and blue Democratic leader once said..."We have nothing to fear but fear itself."

Unfortunately, fear is being spooned out by the media, because that is what they do, and the "well-informed" public is gripped by fear diarrhea. There is, however, genuine evidence that real people are beginning to lose real jobs because of the shrinking economy. Let's all pray that we have the right leadership to deal with this before it gets to the "D-Word" stage.

[Clem Z.]

Re: The beginning of the end?

most GM customers are not "prius" type car buyers so i don't think GM will have success trying to sell them. most of these prius type buyers are the tree hugger types and they will never buy a GM car because they are plainly anti GM. if GM can't make it selling trucks,suvs,camaros and corvettes i think they are toast and i still have 4 years left on my GM warranty of my 08 corvette. no one is selling cars these days and since GM has not made any money selling cars in the USA in the 6-8 years and their big profit maker GMAC is gone i do not give them much hope. JMHO

[Stuart F.]

Re: The beginning of the end?

Well I don't know about you fellows, but I am "Depressed on account of I'm gonna be Deprived (or is it depraved?)" Where did that come from - West Side Story?

Let's hide our heads under our dash boards and hope this all goes away so we can have fun again with our toys.

Stu Fox

P.S. Had mine out today and she run sweet. I even ran into a little shower and used it as an opportunity to see how well my Radials grip in the wet under full throttle - Yeee! Haa!