A great discussion on Bloomberg this morning gets to the core of the failure of GM now that it's trying to merge with the even weaker Chrysler. John Casesa explains why Toyota can last through a recession whereas GM is failing.
Q. Does Toytota have a cas burn issue?
A.No. Toyota has no debt, is generating cash and Toyota can last through a very very long slowdown, not good for Toytoa but they've got the staying power.
Q: But they've got the balance sheet; it comes down to balance sheet analysis. When did we give up the balance sheet? When did GM and Ford and the others just give it away? Two years ago or ten years ago?
A: One thing I'd like to suggest is that you read Roger Lowenstien's book While America Aged about the pension crisis and there's a third of that book is about the history of labor relationships and benefits in the auto industry. Since the end of WW2 the US auto companies and the union have been negotiating ever richer wage, pension and health care benefits. It's been the cumulative effect of this .. and we probably passed critical point 20 years ago in the 80s; so guys like Rick Waggoner and Alan Mutually are trying to undo mistakes that were made 20 years ago... That's why they call it 'Generous Motors'...These companies in the early 60s had margins of 25% on the dollar now it's negative.
Anybody who knows the auto industry knows that these wage and benefit concessions are the sorts of things that have made the US uncompetitive with Japan. The quality of American cars is no longer the issue - people are plenty happy with the product, but that's not helping the balance sheets of GM, which according to the Bloomberg guys has evaporated.
The dirty secret is that unlike Social Security which can be smartly reformed, increases in health care spending are exactly the kinds of entitlements that will drown the Federal government and take its balance sheet into the same toilet as GM's. Right now we are about 17% of GDP spending on health care. Bump that up a few points and see what happens. America becomes GM.
If you think jobs are flowing overseas now, just you wait.
Recent Comments