The Jury Talks Back

12/11/2008

An example why the Big Three should fall

Filed under: Uncategorized — Scott Jacobs @ 12:11 am

December 10, 2008 Stat of the Day

In 2007, Toyota sold 9.37 million vehicles.

In 2007, General Motors sold 9.37 million vehicles.

In 2007, Toyota made $17.1 billion.

In 2007, General Motors lost $38.7 billion.

9.37 millions cars is GM’s second biggest year ever.  How is it that in it’s second biggest year the company could lose nearly $40 billion, while Toyota pulled in over $17 billion in profit?

Toyota made about $1,800 in profit per car, while GM lost about $4,100 per car.

This is what we want to save?  Hell, give me the billion dollars.  I’ll at least throw a hell of a party for the money, and it would be about as effective at saving these bloated piles.  The Big Three blow through about $5 billion a month total, with Ford, General Motors and Chrysler, respectively, burning through $2 billion, $2 billion and $1 billion in cash every 30 days.

I could do better, and I’m an idiot…

And Cerebus is getting some attention now, too.

Buried on the business page of The New York Times Saturday were the details of Detroit’s biggest snow job yet–literally as well as figuratively. Turns out that Cerberus CEO John Snow, who spent three-and-a-half lackluster, and some might say lap-doggish, years as President Bush’s second Treasury secretary, is leading a who’s who of crony capitalists in a lobbying campaign for a taxpayer bailout to “salvage Cerberus’ investment in Chrysler.”

 That’s right.  He’s not doing it to save jobs,

but to prevent “one of the world’s richest and most secretive private investment companies” from having to take a relatively modest financial hit and use some of its own capital to prop up the smallest of the major automakers.

A moment, please, whilst I spit.

Edit: Just as an aside, that $73 per hour?  It does NOT include about $30 in legacy costs.  The filings to the SEC would not include such things, and that’s where the $72 number comes from.  Due to Generally Accepted Accounting Principles, legecy costs can not be included in such filings…  So the big three pay around $100 per hours for every single worker.  And people wonder how they could lose money on every car.

13 Comments

  1. Where are the union asswipes in the line for begging? After all it is they who will get the 15 B, nothing will actually go to the companies that may be in need of some form of relief!

    This is nothing but another union payoff! Fuck’em.

    The big three need to learn how well a chapter 11 can work for them. If not, fuck’em!

    I’m sure those that fill the gap will be able to produce whatever type vehicle we will require in the future. The japs already own the duramax, the tranny folks are doing fine, so far, and if the uaw makes any moves to alter such, fuck’em.

    Comment by TC — 12/11/2008 @ 1:26 am

  2. Now TC, tell us how you really feel.

    Comment by Dr. K — 12/11/2008 @ 5:11 am

  3. Nice catch, Scott…this is indeed weird.

    Comment by Tom — 12/11/2008 @ 5:38 am

  4. Well, I have a question – only somewhat related and potentially off topic, but here goes.

    Recently the AP has had a number of stories telling us about the highest (or largest) number of jobs lost in the past X years, with X typically less than 40 as in this headline:

    “New unemployment claims reach 26-year high (AP)”

    What ever happened to the “Worst economy since the Great Depression” meme that has been running around for the past 7 years?

    Anyone?

    Comment by Dr. K — 12/11/2008 @ 6:25 am

  5. $73.00/hr….
    This includes the costs of future retirement and health benefits for currently employed workers.
    The retirement costs/health benefits of legacy workers, and their survivors, was factored in to corporate earnings in the years that those workers were still working.
    Unlike the government, Detroit has had to fund its’ future liabilities as they incurred them, with periodic contributions to the union retirement and health-benefit funds.

    Comment by Another Drew — 12/11/2008 @ 12:42 pm

  6. Typo: In this sentence, you mean billion, not million: “How is it that in it’s second biggest year the company could lose nearly $40 million, while Toyota pulled in over $17 million in profit?”

    Comment by gp — 12/11/2008 @ 2:42 pm

  7. good catch, gp.

    And AD,

    GAAP does not place legecy costs into such calculations for SEC filings, and SEC filings is where people are getting the $70+ per hour number.

    Therefore, it stands to reason that such legecy costs need to be added to the numbers in common use, not assume that they are included.

    Comment by Scott Jacobs — 12/11/2008 @ 2:47 pm

  8. No, legacy costs are already accounted for in previous years, the years the individuals were on the payroll and working. That money has already been paid into the retirement/benefit fund over at UAW HQ.
    Just like today’s $70+/hr labor cost accounts for future obligations (funded liability), those funds were accounted for previously when they also were a future, funded liability.

    Comment by Another Drew — 12/11/2008 @ 4:21 pm

  9. But I wonder how the money in the fund was invested. Is it cash in the bank or invested? I bet it’s invested and that means it’s not as big as it was last year, and the Big 3 will have to make up the difference.

    Comment by DRJ — 12/11/2008 @ 5:07 pm

  10. From an excellent article by James Sherk

    Critics contend that these benefit figures include the cost of providing retirement and health benefits to currently retired workers, not just benefits for current workers. Since there are more retired than active employees this makes it appear that GM employees earn far more than they actually do.

    This contention contradicts the plain meaning of what the automakers have reported in SEC filings and in their public statements and would be contrary to generally accepted accounting principles.

    Under the accounting rules established by the Financial Accounting Standards Board, the Detroit automakers must report their liability for future benefits as they accrue.[6] The hourly benefits figure includes payments into defined benefit pension plans to provide future pensions to current workers. It also includes the estimated costs of future retirement health benefits that current workers earn today.

    Read the whole thing. It is an excellent arguement as to why $72/hour is not including legecy payments.

    Comment by Scott Jacobs — 12/11/2008 @ 5:09 pm

  11. To refer to a comment from another thread: Companies are required to have arangements for pension plans, but via some fun loopholes they are allowed to have them essentially unfunded.

    In about 15 years things are going to get very interesting as unfunded pensions start to get drawn from.

    It is why GM pays 30 bucks an hour in legecy – they don’t have enough in it for those retired, so they have to keep shoving money into it to keep even.

    It is also why it is SO disasterous for people who retire from a company that then goes under. Their pensions weren’t fully funded, which means that they were only getting benefits because the company was paying as it went. When the company goes, the benefits go. It should be that those retired would still get benefits because the pension account would have the funds.

    Comment by Scott Jacobs — 12/11/2008 @ 5:16 pm

  12. Scott…the UAW workers are in the high-clover compared to public employees here in CA. The unfunded liabilities here at the State, County, and Municipal level is just frightening, and has already forced one city (Vallejo) into BK, and is threatening several more (cities & counties).
    And, yes, I would bet a $ to a do-nut that the size of the UAW pension fund is considerably smaller today compared to a year ago (as to whether of not the Big-3 is on the hook for that vs the UAW, I wouldn’t know – it’s above my pay-grade).
    Look at how much Harvard lost in their endowment fund (what was it, $8B?). CalPers here in CA has seen a big hit, and that will probably have to be made up out of the State General Fund (as if they are rolling around in clover).
    Anyway, I think we are both arguing the same point, but just in different language.
    The $70+/hr that is GM’s (and the other two’s also) is out of their current revenue stream, for their current costs, and is about $30/hr greater than what the transplants have to pay.

    Comment by Another Drew — 12/11/2008 @ 6:11 pm

  13. Great post, Toyota and GM sell the same amount, Toyota makes a $17 billion profit and GM loses $39 Billion. WTF?

    Comment by J. Raymond Wright — 12/12/2008 @ 7:51 am

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