If I could sell another few hundred thousand cars and trucks, I sure wouldnt worry about health care costs or anything else, for that matter. A lot of automakers are saying something like that these days.
Sure, a bunch of companies around the world have financial difficulties. They arent just in Detroit; theyre everywhere.
Their basic problems might be termed competition and lower volume.
There is an old story that when Kaiser-Frazer started building cars
in the United States after World War II, Joseph Frazer gave a party to
introduce Henry Kaiser to his automotive peers.
Kaiser was so excited about his prospects as an automotive magnate that during his short talk he blurted out that he was willing to invest $100 million in his project. From the back of the room came a murmur, Give the man one white chip.
It took a huge amount of money to run an automobile company then, and it takes even more today. And youd better have a lot of volume and revenue to cover all those fixed costs. The bigger you are, the more fixed costs you have to cover.
Health care, pensions and all sorts of other fixed costs dog the manufacturer here and everywhere else. Like labor costs, they differ from market to market. Today Germany has the worlds highest labor costs. It wasnt always so, and it might change again.
Competition has changed the landscape more than any other ingredient. Right now, I am told, China has a couple of hundred manufacturers building cars and trucks. That will change rapidly as we see massive consolidation there.
Its great for the consumer to have all those choices, but it sure is tough on the manufacturer. Dealers have been able to adapt to the increase in choice by offering more brands in their dealerships or by owning many dealerships with many franchises. Some win and some lose.
If youre big, you have to stay big because the cost of downsizing is enormous and painful. Volume covers all those fixed costs. Selling lots of cars and trucks creates the kind of volume that every big company needs.
If you dont want to take it out of the other guys hide, just increase the market by a couple of million and everybody should be OK. But thats not going to happen soon enough.