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Big Three gear down in ’06

Alisa Roth Dec 28, 2006

Big Three gear down in ’06

Alisa Roth Dec 28, 2006


SCOTT JAGOW: This was another tough year for US carmakers. GM and Ford alone lost 10 billion dollars in the first three quarters. The Big Three are trying to turn things around, but one year isn’t gonna do it. I asked our reporter Alisa Roth where we are at the end of 2006.

ALISA ROTH: Basically, the companies are too big. Their factories are producing more cars than they can sell and they have too many employees. So they have to shrink the company, they have to make things more efficient before they can make them profitable.

JAGOW: What are the main things they’re trying to deal with?

ROTH: The biggest issue is the so-called legacy costs. That’s health care, pension costs and the jobs bank. The jobs bank, which goes by different names at different companies, is basically a plan where the auto companies pay their workers not to work. So GM has half a million retirees. Each year, it pays more than $4 billion in health care, which is more than it spends on steel. Basically $900 of every car that GM makes goes to pay off health care. The second problem is the cars. And the problem with the cars is that nobody really wants to buy them. Part of that is that the Big Three produce a lot of SUVs and a lot of trucks and people aren’t buying as many of those cars, in part because gas prices are high, but basically nobody’s really interested in the cars that the Big Three are making.

JAGOW: Let’s break that down. Let’s start with the employee costs. It sounds like their strategy for dealing with this is to get rid of the employees. Is that right?

ROTH: But in order to get rid of the employees, they have to pay them off somehow. So, that may be encouraging people to take early retirement, it may be some kind of a buyout plan where they offer you money to go to school or they offer you a flat-out payout package where you take money and promise not to come back and bother them. So both GM and Ford have active buyout plans and they’re working, but those are expensive.

JAGOW: Now how about the car sales? What are they doing to entice people to buy their cars?

ROTH: Well on and off basically since 2001, the carmakers have been offering all kinds of incentives and they range from paying for gas for you for a while to “employee prices” so you get the price that you would pay if were an employee of the carmaker. The result is that consumers know that these discounts are going to come and so they’re not buying cars at full price. So basically the automakers are losing even more money because they’re cutting the prices back and back and back to make people buy them.

JAGOW: What about next year, is there something looming next year that they have to deal with?

ROTH: Really the biggest news is that the union contracts are up next year and so next summer there’s a big meeting with the Big Three and the unions and they’re going to look at cutting back on health costs, pension costs, the jobs bank. But it’s going to be another challenge which is that basically everybody’s predicting that auto sales are going to be down next year. So that’s going to be a whole other issue for the carmakers to deal with.

JAGOW: OK I guess we’ll check in a year form now with you Alisa. Thanks a lot.

ROTH: You’re welcome.

JAGOW: Alisa Roth covers the automotive industry for Marketplace. In Los Angeles, I’m Scott Jagow. Thanks for listening. Have a great day.

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