Business as Unusual

Automotive-Industry

 

I have been a car guy or gearhead for most of my adult life and as with most things, time has brought a greater level of experience and understanding about my favorite hobby. I suppose it was only natural that my interests would grow from simply improving looks and performance to branching out into the car business as a whole. The auto world truly is a multi-faceted animal, incorporating everything from art and design to engineering and manufacturing. Sales and financing I have gained knowledge from simply being exposed to so much of it for so long but that isn’t my favorite place to be in the car universe.

I can only believe that since I have spent a thirty  year career in manufacturing in nylon plastics and the auto companies have often been the end users of our products, that I would have been intrigued by the business of building cars as well.

We regularly receive market updates to let us know how we are doing in our business sector and in the economy as a whole. Last week though  I was very taken by an article I read on an interview with one of Toyota’s top executives pertaining  to their future as it relates to electric vehicles. Toyota responded rather frankly that they have no plans at present to produce a fully electric car. They cited electric motor durability and modern battery technology along with a lack of available infrastructure to fully support such a vehicle. They  continued further by saying they would not risk their reputation of reliability on such an unproven vehicle in today’s world. The most important punch point they drove home was they felt their Prius model still had many refinements that could be made to make an even more efficient hybrid and therefore more usable car than it already is.

The most striking point out of all of this profound confession by Toyota was that they admitted they had been building the Prius for four years before the car ever turned a profit. Considering the car was introduced to production in 1997 and then delivered to U.S. shores in 2001,Toyota has been building hybrids for over a decade and are preparing a plug-in version for production as we speak. This easily makes them the most experienced hybrid builders on the planet and obviously the most business savvy since they had the foresight to start before anyone else and take a four year gamble that has paid off for them in spades. Today over half of their 1.2 million unit production per year are sold in this country alone.

To me this is a prime reason why the American auto makers are not only getting their butts kicked but are now trying to get up off the mat of structured bankruptcy. Save for Ford, who managed to weather the storm of the economic crash better than GM or Chrysler.

On a recent vacation to western Pennsylvania, Ohio and Michigan, I had the opportunity to see firsthand what a huge part the auto industry plays in our economy. I passed multiple assembly plants and stamping factories that were larger in size than many midwest towns. Their employee parking lots would have shamed most any WalMart at the height of Christmas shopping season and this only represented one shift of workers. These awe inspiring sights made it easy to see how whole towns and small cities have grown up around these plants, which in turn have spawned even more jobs in the local communities where the families of these workers reside.

The truly depressing part of seeing all of this was knowing the mindset that the modern business world has these days. I hear on my job all the time that older equipment cannot afford to be upgraded or made more reliable unless it can be proven that the cost can be recovered in six months to a year. This is a glaring example of how not one of the U.S. automakers would have rolled the dice on a project like the Prius and stayed with it until it paid its dividends over the long haul. Our auto execs were too busy marching on Capitol Hill to protest CAFE standards being raised or mandatory safety improvements, forever citing the excessive cost of such equipment.

What none of them was willing to say out loud was that they were not willing to see their own top level pay diminished or that they were already profiting handsomely from products they had in production, two things that would be blasphemy to disturb. They clung to this mentality and the Feds cut them break after break until they finally choked on their own greed. How ironic in the end that the very entity they fought against most was the one they turned to to bail them out…The Federal Government.

Americans can say what they wish about capitalism and our free market system but it has more than one downside. American CEO salary has rocketed skyward in the last ten years, to the tune of 475%. If minimum wage had climbed by an equal measure that figure would now be on the order of $24 a hour. Many so called “good paying” jobs in our present market don’t reach that figure. Japanese CEOs by contrast have a set ratio that they are allowed to earn over their own workers, if the company does well and the CEO increases his salary,everyone else gets a pay bump by default. By the same token if the company does badly, everyone suffers equally. This sounds to me like massive incentive for everyone, right down to the guy that sweeps the floor, to take pride in their jobs. Maybe this is why on the average, Japanese CEOs have already worked for the company they now run for 25 plus years. I don’t know if this is a remnant of the Samurai code of honor and loyalty but it certainly seems to be serving them well.

I’m quite sure many would cry foul at this concept and call it socialist or even communist but I don’t see it that way. I have had a top limit on my pay scale for my entire career. I would venture to say the majority of us have as well. I see no reason why someone who sits on board of directors or is a management level should have an almost topless limit, even more insulting is how they will have a set salary and then bonus themselves many times over that salary even if it means they had to cut jobs or benefits to do so.

The auto industry has a greater excuse to compete in a  global economy than almost any other business since vehicles are sold all over the world. The US automaker has long ignored the high fuel prices in other countries and continued to build cars that no one else in the world wants due to size and economy. This is the glaring reason why our exports have been so poor for so very long. The domestic builders also enjoy a unique set of Federal safeguards that many other businesses do not, if foreign auto builders wish to sell their cars here without high import tariffs then those vehicles must be built here, or at the very least final assembly must be here.

Both Honda and Toyota have taken a major foothold here in the USA and even with this competition directly under their noses the US builders still managed to plow forward with greed and short term goals…and slowed had their hats handed to them.

The business of industry in this country needs a major overhaul almost as badly as does health care. Industry and manufacturing provide the kind of jobs that people can make a living at, raise a family on and drive an economy behind. When the middle class of this nation flourishes, the entire country does as well. They are the backbone of this dream we call America and they have been abused for far too long. When people at the top pat themselves on the back and give themselves a bonus even when a nations economy tanks, that is doing so with a boot heel on the throats of the very people your business is built on. I cant think of anything that sounds more like a modern day analogy to tyrannical rule than that.

Earlier today I received a bill from my family doctor for a follow up visit I recently had. The charge was $192 and I saw the doctor for all of ten minutes. I realize the nurses must be paid and the lights have to stay on and supplies have to be purchased…but Holy Moses, $768 an hour?!

The more frightening aspect of this is that if I made $192 an hour, that would be almost $400,000 a year. Which would mean that the CEO of my company, who makes about $3 million salary is getting almost $1500 an hour. Those are pretty staggering figures by almost anyone’s standards. If I were on the Japanese pay scale standard my salary would be bumped to almost $330,000 per year. I believe even I would consider myself wildly overpaid at that amount. So not counting his bonus for last year, I know I already consider my CEO wildly overpaid,especially in light of the job and benefit cuts that have been made in the last year alone.

At some point the astronomical spiral of greed and short-sightedness of this country must be stopped. We as citizens and workers are constantly told we must think about our long term future, be smart with our money and not live beyond our means. I truly believe our Government will have to spend less when it can stop trying to fill the wounds that are gashed into our society by the business and money moguls.

Vilfredo Pareto formulated the 80/20 rule long ago in Italy and it is still very close to truth today. I find it ironic however that even though the top 20 percent make most of the money they are the most opposed to higher taxes. While true their taxes are a staggering amount, the funds they hold are equally staggering. When I work overtime I have to pay a larger share in income tax so that all seems quite fair to me. Oliver Wendell Holmes said “Taxes are the price we pay for a civilized society”…I’m sure virtually everyone in the top 20 percent will disagree.

I say if they dont want to pay it in taxes, then create jobs and pay it in wages and grow your company. You help the economy and the nation as a whole. You reduce unemployment and maybe get some people off the welfare roles…but all that would be logical, and logic and greed have never gone hand in hand.

Yet decent paying jobs drive both the auto and housing markets stronger than any other stimulant. I hope to see the day that the business in this country will be both smarter and more patriotic than it has been in recent years, but right now that light of hope is pretty dim. The free market system in this country has proven it will eat its own young if there is quick profit to be had. Those are qualities that are far removed from anything resembling honor or loyalty.

I had told myself when I started this blog that I didnt want to make it a political bashing board because I do so tire of that. Yet I dont truly consider this to be a political problem. If I owned a stout performance car and I chose to take it out onto public highways and drive triple digit speeds, I would not only risk my life but others around me and put myself in direct danger of the weight of the law. To which if I were caught, I would then be punished severely in several different forms of fines, loss of driving privileges and possible jail time.

To this end, the Federal Government is the only police force the business world has to answer to. In my opinion if they would behave in a rational and humane fashion there would be no need for intervention, but since they continue to prove over and over again that they cannot be trusted to invest in the health of a nation where they enjoy freedoms available nowhere else in the world, then they must have their day in court…or in this case to answer to a Government elected by the people they have been robbing blind.

Even with all we have wrong, not many other places in the world could I pursue my hobby and passion as I have done for most of my life, but if we dont fix these problems it may not stay that way for much longer.

Maybe the car guys should do a “million car march” on Washington, or maybe better yet, Wall Street.

T. August Green

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