Bailout Blunders, Part 3: Demons of Detroit

Map of Luxembourg, courtesy Luxembourg National Tourist OfficeFinding the tiny European nation of Luxembourg on a map can be difficult.  Finding a way to lose more money than everyone in Luxembourg earned last year is apparently quite easy.

According to General Motor’s annual report, the automaking giant lost $38.7 billion dollars in 2007.  By contrast, the gross domestic product of Luxembourg-that is, the value of everything produced by every person in that country-was only $38.1 billion dollars.

2007 wasn’t just a particularly bad year for GM, either;  their losses in 2006 and 2005 were $1.9 billion and $10.3 billion dollars respectively.  So how did they lose this much money?  The General’s good buddy Ford should know-after all, they lost $5 billion dollars in 2007.

If you turn on the TV or ask the guy at the coffeeshop, it sounds like the workers are to blame.  Those goshdarn rotten workers, putting in forty hours (or more) to put food on the table and a roof over their family’s head, how dare they accept those big paycheques?  Honestly, how can you pay so much in health and dental benefits and stay profitable?

By being a really huge company, that’s how.  Ford’s total health benefits cost rolled in at a measly $2 billion last year, a drop in the bucket compared to their $172.5b in gross revenue (ie, the total value of stuff they sold last year).  And sure, labour was probably a lot of dosh, but that’s just business.  If you’re going to hire good people, you’re going to pay them good money.

There’s also the supposed “fact” that North American car makers were too busy building SUV’s and full-sized trucks to build what we really want.  Supposedly we wouldn’t buy domestic.  In fact, we’re so anti-American in our car buying ways that the Ford F-150 was the best-selling vehicle in the US last year.  Think that’s bad?  We even hate American rides so bad that the Chevy Silverado was #2.  Yeah, we really got our hate on with the Big Three by putting the Ford Focus, Dodge Ram, and Chevy Impala in the top ten bestselling cars list.  You see, nobody buys American anymore.  Hey, wait a minute…

So if the cars aren’t selling so bad, and the labour/employee benefits aren’t that ridiculous, what’s causing all the grief in Detroit?  How can the big three lose money hand over fist when things aren’t so bad?
Let’s start with the cars themselves.  The average vehicle on the road is composed of steel and “polymers” (read: plastic).  Coincidentally, the price of both of these items started rising in 2005, when Ford and GM started losing money.  The cars cost more to build, but competition was too fierce to allow them to pass the entire cost increase to us.
About a year later, the world’s bankers took a good look at George Bush Jr.’s reign over the economy, looked at their US dollar reserves, and said “Oh Shit!”  Money started flowing into other currencies-any other currencies-forcing the greenback’s value to drop like it’s hot.  North American manufacturers now had to buy raw goods using more of their own currency, and then sell finished goods back to their customers for the same amount of the devalued currency.
There is good news, though;  according to at least one report, almost all commodity prices are crashing, including iron ore and oil, the raw goods needed to produce steel and plastics, respectively.  The US dollar is back up as well, now that the future of the country is in the hands of someone who wouldn’t embarrass themselves on the hit show, “Are You Smarter Than A 5th Grader?”
That’s it for today, but check back soon for the final look at what really happened behind the scenes that lead to the do-or-die scenario that our car makers are facing now.

1 Response to “Bailout Blunders, Part 3: Demons of Detroit”

  1. December 18, 2008 at 11:47 am


    My name is Brian and I work for AmericanMuscle.com. I came across your site today and am very interested in working with you and possibly advertising on your site. Shoot me an email at brian.cox@americanmuscle.com if you have any interest. Thanks and look forward to your email.


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