# GM & Ford bonds rated as Junk, what effect on the industry? **URL:** \ **Category:** Great Debates\ **Created:** [May 6, 2005, 1:19pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680 "2005-05-06T13:19:33Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [May 6, 2005, 1:19pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/1 "2005-05-06T13:19:33Z")
[NY Times Article](http://www.nytimes.com/2005/05/06/automobiles/06bond.html?ex=1273032000&en=eb7a2e7f3dc4a8bb&ei=5088&partner=rssnyt&emc=rss) Is this the beginning of the end of the American car industry? It always seemed absurdly obvious to me that the unions were very slowly killing the goose that layed the golden egg, eking a few extra dollars out of a dying corpse. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [May 6, 2005, 2:54pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/2 "2005-05-06T14:54:55Z")
I think the real reason is kirk kerkorian buying up 5% of GM! the man is 82 years old! Of course, kirk is a smart cookie-I’m sure he is going to force some major restructuring at GM. Same goes for FORD. Right now, the IAW ought to be trembling-they are going to lose BIG TIME. the choice is simple-cut benefits 9your kids CAN’T have braces and eye surgery), or lose your job to mexico or china! ---
**Author:** ![Barbarian](https://avatars.discourse-cdn.com/v4/letter/b/e19adc/32.png) [@Barbarian](https://boards.straightdope.com/u/Barbarian)\ **Post date:** [May 6, 2005, 2:58pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/3 "2005-05-06T14:58:29Z")
Unions? How about building cars that people actually want to drive? Or do you think bribing people to drive your cars actually makes fiscal sense? ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [May 6, 2005, 3:02pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/4 "2005-05-06T15:02:50Z")
> [@Barbarian](#): > > Unions? How about building cars that people actually want to drive? Or do you think bribing people to drive your cars actually makes fiscal sense? Quality of automobiles is not the reason why GM spends $74 per labor-hour worked in the US, however. ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [May 6, 2005, 3:04pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/5 "2005-05-06T15:04:27Z")
> [@Shalmanese](#): > > It always seemed absurdly obvious to me that the unions were very slowly killing the goose that layed the golden egg, eking a few extra dollars out of a dying corpse. Right…it was the unions fault that American car firms couldn’t produce good cars for two and a half decades. Face, American car firms have been behind the curve and behind the times for a long while. Instead of anticipating the current gas crunch by producing better small cars with better reliability and being on the forefront of hybrid technology, they focused everything into expensive SUVs as a short-term solution. Japanese car brands build loyalty at a young age. A lot of young people start off buying Honda Civics and Toyota Corollas because they’re reliable, not terribly expensive and they’ll get good resale value. Ford has no good starter car that can compete, and so it loses down the line. ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [May 6, 2005, 3:06pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/6 "2005-05-06T15:06:28Z")
> [@JohnT](#): > > Quality of automobiles is not the reason why GM spends $74 per labor-hour worked in the US, however. No, but it is the reason for their declining market share. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 6, 2005, 3:12pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/7 "2005-05-06T15:12:12Z")
gm and ford have at least usd1,500 in union legacy costs before they even start building a car. now their cost of capital will go up, plus there will be less demand for their debt (many funds/investors can not buy junk bonds). compare with a debt free nissan. oh ya, also need to build cars people want to buy. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [May 6, 2005, 4:45pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/8 "2005-05-06T16:45:57Z")
GM should drop one or more of their brands, such as Pontiac, Buick or both. The remaining brands should have a clear identity. They may want to sell off GMAC, and I think that’s one of Kerkorian’s goals for them. I think they were foolish to throw a lot of resources into the development of hydrogen-powered cars rather than hybrids. ---
**Author:** ![Sunspace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sunspace/32/1250_2.png) [@Sunspace](https://boards.straightdope.com/u/Sunspace)\ **Post date:** [May 6, 2005, 5:58pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/9 "2005-05-06T17:58:22Z")
GM should not have dropped the EV1 program. Not so much because of the demand for the electric car itself–although in my opinion there was demand for the EV1, and it was shamefully under-marketed–but because it would have given them a great platform to compete with small cars like the Smart Fortwo and the Toyota Echo hatchback. Now GM is competing in that market with the Aveo from Daewoo, but they have lost the initiative and have to catch up. ---
**Author:** ![CrankyAsAnOldMan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crankyasanoldman/32/11670_2.png) [@CrankyAsAnOldMan](https://boards.straightdope.com/u/CrankyAsAnOldMan)\ **Post date:** [May 6, 2005, 6:26pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/10 "2005-05-06T18:26:17Z")
With GM, it’s not their current union contract that’s killing them. It’s their retirees. All I know is, you could have blown up all of central Europe yesterday and it still wouldn’t have made the front page in Michigan. Between the bond rating and Kerkorian’s move, MI journalists have been churning out column inches like you wouldn’t believe. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [May 6, 2005, 11:19pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/11 "2005-05-06T23:19:28Z")
> [@Neurotik](#): > > Right…it was the unions fault that American car firms couldn’t produce good cars for two and a half decades. Face, American car firms have been behind the curve and behind the times for a long while. Instead of anticipating the current gas crunch by producing better small cars with better reliability and being on the forefront of hybrid technology, they focused everything into expensive SUVs as a short-term solution. > > Japanese car brands build loyalty at a young age. A lot of young people start off buying Honda Civics and Toyota Corollas because they’re reliable, not terribly expensive and they’ll get good resale value. Ford has no good starter car that can compete, and so it loses down the line. Actually, it is partially the union’s fault. The Japanese initially beat the U.S. auto companies in quality because they were building highly automated plants that could assemble vehicles with much greater consistency and with closer tolerances than the U.S. companies would. The unions fought the automation of American auto companies tooth and nail because it meant fewer workers. ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [May 6, 2005, 11:27pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/12 "2005-05-06T23:27:09Z")
> [@](#): > > The Japanese initially beat the U.S. auto companies in quality because they were building highly automated plants that could assemble vehicles with much greater consistency and with closer tolerances than the U.S. companies would. That’s not true. The Japanese had a better system of production that required fewer workers for the same tasks, _not_ more robots. In fact, GM spent over $45 _billion_ on automation in the 1980s (Roger Smith thought the same as you, btw), 99% of that money wasted. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [May 6, 2005, 11:35pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/13 "2005-05-06T23:35:08Z")
Hmmm… I’ll have to go back and re-read the history of the industry back then. That’s not my recollection from following the issues at the time. Although it’s possible that discussions of the day confused assembly line efficiency with automation and that’s what I remember. ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [May 7, 2005, 12:52am UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/14 "2005-05-07T00:52:14Z")
> [@Sam Stone](#): > > Hmmm… I’ll have to go back and re-read the history of the industry back then. That’s not my recollection from following the issues at the time. Although it’s possible that discussions of the day confused assembly line efficiency with automation and that’s what I remember. Check out [Comeback](http://www.amazon.com/exec/obidos/tg/detail/-/0684804379/qid=1115427292/sr=8-1/ref=pd_csp_1/002-9368332-7537628?v=glance&s=books&n=507846) by Paul Ingrassia and Joseph White. While a bit dated (this book was finished before the Daimler/Chrysler buyout was proposed), it gives a very good explanation of the issues the US Auto industry faced in the 70s and 80s. Another good one is [The Reckoning](http://www.amazon.com/exec/obidos/tg/detail/-/0688048382/qid=1115427402/sr=8-1/ref=sr_8_xs_ap_i1_xgl14/002-9368332-7537628?v=glance&s=books&n=507846), by David Halberstam, though that is more of a dual-biography (of Ford Motor and Nissan) than a critique of the industry. ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [May 7, 2005, 12:58am UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/15 "2005-05-07T00:58:36Z")
By the way, the better production systems I mentioned does have a name. It’s called [The Toyota Production System](http://www.amazon.com/exec/obidos/tg/detail/-/0915299143/002-9368332-7537628?v=glance) and introduced to the West such concepts as Just-In-Time inventory and Continuous Improvement (Kaizen). [Here](http://www.toyotageorgetown.com/terms.asp) is the Toyota plant in Georgetown KY explaining the TPS. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [May 7, 2005, 4:37pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/16 "2005-05-07T16:37:14Z")
How about the idiots at GM/FORD building 10 MPG SUVs, while gas prices are climbing toward $3.00/gallon? Do these guys read newspapers? it doesn’t take a harvard MBA for you to know that building cars that NO ONE WANTS , is not the path to riches! ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [May 7, 2005, 4:51pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/17 "2005-05-07T16:51:23Z")
I think I’d separate Ford out from GM. Yes, both are awash in debt, and have huge pension and health care liabilities. But in terms of building cars, Ford is on the right track and GM is off in the weeds. Ford introduced the first hybrid SUV, and it’s a smash hit. Ford introduced the new Mustang, which is a huge hit. The Ford F-150 is the most popular truck in the world. Ford is rapidly embracing technological innovations like continuously variable transmissions and all-wheel-drive. GM, on the other hand, has a fleet of vehicles no one wants. They totally missed the boat on hybrid technology, and won’t have a hybrid vehicle for a long time. They cut funding to their Zeta platform, which would have produced mid-size rear wheel drive sedans, and focused it on building more SUVs and trucks at a time when the SUV/Truck market is shrinking. Ford can climb out of its troubles, because it has a decent line-up of vehicles. GM has serious problems with the composition of its fleet and its engineering. ---
**Author:** ![kanicbird](https://avatars.discourse-cdn.com/v4/letter/k/5f8ce5/32.png) [@kanicbird](https://boards.straightdope.com/u/kanicbird)\ **Post date:** [May 7, 2005, 4:57pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/18 "2005-05-07T16:57:44Z")
> [@](#): > > How about the idiots at GM/FORD building 10 MPG SUVs, while gas prices are climbing toward $3.00/gallon? Do these guys read newspapers? it doesn’t take a harvard MBA for you to know that building cars that NO ONE WANTS , I hardly think nobody wants them, though sales did fall. High gas prices really just effect the lower classes, while the upper classes can afford gas and will drive what they like. A domestic auto maker should do better selling large cars/trucks/SUV’s since they don’t have the shipping expense a forein maker does. I would say that the SUV market is what has saved the domestic auto makers so far. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [May 7, 2005, 5:08pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/19 "2005-05-07T17:08:13Z")
> [@](#): > > The Japanese had a better system of production that required fewer workers for the same tasks, not more robots. I’m not sure that’s a defence of the unions, all in all. Part of it was the massive amounts of capital that the Japanese had, but a lot of it was and is that the GM cars are much too expensive overall. Aside from that, GM can’t figure out an actual strategy for marketing their sub-brands. They keep flying back and forth between thinking of them as independant groups with independant marketing and as minor variants on the one-big-family line. Really, GM should be abel to haul itself out. It needs to renegotiate a massive cutback with its union or leave the union behind altogether, hand over marketing to the sub-brands solely and completely. Despite the memories of better-engineered Japanese cars, us Americans have caught up - except for GM. They need to fix that, too. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [May 7, 2005, 6:25pm UTC](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680/20 "2005-05-07T18:25:03Z")
The first thing GM needs to do is axe the Buick, Pontiac, and GMC brands. GM has SUVs that are essentially the same vehicle marketed across four different lines. That’s expensive. Branding, marketing, inventory, additional dealer networks, you name it. It’s ridiculous. GM should have Chevrolet as their mainstream line, Cadillac as their upscale line, and perhaps Saturn. Everything else should go. [Next page](https://boards.straightdope.com/t/gm-ford-bonds-rated-as-junk-what-effect-on-the-industry/302680.md?page=2)