All You Need To Know About GM

TW: Nate Silver nails GM. Any company or industry (I would think Ford/Chrysler have similar charts), with a similar chart would be doomed. Anyone who invested in a U.S. automaker over the past 40 years (other than a trader playing the movement around the general decline) was on a fool's errand. Why does the chart look this way? Two things, massive competition from the internationals and retirement benefit deals made decades ago which larded the present day company with unsustainable burdens.

If this concept was merely limited to the U.S. automakers it would be bad enough. Unfortunately the automakers in many respects are metaphorical for the overall U.S. fiscal system. Workers have been promised retirement benefits which are also unsustainable. Folks have taken out mortgages for which they will be unable to support. Banks have made unsustainable loans etc., etc. The common thread short-term gain for long-term pain.

Our states are creating pension time bombs that will make the automakers seem tame. The housing bubble at least is bursting in rapid if too spectacular a form. Benefits (health care/pensions etc.) must come down!!

From Silver at 538.com:
"...The auto business is highly cyclical because consumers are buying expensive assets that last for years at a time. Nobody ever really has to buy a new car (they can buy a used one if their car breaks down), and therefore consumers are willing to hold on to their existing vehicles and wait out economic slumps. You can't do that with, say, a loaf of bread, or even something like a cellphone, which has a much shorter lifespan.

...If I were an alien beaming down from Rigel-3 looking at this pattern -- an alien with an MBA degree -- my first guess is that it would reflect some sort of systemic problem, some chronic imbalance that magnified over time. Something, in other words, like the costs of GM's retiree pension and health care programs. It's difficult to get a precise figure on these so-called legacy costs, but they averaged about $7 billion per year between 1993 and 2007 and are probably at least $10 billion per year now. Considering that GM has never made as much as $10 billion in profit in a year and that its entire operating lossses in 2008 were $13.8 billion, you can see why this is a significant problem.

...Of course, GM benefited by promising its employees access to lucrative retirement programs -- it benefited by being able to pay less to those employees in the form of salary. But whereas the benefits to GM came long ago, the costs come now...GM was willing to cut its employees some very attractive deals in the 1950s through the 1980s -- provided that they took them in the form of retirement benefits rather than salary

...This issue is wrongly portrayed by both the liberal and the conservative media as one of management versus labor, when really it is a battle between General Motors past and General Motors present. In the 50s, 60s and 70s, everyone benefited: GM and its shareholders got the benefit of higher profit margins, and meanwhile, its employees benefited from GM's willingness to cut a bad deal -- for every dollar they were giving up in salary, those employees were getting a dollar and change back in retirement benefits. But now, everyone is hurting.

...most of the excess costs it requires to produce a Buick versus a Toyota come in the form of legacy costs, not what those employees are receiving in salary and benefits today. And the taxpayer is bound to to get screwed either way, either picking up the tab to bail out GM, or bearing the costs of the pension programs, which are guaranteed by the government (although the legacy health benefits aren't guaranteed)..."