Another Big Week

This is the crux of this coming week's battle:

The Detroit automakers' U.S. market-share declines against Toyota, Honda and other overseas companies contributed to a combined $15 billion in losses at the three automakers last year. Most of the deficit has been in North America.

Industry leaders such as GM Chief Executive Officer Rick Wagoner say the health-care gap puts his products at a cost disadvantage against the Japanese. Gettelfinger has said the Detroit automakers are losing share because they've failed to design attractive products.

As I've mused before, I'm just curious as to how many car buyers go into a dealership and decide to be a Japanese car because Toyota's labor costs are lower?

(It's actually amazing to see this rare mention of the union's side of the story, not buying the whole line about healthcare costs being the reason why the company's sales are so way down And given the more than generous rare mid-contract concession in 2005, this is outrageous:

Under those agreements, UAW-represented employees at GM and Ford diverted pay increases to fund retiree health care. Also, retirees were required to pay as much as $752 a year for family medical coverage.

At GM, 60 percent of UAW members voted to ratify the accord. Only 51 percent did so at Ford. Ford's UAW Local 862 in Louisville, Kentucky, Gettelfinger's home local union, rejected the agreement. The UAW declined to extend similar concessions to Chrysler in 2006. That issue will now be part of the negotiations for a new contract.

The 2005 health-care agreements aren't likely to be the last word on the subject. Mulally said in April that health care will be on the table again in the talks that start today.

Here's the thing about labor costs. The only legitimate reason to want to lower your labor costs is to be able to invest in innovation and massive change. But that doesn't seem to be on the radar of the big three; increased stock price and a less damaged profit is.

Regarding innovation, this hits it on the head:

It's all about SUVs and hybrids of course (yes, it is also about legacy health care costs to pensioners as well). Both Ford and GM made so much money on gas-guzzling SUVs--because consumers loved them when gas was cheap--that it lulled them into falling behind in innovating new gas-saving engines. Toyota took some old battery and engine technology, souped it up and started producing real cars with hybrids. Ford and GM didn't because, as Bob Lutz put it, he didn't see a "business model" in the hybrids.

Sure, but business models for innovative products and technologies don't always present themselves at first. Selling books on the internet was the breakthrough application for Amazon. Who knew? Selling ads on search engines? Google just announced that its third quarter profits zoomed sevenfold. Old fashioned mainstream media on Yahoo and other portals? That's what's happening.

The Detroit car companies are failing at product innovation in a big way. Yes, there are some great cars coming out of Detroit (the Pontiac Solstice is terrific). And there is innovation in services--GM's OnStar makes millions for the car company. But the mindset is clearly not one of taking chances on new technology or radically new products. Business models are never clear at the start of something new. They evolve in the process of innovating. But you first must take reasoned and resonable chances--and have some forward-looking ideas. Oil prices have bounced up and down over the past four decades. It was reasonable to assume, as Toyota and Honda did, that gas prices would one day bounce up sharply. And they prepared. Toyota is on its third generation hybrid. Ford is on its first. The Prius is the hottest car off the lot these days, according to J.D. Power.

But of course, they'll go back to the well, go back on promises and ruin communities instead of actually trying to compete. Here's a reminder that their workers are real people:

Michigan Truck is down to one shift and has about 1,400 hourly employees, producing about half of the 1,000 SUVs it made daily back in the good times. Ford has fared about the same, borrowing billions to restructure as gas prices rose and consumers shifted from its SUVs and trucks to more fuel efficient models.

At the age of 40, Giles is confident in the vehicles his plant turns out, but he has worries. He's afraid the trucks the plant make will end with the 2009 model year, although Ford isn't saying anything about their future. Giles isn't totally sure about his pension like he once was, and yes, it bothers him that his company is living on loans.

"Whenever we have to borrow money, that kind of scares us," Giles said.

That's why he urges fellow workers to keep track of costs, because he says it's necessary to help the company.

When he started with Ford 19 years ago, Giles said he knew it was a good, stable job that would help support his family. Giles, who is married and has three children ages 21, 18 and 17, lives in a nice community near a lake about 60 miles north of the plant.

He now makes around $30 per hour plus overtime. Early on, it was always reassuring to him that he'd have a secure pension, but with Ford's financial troubles, he's not so sure any more.

"I didn't think I'd ever have to worry about that," he said.