Every Chevy and Buick, each Hummer, Caddy, Pontiac or GMC driven off a dealer’s lot by a happy customer this year has cost General Motors Corp. a bundle.
The company lost an average of $1,227 per vehicle in North America in the first half of the year, according to a new report, and company insiders say the hemorrhaging hasn’t stopped.
GM isn’t alone, as Ford Motor Co. also lost on each vehicle it sold in North America from January through June: $139 a pop, according to manufacturing industry analysts at Harbour Consulting in Troy, Mich.
The leading Japanese automakers, by comparison, each made more than $1,000 per vehicle in the same market. And Chrysler Group, the U.S. arm of DaimlerChrysler of Germany, posted a modest per-vehicle profit of $186 for its North American operations, Harbour Vice President Laurie Felax said Monday at an auto industry conference in Detroit.
The figures show that GM and Ford remain hamstrung by their so-called legacy burdens: the continuing cost of supporting huge cadres of retirees and dependents. GM posted a $1.3-billion first-half loss, including $2.5 billion on North American automotive operations; Ford reported a first-half profit of $2.1 billion but lost $900 million on North American auto operations in the second quarter.
Chrysler is faring better, posting a first-half profit of $775 million, because it has spent the last few years cutting payroll and operating costs -- something, analysts said, that GM and Ford still must come to grips with.
Ford is trimming its salaried workforce by about 2,500 positions this year and is expected to announce broader cuts, possibly including plant downsizings or closures. GM has said it will trim 25,000 jobs and close several plants by 2009. And Chrysler Group’s new chief executive, Thomas W. LaSorda, recently said he expected more belt-tightening as well.
“They all are struggling with the cost of overhead and the costs of all these incentives,” said industry analyst George Magliano of Global Insight economic consultants in New York, referring to sales inducements including the employee discount pricing that the U.S. Big Three have been offering to all customers.
Such incentives have helped drive sales in recent months and are expected to help August’s industrywide pace remain at a healthy 1.6 million units or more when final numbers are released this week. But GM and Ford have begun running out of 2005 model-year vehicles to discount, and import brands -- operating with far less dependence on incentives -- are expected to post the biggest August gains.
Meanwhile, incentives simply increase the cost burden.
“Automakers -- domestics and imports -- haven’t been able to pass on increasing operating and materials costs to their consumers for about 10 years now,” said David Cole, president of the Center of Automotive Research in Ann Arbor, Mich. “That eats up a lot of potential profit.”
Additionally, Harbour Consulting still finds U.S. automakers trailing their Asian counterparts in overall efficiency at their North American plants.
Although retirement and healthcare costs aren’t the only problem, they are the costliest competitive disadvantage that U.S. automakers face.
Rick Wagoner, GM’s chief executive, has pegged worker and retiree benefit costs at $1,500 per vehicle, versus about $300 at Toyota Motor Corp.
Add all other overhead, Cole said, and U.S. automakers pay about $2,500 more than their Asian competitors to build a vehicle in North America.
Toyota made $1,488 on each vehicle it sold in North America in its fiscal first half, the Harbour report said. Honda Motor Co. made $1,203 per vehicle, and a surging Nissan Motor Co. topped the Japanese Big Three at $1,826.
U.S. automakers’ legacy cost burden “wipes away any profit they have,” Harbour’s Felax said.
GM, which has 2.5 retirees for each active worker, faces legacy costs of $87 billion in pension obligations and $60 billion for retiree healthcare.
The company, whose healthcare costs will top $5.5 billion this year, is negotiating with the United Auto Workers to increase members’ premium payments. GM is hoping to win concessions that Cole said could save it billions of dollars if, as he expects, the union bends somewhat.
Such savings could quickly change the competitive landscape: Ford and Chrysler Group would probably be able to seek the same concessions in their union agreements.
Neither GM nor the union will comment on their negotiations.
An often-discussed worst-case scenario, a GM bankruptcy filing, would cost union members as much as two-thirds of their retirement benefits, so the trade-off, Cole said, “is between a few hundred dollars a month in concessions now or a couple of thousand dollars a month” in retirement benefits.
Times wire services were used in compiling this report.