Thursday, November 13, 2008

Hybrids won't help GM, Ford, or Chrysler

Hybrids aren't the answer. If you read research papers on the reasons people buy cars. Hybrids only target a rather small portion of the market. The problem world-wide for America's Big 3 has always been quality. Toyota's rise is directly linked to the significantly lower defect rate on their vehicles. Fuel efficiency tends to be in the middle or near the bottom in the lists of why people buy cars in the research papers I've read (depending on what vehicle category the research is done on). I can't link the research papers because they are on my school's online library, which is only available to students.

I will link some articles that may help you get an idea of why some companies are doing well, while others aren't.

First, quality:

So, who leads in the quality department for cars?
http://www.cars.com/go/advice/Story.jsp?section=top&subject=iqs&story=iqsCar&referer=advice&aff=national
How about SUVs, where the American-based companies had staked so much research money?
http://www.cars.com/go/advice/Story.jsp?section=top&story=iqsTruck&subject=iqs&referer=advice&aff=national
The defect rates are the most telling though:
http://www.cars.com/go/advice/Story.jsp?section=top&story=iqsBrand&subject=iqs&referer=advice&aff=national

Toyota is the leader in almost each vehicle category. They lag in the SUVs and truck sales because power and looks tend to supplant quality for the number one spots (once again, depending on which category). However, Toyota has been working on that recently, so those categories, which tend to be much more profitable than cars, will start to see an erosion of the Big 3's market share in the near future.

The next is cost of production. The cost to build a vehicle for the Big 3 (in the US or outside) is higher than the cost for other companies.
http://www.ford.com/en/company/about/publicPolicy/manufacturing.htm
That's what Ford says about it. Specifically, look at this paragraph:
How much of an extra cost burden do U.S. manufacturers carry?

"The National Association of Manufacturers estimated that, when compared to its nine largest trading partners, the U.S. had a 18.3% cost disadvantage: 5.6% in corporate tax rates, 5.5% in employee benefits including health care and pension costs, 3.2% in litigation costs, 3.5% in pollution abatement costs, and 0.5% in rising natural gas prices. When the higher hourly labor costs of U.S. workers was factored in, the total net cost burden was calculated at 22.4%."

So, why do workers clamor for jobs in Toyota or Honda plants? Job security. They are paid a few dollars less per hour, but they don't care simply because they know they don't have to worry about being laid off next week, next month, or next year. Union negotiators do not work for the good of labor. Their primary focus is wages, because that's where they make their money, to the exclusion of many other issues that are important to the workers. If unions were nationalized, that would change their focus...

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