Ford, like GM, struggling with its bottom line
- Thread starter ub4me
- Start date
The company is not adapting to the fast changing demands of the consumer. Due to the high gas prices this spring, more and more consumers are buying high mileage and cheap Asian automobiles trying to ration and conserve their fuel budget.
On the other hand, Ford still continued manufacturing gas guzzling SUVs and pickup trucks thinking those will sell quickly like before. Well, after the gas prices spiked during the spring, the demand for Ford's Suv's plummeted due to their low mileage. Not selling a lot of Suv's means smaller profits for the giant. Ford's smaller profit margins means big trouble to the company.
On the other hand, Ford still continued manufacturing gas guzzling SUVs and pickup trucks thinking those will sell quickly like before. Well, after the gas prices spiked during the spring, the demand for Ford's Suv's plummeted due to their low mileage. Not selling a lot of Suv's means smaller profits for the giant. Ford's smaller profit margins means big trouble to the company.
PSA: $1200000000 Profit is not exactly struggling, especially considering GM is losing about that much. /PSA
We now return to our regularly scheduled Ford bashing, sky is falling, programming.
We now return to our regularly scheduled Ford bashing, sky is falling, programming.
Ford actually came out with the first hybrid SUV (a hybrid version of the Ford Escape). They can't seem to make them fast enough.
It seems a little too late when Toyotas, Hondas, and other already have gained a big portion of the market.
It probably would be even worse for GM and Ford than it is right now. These companies need to do/change their perspective about the market and their goals real fast.
CaptnKirk
Lifer
- Jul 25, 2002
- 10,053
- 0
- 71
Only their SUV's & Trucks are keeping their markets up.
They are dying from the Free-Lunch of retired worker benefits that are
up-pricing their sub-standard vehicles by $ 7,000 - $ 12,000 per unit.
Would you buy another Ford or GM product ? I won't.
<FREE LUNCH>
A free lunch can be the most expensive meal in the world. For living proof, look at General Motors. A big reason that GM has gotten into such trouble is that the pension and health care commitments it made to employees decades ago seemed to be a free lunch.
The United Autoworkers placed a high value on these benefits, but the accounting rules of the time placed no cost on GM's risk of providing them. So the UAW and GM made deals that were heavy on benefits, relatively light on wages
Lower salaries meant that GM reported higher profits, which translated into higher stock prices -- and higher bonuses for executives. Commitments for pensions and "other post-employment benefits" -- known as OPEB in the accounting biz -- had little initial impact on GM's profit statement and didn't count as obligations on its balance sheet. So why not keep employees happy with generous benefits? It was a free lunch. Besides, GM's only major competitors at the time, Ford and Chrysler, were making similar deals.
Now, as we all can see, pension and health care obligations are eating GM alive. The bill for the "free" lunch has come in -- and GM is having trouble paying the tab. In the past two years, GM has put almost $30 billion into its pension funds and a trust to cover its OPEB obligations. Yet these accounts are still a combined $54 billion underwater.
"Any market economist would tell you that things that are 'free' are overconsumed," says Greg Taxin, chief executive of Glass, Lewis & Co. "That's true of pensions, it's true of OPEB, and it's true of stock options in the '90s." That's a lesson the SEC seems to have ignored, given last week's decision to let companies delay counting the value of options as an expense. But that's a topic for another day.
GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations -- but that didn't show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age.
These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.
GM spokesman Jerry Dubrowski says the company expects to pay $5.6 billion in health care costs this year for 1.1 million people covered by its plans. That's up from the $3.9 billion it shelled out in 2001 to cover 1.2 million people.
"At the time GM began offering these benefits, no one had any idea that the costs for prescription drugs and medical services would explode the way they have," Dubrowski said. True. But the UAW was astute (or lucky) enough to push the risk of covering these costs onto GM.
GM's pension funds are in pretty good shape, thanks to an $18.5 billion infusion two years ago. GM got this cash by selling bonds at relatively low rates, hoping to resolve its pension problems once and for all. This maneuver has been successful so far, but funding the pension plans has consumed much of GM's borrowing power and strained its balance sheet.
At the end of last year, GM says, its U.S. pension funds showed a $3 billion surplus. GM's pension accounting, which assumes that the funds will earn an average of 9 percent a year on their assets, is highly optimistic. But things are under control -- as long as GM stays solvent.
By contrast, OPEB is out of control. At year-end, OPEB was $57 billion in the hole, even though GM threw $9 billion into an OPEB trust in 2004. The company has no legal obligation to pre-fund these costs, but it's trying to show the financial markets and its workers that it's dealing with them. The OPEB trust has a hefty $20 billion of assets -- but GM calculates its obligations at a staggering $77 billion.
What's more, GM says they're rising at 10.5 percent a year. Thus, even though President Bush's Medicare prescription drug benefit whacked $4 billion off GM's OPEB obligation last year -- thanks, George -- it covered barely half the year's increase in the liability.
If GM were making lots of money selling vehicles, this would all be manageable, sort of. GM could buy enough time for demographics to bail it out, as more retirees begin getting Social Security and Medicare, reducing GM's costs, and other retirees die off. Its ratio of retirees to workers, currently 2.5 to 1, would shrink. Alas, GM's vehicle business is in the tank. Unless GM starts making money on vehicles or gets a break from the UAW or the federal government, things are going to get really ugly. I hope that doesn't happen, but it easily could.
The bottom line: Whenever you offer someone a free lunch, make sure that you'll be able to pay the bill when it comes in.
They are dying from the Free-Lunch of retired worker benefits that are
up-pricing their sub-standard vehicles by $ 7,000 - $ 12,000 per unit.
Would you buy another Ford or GM product ? I won't.
<FREE LUNCH>
A free lunch can be the most expensive meal in the world. For living proof, look at General Motors. A big reason that GM has gotten into such trouble is that the pension and health care commitments it made to employees decades ago seemed to be a free lunch.
The United Autoworkers placed a high value on these benefits, but the accounting rules of the time placed no cost on GM's risk of providing them. So the UAW and GM made deals that were heavy on benefits, relatively light on wages
Lower salaries meant that GM reported higher profits, which translated into higher stock prices -- and higher bonuses for executives. Commitments for pensions and "other post-employment benefits" -- known as OPEB in the accounting biz -- had little initial impact on GM's profit statement and didn't count as obligations on its balance sheet. So why not keep employees happy with generous benefits? It was a free lunch. Besides, GM's only major competitors at the time, Ford and Chrysler, were making similar deals.
Now, as we all can see, pension and health care obligations are eating GM alive. The bill for the "free" lunch has come in -- and GM is having trouble paying the tab. In the past two years, GM has put almost $30 billion into its pension funds and a trust to cover its OPEB obligations. Yet these accounts are still a combined $54 billion underwater.
"Any market economist would tell you that things that are 'free' are overconsumed," says Greg Taxin, chief executive of Glass, Lewis & Co. "That's true of pensions, it's true of OPEB, and it's true of stock options in the '90s." That's a lesson the SEC seems to have ignored, given last week's decision to let companies delay counting the value of options as an expense. But that's a topic for another day.
GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations -- but that didn't show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age.
These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.
GM spokesman Jerry Dubrowski says the company expects to pay $5.6 billion in health care costs this year for 1.1 million people covered by its plans. That's up from the $3.9 billion it shelled out in 2001 to cover 1.2 million people.
"At the time GM began offering these benefits, no one had any idea that the costs for prescription drugs and medical services would explode the way they have," Dubrowski said. True. But the UAW was astute (or lucky) enough to push the risk of covering these costs onto GM.
GM's pension funds are in pretty good shape, thanks to an $18.5 billion infusion two years ago. GM got this cash by selling bonds at relatively low rates, hoping to resolve its pension problems once and for all. This maneuver has been successful so far, but funding the pension plans has consumed much of GM's borrowing power and strained its balance sheet.
At the end of last year, GM says, its U.S. pension funds showed a $3 billion surplus. GM's pension accounting, which assumes that the funds will earn an average of 9 percent a year on their assets, is highly optimistic. But things are under control -- as long as GM stays solvent.
By contrast, OPEB is out of control. At year-end, OPEB was $57 billion in the hole, even though GM threw $9 billion into an OPEB trust in 2004. The company has no legal obligation to pre-fund these costs, but it's trying to show the financial markets and its workers that it's dealing with them. The OPEB trust has a hefty $20 billion of assets -- but GM calculates its obligations at a staggering $77 billion.
What's more, GM says they're rising at 10.5 percent a year. Thus, even though President Bush's Medicare prescription drug benefit whacked $4 billion off GM's OPEB obligation last year -- thanks, George -- it covered barely half the year's increase in the liability.
If GM were making lots of money selling vehicles, this would all be manageable, sort of. GM could buy enough time for demographics to bail it out, as more retirees begin getting Social Security and Medicare, reducing GM's costs, and other retirees die off. Its ratio of retirees to workers, currently 2.5 to 1, would shrink. Alas, GM's vehicle business is in the tank. Unless GM starts making money on vehicles or gets a break from the UAW or the federal government, things are going to get really ugly. I hope that doesn't happen, but it easily could.
The bottom line: Whenever you offer someone a free lunch, make sure that you'll be able to pay the bill when it comes in.
I would buy a Mustang. I would buy a Corvette or GTO. I would buy a Solstice. I think the upcoming Ford Fusion is a great car. Ford Focus is a great car as well, as is Ford 500, Freestyle, and Escape. GT goes without saying.
And if it cost them $12000 per unit for retiree healthcare, they would not be making $1.2 B profit. The numbers I've heard are around $2K per vehicle in healthcare costs. It's a lot of money, but you can't have it both ways. You can't have employer paid health benefits, and not have employers spend money on healthcare. If you want the government to provide healthcare instead of employer, that's a different discussion.
a company can still make a profit and have an overal oss, when you account deprectation of goods, proprtety, buildings etc...and many many other factors.....
this is taught in basic business classes
Actually I think the hybrid escapes have only made it out in the last few months. To date, I have yet to see one, whereas I see the Prius *everywhere*. Hell, I saw a Highlander Hybrid the other day!
Jason
You think people'd have had these same debates if the internet had been a major force during the gas rationing days of the '70's? I bet they would have. Ford and GM both are repeating the same mistakes they did in those days. Idiots.
Jason
Zebo
Elite Member
- Jul 29, 2001
- 39,398
- 19
- 81
we are about to loose all our industry? Check this out. China's Athlon 64.
http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=161500026
Dont laugh remember how sh1ty the 70's jap cars were?
Auto's and Pharmacutcals are the next big thing to go to china.
http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=161500026
Dont laugh remember how sh1ty the 70's jap cars were?
Auto's and Pharmacutcals are the next big thing to go to china.
a 64 bit embedded chip running at 300mhz. Nothing to sneeze at for consumer electronics,but still far away from what intel and amd offer for desktop.
- Mar 20, 2000
- 102,402
- 8,574
- 126
i dunno what you think, but designing a car takes a couple years (and much longer back in teh 70s) so it isn't exactly like they can react immediately. did anyone see the arab oil embargoes coming? no. maybe you could have foreseen the increase in chinese demand for oil combined with a decline in the dollar driving the price of oil up for US consumers a year ago, but that is doubtful too. in hindsight, therefore, you're just bashing for bashing's sake.
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