Don't blame labor for the big 3 auto companies' woes

It is very conceivable that GM might have to file bankruptcy protection. I have often heard the TV talking heads promulgating the official GM executives' lame excuse: our labor cost is too high. But I have never heard anybody challenging this assumption.

True, the labor cost of US auto makers is higher than that of Asian car makers. But the financial troubles they are facing are not the result of high labor cost, but rather bad management. European car makers like BMW did not have the advantage of low labor cost. But that company is thriving.

The logic behind the labor cost excuse is that: if we have lower labor cost, we can sell cheaper cars. But the cars made by GM and Ford ARE cheaper than Toyotas and Hondas. The problem is consumers don't want cheaper cars. They want reliable and better-design cars. The problems of GM and Ford are the result of market share loss. The market share loss is due to the fact they make bad cars, not because they don't make cheap cars.

For years, the US auto makers have relied on big SUVs and trucks to generate profits to offset their loss-making passenger car business. Now with oil price record high, the demand for the gas-guzzlers will undoubtedly decline. On top of that, Asian car makers are also encroaching on the SUV market. How would GM survive without the fat profits from its SUV business?

I predict that in ten to twenty years, the US will cede auto business to Asia companies, like they did a few decades ago in the TV and consumer electronics business.