Between the Lines: Gary Witzenburg on the Cost Disparity Between Domestic and Asian Automakers

As bankrupt and bankrupting suppliers begin to supply General Motors with potentially lethal trouble, the debate over free trade is quickly heating-up. Despite the issue s enormous complexity, or perhaps because of it, auto writers are beginning to analyze the effect of international trade relations on American automakers and, by extension, American workers. Despite being a former GM Spinmeister, or perhaps because of it, The Car Connection scribe Gary Witzenburg has decided to tackle the Big Kahuna. If America s failing automakers and their engorged unions are looking for an excuse to assume a victim mentality, Witzenburg is happy to oblige.

Everyone knows how Japanese automakers invaded America's auto market, one after another. Their progress was slow at first because their cars and reputations weren't very good. Then a 1973 Arab oil embargo caused a long, painful, scary fuel crisis. The smaller Japanese cars were more fuel-efficient than American iron, and as their quality improved, they gained popularity at the home teams' expense. U.S. makers' initial sloth in addressing the widening quality gap and a second 1979 fuel crisis accelerated the share erosion that continues today.
History, Henry Ford once opined, is bunk. But it s a damn useful device for writers Hell bent on setting-up a grudge match. While Witzenburg s potted history of the Japanese invasion is accurate enough, there are already clear indications where he s going with this one: the phrases home team and initial sloth. The first is an alarming jingoistic declaration that inadvertently reveals Witzenburg s bias, while the second clearly implies that the domestic automakers current woes have nothing to do with vehicle quality. In case you missed either point
The Japanese makers (especially the best two) continued improving until the now-impenetrable notion of Japanese superiority, regardless of brand, became widely perceived as fact despite tardy but truly impressive improvement by the domestics that today sees them fully competitive. But there was another element of that story that I don't recall anyone addressing: the substantial difference in the cost of doing business in Japan compared to the U.S.

Witzenburg suffers from an id e fixe: the media simply refuses to understand that domestic products are now just as good as vehicles produced by foreign-owned manufacturers. Show Witzenburg the latest issue of Consumer Reports — whose Top Picks for 06 doesn t include a single domestic automobile in any of 10 categories — and he ll find a way to dismiss the result. Clearly, GM s corporate Kool Aid has gone straight to his brain.

It s also taken its toll on his memory. The writer s declaration that he can t recall a single story about the difference between Japanese and American carmaker s costs makes him willfully ignorant or ignorantly willful. Oops! I m misreading. Witzenburg referred to the cost of doing business in Japan. What s that got to do with anything? Let s see:

Primarily because the Japanese government (unlike our own) correctly views its automotive and other manufacturers as hugely important to Japan's economy and the livelihoods of its people, those companies enjoy substantially lower business costs compared to ours not just wages, benefits, materials, and services but the total cost of doing business. In these United States, that includes the considerable costs of multiple layers of taxation and regulation and out-of-control litigation that competitors do not have to bear. Lower business cost obviously enables more investment in products, R&D, marketing, and advertising.
I find it hard to believe that Witzenburg doesn t know that Toyota, Hyundai, Honda and Nissan are subject to the exact same taxation, regulation and litigation in these United States as GM, Ford, DCX or any other carmaker. Why in the world would he make such a ridiculous statement? Obviously, costs are an extremely important issue for the domestics, but Witzenburg has got it exactly wrong.

There are two main reasons why The Big Three s costs are higher than their competitors . First, unionization; although the foreign competition pays their [mostly American] non-union workers competitive wages, their workforce s relative youthfulness means they don t carry astronomical legacy costs. Second, bureaucracy. The waste and inefficiency built into the domestics administration, design, production, sales, public relations and marketing is intergalactic in both scope and scale.

Witzenburg mounts an interesting defense of his thesis: the Big Three s competitors MUST have lower costs because they offer more stuff.

Kia's impressive new Sedona minivan, for example, claims $4000 more feature content than its segment-leading domestic target, Chrysler's Town & Country, at a comparable price. Could Kia do that if its costs were comparable? Not for long. Considering that nearly all remaining media criticisms of domestic cars - "needs more standard safety features," "needs more transmission gears," "needs richer interior materials" - center on items that inevitably would add cost to improve, what domestic (or Japanese, or European for that matter) vehicle team would not sell its collective soul for another four grand to invest per vehicle?
To be sure, Witzenburg has a point. But is it the right one? Chrysler vs. Kia? Fair enough. According to Korean industry analyst Steven Bammel, a Kia assembly line worker makes about a third of a UAW worker s hourly salary. But Chrysler vs. Toyota? Uh-uh. Fully 60% of Toyotas sold in North American market are manufactured in the North American market.

While Witzenburg is trying to have a good old bash at the politics of international trade and labor relations, he knows his beloved GM and its not-so-slovenly-anymore compatriots are busy undermining his cost-based argument by outsourcing more and more or their parts manufacturing to China. Lest we forget, the Chevrolet Aveo is made in South Korea. But is that their fault? Hell no.

With so much of today's excessive business costs outside of the companies' control, U.S. business (not just our auto business) needs help, not bailouts, from labor and government at all levels or will have no choice but to continue out-sourcing more parts and services and moving more operations to lower-cost countries to survive and compete with lower-cost rivals.
So here it is: hammer time. Assuming that today s excessive business costs refers back to regulation, taxation and litigation, Witzenburg wants the US government to step in and sort this shit out. How the move would benefit GM more than Toyota is beyond me. But is it beyond Witzenberg? The author promises all will be revealed about his proposal for government intervention — what, who and how — in his next episode. I can t wait.

RF

Witzenburg: Elephant in the Boardroom [The Car Connection]

[Jalopnik s Between the Lines column parses the rhetoric of the automotive industry, and the media that covers it, from the point of view of that kid at the back of the class with ADD, a genius IQ and a thirst for mayhem.]

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