How short does the "haircut" need to be?

[povertyknob]

What if a competitor came along, and produced an equally superior pretzel, but did it at a lower cost, and could sell his equally superior pretzels at a lower price than you?

 

If you can't make a profit (or break even) selling your pretzels at the same price as your competitor, what do you do?

 

(NOTE: Do not attempt to place blame. The question is how do you fix the problem going forward?)

Agreed. The original question: How , specifically to fix it?

Jobs Bank: Kill it. That won't be popular with those on lay off , but it is an absolute PR nightmare. I believe the intent of the program was to force the domestics to build product here but it simply hasn't worked. And the media relentlessly reminds the public about it.

In Zone/Out of Zone transfers. If the company will provide reasonable assurance that a transferred employee will have work at another facility for an agreed upon minimum length of time , then zones might be set aside for employees on lay off. RTBU should still be offered , if feasible.

Wages. Some are shouting from the rooftops that assemblers should only be paid $20.00 per hour...or less. The transplants that compete with us pay more than that. In order for the UAW to agree to the necessary work rule and benefit changes the current wage scale might need to be continued.

Legacy costs. At least for employees of a certain age a 401K with company match might work. What if the "30 and out" provision could be modified to read that you could retire...but with less than a full pension? What about cafeteria style options for retiree health care?

Legal Services. Gone and forgotten.

Tuition assistance. At least put the programs on hold. Good idea, no money available.

In my mind we don't have time to point fingers. There is a hugely negative perception of both the UAW and the domestic automakers in the eyes of the consumer. Anyone doubting that should read the comments following any automotive related article in the Freep or Detroit News. We need to hammer out an agreement that causes media headlines screaming "UAW Takes Huge Hit On New Contract" and makes UAW represented employees think "Whew, that wasn't as bad as I thought."

[dwford]

My understanding is that once the VEBA takes effect, the total cost per active worker drops from around $70/hour to in the high $50s, with the transplants coming in at a total cost of around $49. So if we are at less than $10/hour cost discrepancy, then we can look at all the little benefits like Tuition assistance, Jobs Bank, some vacation and personal days, work rules changes for better efficiency etc. Switching the future workers to a 401k program and a lower pay scale will overtime help eliminate the cost gap. Since, according to the "business plan" Ford submitted to Congress, the retiree pension plan is currently funded at 104% of it's needs, there's no need to cut there or worry about that.

 

I am all for government help funding the VEBA. Those workers earned the benefits they were promised and should get them. I don't like the idea of putting company stock into the VEBA instead of cash. Too risky.

 

FYI: I am not an autoworker, I sell import cars. I am also a Ford stockholder and a big believer in the company's future.

[RichardJensen]

What if a competitor came along, and produced an equally superior pretzel, but did it at a lower cost, and could sell his equally superior pretzels at a lower price than you?

 

If you can't make a profit (or break even) selling your pretzels at the same price as your competitor, what do you do?

Advertising. You convince people that your pretzels are worth a price premium.

 

Don't think it works?

 

Well, it does for Target.

 

----

 

Remember folks, the economy ain't just about manufacturing.

[RangerM]

Advertising. You convince people that your pretzels are worth a price premium.

 

Don't think it works?

 

Well, it does for Target.

 

----

 

Remember folks, the economy ain't just about manufacturing.

 

It certainly worked for Orville Redenbacher's "Gourmet" popcorn, but he did have his own unique species of popcorn. (according to a show I saw on History Channel)

 

Is it possible to meaningfully distinguish between Mr. Salty and Rold Gold? Maybe.

 

The lesson here is: For advertising to work, it must be more than hype. It has to have the goods to back it up.

 

BTW, its Ta 'ge (pronounce Tar-jay)

[RichardJensen]

For advertising to work, it must be more than hype. It has to have the goods to back it up.

Not exactly true. But true enough--if you can't compete cost for cost, you need to compete on something other than price. Sometimes (but not always) that means adding a bit to your cost, in order to provide some observable 'difference'

 

 

However, that's not always the case. Target can charge more for general merchandise than Walmart (e.g. brand name commodities) because their 'exclusive' items have a bit more 'flair' than Walmart's.

 

But in that instance, we're talking about a retailer.

 

For your pretzel vendor all that might be required is a slightly different (but no more expensive) mustard or cheese sauce that can be marketed.

[richardmayo]

I like it best when she trims the sides, and just leaves the "landing strip"...

[RangerM]

Not exactly true. But true enough--if you can't compete cost for cost, you need to compete on something other than price. Sometimes (but not always) that means adding a bit to your cost, in order to provide some observable 'difference'

 

However, that's not always the case. Target can charge more for general merchandise than Walmart (e.g. brand name commodities) because their 'exclusive' items have a bit more 'flair' than Walmart's.

 

But in that instance, we're talking about a retailer.

 

For your pretzel vendor all that might be required is a slightly different (but no more expensive) mustard or cheese sauce that can be marketed.

 

I understand where you're coming from, but do you think that you may be approaching a niche?

 

(getting back to cars)

It certainly worked for Saturn (in its heydays), but how would Ford (or any of the full-line automakers) succeed under that circumstance? Can a (Big 3) company sell niche products (or be perceived that way) with the economies of scale currently required to be profitable?

[RichardJensen]

I understand where you're coming from, but do you think that you may be approaching a niche?

 

(getting back to cars)

It certainly worked for Saturn (in its heydays), but how would Ford (or any of the full-line automakers) succeed under that circumstance? Can a (Big 3) company sell niche products (or be perceived that way) with the economies of scale currently required to be profitable?

1) Not necessarily a 'niche'--consider the size of Starbucks, for instance.

 

2) The market =is= balkanizing, the days of selling 300k+ are all but over (unless we're talking about the Malibu, Accord, F-Series or Silverado). Therefore, yes, I would argue that in many areas (with proper marketing and development) 'premium' products can be developed.

 

Mercury is a prime example--its products sell for a higher ATP than Ford's, and (I'm certain) an amount that is high enough to cover the cost of differentiation.

[RangerM]

1) Not necessarily a 'niche'--consider the size of Starbucks, for instance.

 

2) The market =is= balkanizing, the days of selling 300k+ are all but over (unless we're talking about the Malibu, Accord, F-Series or Silverado). Therefore, yes, I would argue that in many areas (with proper marketing and development) 'premium' products can be developed.

 

Starbucks may not be a very good example, given their recent hardships (economic downturn)

 

While I agree that its possible to produce very specific models that are profitable (themselves), I would argue that its the mass products (Malibu, Accord, F-Series or Silverado) that "pay the bills".

 

I have some experience with this. In my business I have long term contracts with two clients who account for about 50-75% of my gross. (Needless to say I do everything in my power to keep these clients very satisfied) It's that extra 25-50% where I make my money, but it's the first 50-75% that keeps my doors open. Also needless to say, is that if I am losing money on that first 50-75%, then I either have to make up for it in the latter 25-50%, or I can't afford to keep the doors open.

 

This seems to have many parallels with the Big 3, except they don't have that "profitable" 25%, and they aren't keeping the doors open with the first 50-75%.

[charly]

Starbucks may not be a very good example, given their recent hardships (economic downturn)

 

While I agree that its possible to produce very specific models that are profitable (themselves), I would argue that its the mass products (Malibu, Accord, F-Series or Silverado) that "pay the bills".

 

I have some experience with this. In my business I have long term contracts with two clients who account for about 50-75% of my gross. (Needless to say I do everything in my power to keep these clients very satisfied) It's that extra 25-50% where I make my money, but it's the first 50-75% that keeps my doors open. Also needless to say, is that if I am losing money on that first 50-75%, then I either have to make up for it in the latter 25-50%, or I can't afford to keep the doors open.

 

This seems to have many parallels with the Big 3, except they don't have that "profitable" 25%, and they aren't keeping the doors open with the first 50-75%.

 

 

Let's speak of Ford, this is a Blueoval forum, Ford has positioned itself well, when the economy turns and it will Ford will be there to get it's deserved share.

 

As for pretzels, I'd blackmail the vendors and call the health inspectors(my uncle) in to condemn his operation, then buy his process and hire his employees. Failing that, I'd shake his hand and go off and lick my nuts.

[Versa-Tech]

I have my girl trim hers in the shape of an hour glass, which is fitting considering that I'm practically paralyzed after intercourse :shades:

[GlimmerTwinFan]

What I find interesting that really doesn't get mentioned, is that many plants when built agreed to local municipalities to maintain certain employee levels in return for tax breaks, etc. I believe a GM plant in Hamtramk MI even had the city use eminent domain rules to force residents out of their homes so the plant could be built there. If all of these plants start closing, is that just part of the "write down" expense of closing a plant, or are the manufacturers now open to a ton of legal expenses and judgements because they have or may break their agreements?

[Ralph Greene]

What I find interesting that really doesn't get mentioned, is that many plants when built agreed to local municipalities to maintain certain employee levels in return for tax breaks, etc. I believe a GM plant in Hamtramk MI even had the city use eminent domain rules to force residents out of their homes so the plant could be built there. If all of these plants start closing, is that just part of the "write down" expense of closing a plant, or are the manufacturers now open to a ton of legal expenses and judgements because they have or may break their agreements?

 

Those types of situations can best be handled in bankruptcy....unfortunately.

[theoldwizard]

Mercury is a prime example--its products sell for a higher ATP than Ford's, and (I'm certain) an amount that is high enough to cover the cost of differentiation.

My observation is that, while Mercury appears to be more expensive, it is priced almost identical to a comparably equipped Ford.

 

Lincoln, however, charges a lot for the name.

 

On my street there are a couple of MKZ's, a couple of Milan's (including mine) and a couple of Fusion's. From the side, they all look about the same. You can only tell from the nose or tail.

[RichardJensen]

My observation is that, while Mercury appears to be more expensive, it is priced almost identical to a comparably equipped Ford.

Which is why I said "ATP", Mercury buyers have higher average incomes, and buy cars with more goodies.

 

--

 

Regarding Starbucks: The greatest risk to Starbucks is that they give up their 'premium' cachet in the interest of alleviating a short-term downturn.

 

Better, IMO, for Starbucks to take its lumps, maybe close some stores, than to start discounting their product. Once you start discounting, you can't stop.

[RangerM]

Regarding Starbucks: The greatest risk to Starbucks is that they give up their 'premium' cachet in the interest of alleviating a short-term downturn.

 

Better, IMO, for Starbucks to take its lumps, maybe close some stores, than to start discounting their product. Once you start discounting, you can't stop.

 

Isn't that the argument with the Big 3; who sacrifices or who gets sacrificed?

 

I'm of the mindset that it's better to retain 100% of the people, at 75% of pay, than 75% of the people at 100%. (NOTE: I just picked the numbers out of the air, they aren't important to the question).

 

I'm assuming you prefer the opposite?

 

I also don't agree with your argument against discounting. I see it as one of supply vs. demand. You reduce prices to increase demand an oversupply, and once demand has exceeded the price the market will bear, and the available supply has decreased, the price is free to go up.

[RichardJensen]

I also don't agree with your argument against discounting. I see it as one of supply vs. demand.

For me, it's more about market psychology. Once you start running 'specials', people that buy your product will come to think the regular price is objectionably high.

 

For Starbucks' lattes and so forth, the prices contain a pretty hefty profit margin. Starbucks maintains that margin by 1) offering a generally superior product and 2) refusing to sell said product for less than the price on the menu board.

 

Once you start offering 2 for 1s, coupons, 25% off, etc., people will start shopping the deal, not the product.

 

That's why for the longest time the only Starbucks promotion was =free= coffee. People never expected that giveaways would be a regular part of the Starbucks menu.

[RangerM]

I have my girl trim hers in the shape of an hour glass, which is fitting considering that I'm practically paralyzed after intercourse :shades:

You need to impress her, too.

 

[Versa-Tech]

You need to impress her, too.

 

Actually, mine is in the shape of a treble clef because I make her sing :yup:

[RangerM]

Actually, mine is in the shape of a treble clef because I make her sing :yup:

 

Sing, or hum?

[Versa-Tech]

Sing, or hum?

[lfeg]

Back to the financial haircut.

 

The VEBA is a start to cut the burden. As a part of the haircut, it will probably end up being funded primarily with stock rather than cash.

 

Jobs bank AND sub pay do belong with the clippings on the floor. Besides the cost, there is the "image" factor.

 

There needs to be much more flexibility in staffing, work rules, and job classifications. The UAW represented workers have come a long way on this already, but they will have to go farther.

 

Wage rates must become more flexible in my opinion. I see something like a "base and bonus" setup, where the base would be set at about 60% of current rates, and the remaining 40% would be made up with a bonus based on the profitability of the division. if things were breaking even, the bonus would be 40%, it would go down with losses, and up with profits. (I already live with this setup, sure provides incentive to keep the company healthy).

 

And there will be haircuts for every other group also, particularly the base and bonus setup, and hard limits on excessive pay and benefits for top management. One recommendation is that the maximum allowable take in salary, bonus, and ALL benefits be a hard cap of 50 times that of the lowest paid (in pay, bonus and value of all benefits) full timer.

[rn4]

Back to the financial haircut.

 

The VEBA is a start to cut the burden. As a part of the haircut, it will probably end up being funded primarily with stock rather than cash.

 

Jobs bank AND sub pay do belong with the clippings on the floor. Besides the cost, there is the "image" factor.

 

There needs to be much more flexibility in staffing, work rules, and job classifications. The UAW represented workers have come a long way on this already, but they will have to go farther.

 

Wage rates must become more flexible in my opinion. I see something like a "base and bonus" setup, where the base would be set at about 60% of current rates, and the remaining 40% would be made up with a bonus based on the profitability of the division. if things were breaking even, the bonus would be 40%, it would go down with losses, and up with profits. (I already live with this setup, sure provides incentive to keep the company healthy).

 

And there will be haircuts for every other group also, particularly the base and bonus setup, and hard limits on excessive pay and benefits for top management. One recommendation is that the maximum allowable take in salary, bonus, and ALL benefits be a hard cap of 50 times that of the lowest paid (in pay, bonus and value of all benefits) full timer.

The base pay plus bonus won't fly for the hourly work force. Why should they be tied to a bonus system when they have no input on the business decisions of the company. That would be unfair without giving them more say in the day to day operation of the company.