wow! kdhspyder - looks like you made a hell of an accurate guess!
Yep, he did well with that. The profit margins to the manufacturer simply aren't as massive as many people think -- most of the money is going toward metal, plastic and people.
GM does export cars to China. All CTS, SRX, and STS cars are built in Lansing and exported to China. There has to be something going back on all the boats that bring us tons of plastic junk everyday that is sold at stores accross the country. Its true that if the Chinese cars that get imported are poorly built they will not sell. If you recall the same was said about Japanese and Korean cars.
>Let's say an Camry sells for about $20000 ( It's a little high but it's a round figure ) $1350 goes to the dealer $400 goes to advertising $650 goes to freight $17600 Balance 100% of the labor is paid to US workers 80% of the parts are from the US 100% of the plant overhead is paid to local utilities etc 100% of the Sales and Marketing is paid to US workers Product development, design, testing are all done here ( CA & MI )
How much of the $17600 actually goes to each of those categories? labor, parts, plant operation costs, sales & marketing, PD testing.
Of the 80% parts bought in US (good for them)how much is from companies that are not actually US owned--i.e., companies set up by parent company because they can't get quality parts or the price they want to pay?
The only other place I see a potential loophole is in accounting for depreciation and payments to suppliers.
Does anyone have a more thorough breakdown of the costs of an automobile? Costs for retirees and healthcare of said would also be helpful.
Of the 80% parts bought in US (good for them)how much is from companies that are not actually US owned--i.e., companies set up by parent company because they can't get quality parts or the price they want to pay?
Does that really matter? I mean, essentially, wouldn't that break down in a similar manner? For instance, Honda gets their Accord transmission from a Honda transmission plant here in the US. Let's assume the breakdown of money is very similar to the car itself. That means about 5% of the transmission is truly profit that goes to the parent company.
Let's then say that transmission was $1000. So $50 of that goes to the parent company, while $950 is used for its production here in the US. You can keep taking this further and further. For instance, where were the transmission gears stamped? Let's say those cost $300. And let's say there is a 5% profit margin again ... so the parent company there gets a whopping $15. Where did they get their steel from? Etc. Etc. Etc.
In other words, obviously, the profit margin gets exponentially smaller as you go down the line. At what point do we admit its counterproductive to keep drilling into it?
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
On that question part I'm after what was mentioned in the Enquirer a few back about companies selling themselves parts from captive companies and money also going into offshore accounts as costs. I don't know if that occurs now in the auto suppliers (US or foreign brand) but I thought someone smarter than I am would have an answer here.
The newspaper article was about large companies in Ohio who showed no profit or paid less than $50 of tax to Ohio. No, I didn't leave a zero off. There were large companies. That information dried up quickly. Never heard from it again even in Akron Beacon Journal.
Does that really matter? I mean, essentially, wouldn't that break down in a similar manner? For instance, Honda gets their Accord transmission from a Honda transmission plant here in the US. Let's assume the breakdown of money is very similar to the car itself.
It seems that some of our countrymen resent the very notion of any company aside from the Big 2.5 making any money from the auto business. For some reason, only they have the permission to make any money, even if the cars they offer us don't provide us with what we want.
Does it matter that the Big 2.5 build plenty of product outside the US in facilities that don't employ Americans while earning profits not subject to US tax? Nope, they get a pass.
Does it matter that the transplants roll most of the cash they receive into giving jobs to Americans, paying taxes to the US and feeding a large stream of suppliers and workers who do the same with most of their money? Apparently not.
It gets better than this, because that 90% of the cash receipts that go to the expense load do NOT include all of the millions of dollars in plant and equipment that is used to equip these facilities, so the extent of cash infusion into the US economy is even greater than what those numbers from Toyota above would reflect.
(And despite what some may think, there aren't going to be accounting games with depreciation on an income statement in respect to parts, because parts put into the cars are not subject to depreciation. The parts are going to be booked as expenses, and we can see that the cost of the labor and parts that go into building a car consume almost 80% of Toyota's 2005 receipts.)
We dont know the exact answer to your question because we are not involved directly with these manufacturers. We can only make educated guess, as investors do, from financial statements and the like. ( see socala4's more complete analysis of my estimates )
It's perfectly legal and good business to 'avoid' taxes by minimizing the amount of taxes you pay. It's illegal to 'evade' taxes through fraud, etc. Anyone individual or business owner or tax specialist who doesn't use the tax code to avoid taxes as much as possible is not doing his/her job properly. Most large companies have specialists or teams dedicated to doing just this. The IRS and state tax bureaus job is to ensure that all of the avoidance is by-the-code and legal. If it is it's good business.
Example: GM makes huge losses on it's ongoing automotive operations GMAC makes huge profits from lending. Net: GM pays little or no taxes to the IRS.
To further answer your question, I have a little experience from doing business in a huge international company and being auditted by the FTC on numererous occasions.
Your queston is about 'related-party' transactions. Essentially if one company 'controls' another it's considered one entity. In your question if Toyota say owned Lear Seating ( it doesnt ) then when Lear Seating bills Toyota for a set of seats they could charge them any price they want; extreme example $40000 for the seats in a Camry. Toyota 'buys' them from Lear and builds a Camry that 'costs' $80000 but sells it for $20000 and takes a $60000 loss on each sale.
It's an extreme example but that's fraud. The IRS and others do constant audits to ensure this type of activity doesnt happen. Lear cant sell Toyota a set of seats for $40000 and then sell other makers similar ones for a real market price of say $400.
The IRS and FTC and other agencies have 'standard costs', profit margins and the like from which they build a model of what a transaction should look like between unrelated parties. They then apply this model to transactons between 'related parties'. The 'related party' transaction has to fall within a 'reasonable' range.
It doesn't really matter to me where the R & D comes from on a vehicle. I'm more interested in keeping Americans working. In other words, if a Toyota or Nissan or Honda is built here, and a Chevy, Ford, Chrysler is built in Mexico or Canada, guess which one I'll buy. It used to be buying American meant putting Americans to work. Not so much anymore. It sometimes takes research to find where a particular vehicle is built, but to me it's worth it.
That helps. I know the Ohio House had a committee (!!!) looking into that a couple of years back. They were interested in tax revenue rather than in profit flow.
We can only make educated guess, as investors do, from financial statements and the like.
It's a lot better than just an educated guess. The "cost of goods sold" figure is going to be a reasonably accurate representation of the parts and labor costs that go into the car that the consumer purchases. That figure won't include management overhead, taxes, interest, marketing, administration, etc., nor will it include depreciation on plant and equipment, but only the bits and workers wages of what goes into the cars themselves.
Why don't they just have replacement workers waiting at every UAW plant. Do what the airlines did. If the judge throws out the contract GM will be saved, plus I bet for every current UAW employee gm has, for the same money GM could probably hire 2 or 3 non-union employees. Not low wages, but a more competetive health and retirement plan. Therefore, insdeat of ensuring employment, one could argure for every worker it employes, the union sends 1 or 2 into poverty.
I am not anti-union, but the fact is, that it is difficult to be competetive when the union is at your door. If GM miraculously does better, they will demand higher wages and GM will sink again. GM should still work with a union (as long as the leadership of GM are idiots) so that they don't overstress themselves and start paying slave wages to reduce costs, but the current deal is breaking them. Meybe GM could put some union people on its board, so they have common goals. The union needs to see that a healthy GM means a healthy union membership and healthy societies (if anyone cares about that anymore). Oh, did I also mention more American cars on the road, this is not JAPAN!
I know the execs at GM are often idiots. The Fiat deal is just one in so many examples. The fact is, that even good managment is powerless in the face of an inferrior cost structure. In fact, this whole mess GM is in is because those idiots on the board allowed GM to go into disastrous contracts with benefits and retirenment packages they knew the company could not afford. Then, those guys retired with millions of dollars in benefits and today we are essentially dealing with there mistake. They did not care about GM, only about themselves. That is the core of this entire problem, people only think about themselves. Bad parenting?
GM, the union, and the employees need to band together. The real enemy is not each other, its the Japanese and European automakers, currency manipulation, and a government at home that could not care less about its own manufacturing industry. I would expect this from democrats, but not from the reps... :mad:
Why don't they just have replacement workers waiting at every UAW plant. Do what the airlines did. If the judge throws out the contract GM will be saved...
I suspect that is exactly what will happen. But it won't ultimately solve the real problem, i.e. the product isn't good enough.
plus I bet for every current UAW employee gm has, for the same money GM could probably hire 2 or 3 non-union employees.
The cost difference is not nearly that much. For the price of every three Toyota autoworkers, you'd end up with about two at the current GM.
The fact is, that even good managment is powerless in teh face of an inferrior cost structure. In fact, this whole mess GM is in is because those idiots on the board allowed GM to go into disastrous contracts with benefits and retirenment packages they knew the company could not afford.
I know that's what GM management wants us to believe that, because GM management traditionally loves to blame everyone and everything for the company's problems...well, everything and everyone except for GM management.
But the UAW did not tell GM to buy Saab, blow the FIAT deal, design second-rate also-rans such as the Cobalt, or badge engineer to the point of absurdity. And GM was making plenty of money when consumers decided that SUV's were the kind, and fuel was cheap -- once again, it was GM's management that decided to disregard macroeconomic conditions that could lead to changes in fuel prices. (Given that GM is a defense contractor and selling some of the very same cars to China that increases its demand for oil, I'm surprised that they didn't see this coming...well, actually, it's GM, so of course they didn't see it coming...)
Perhaps if GM made a car that customers who weren't named Avis actually wanted , we wouldn't be having this discussion. Being disconnected from the customer is a sure-fire way to post red ink on the books, union or no union.
I think realistically that GM recognizes that it cannot succeed in the current situation. I see them intentionally shrinking here in the US while growing overseas. It doesnt matter to a corporaton or it's shareholders from where the profit comes as long as it does come.
The same is true of Ford as the Hermosillo plant shows.
The real enemy is not each other, its the Japanese and European automakers, currency manipulation, and a government at home that could not care less about its own manufacturing industry.
I still don't see why GM is my friend, but Toyota is my enemy, so I'd like to see a cogent reason why that is.
And someone needs to explain how this Great Japanese Currency Manipulation Scheme is supposed to work, and how it is any different from what the US does to manage the value of the dollar.
If you are concerned that the Japanese buy and sell dollars, yen and US treasury bonds on the open market in an effort to create incremental differences in currency value, remember this -- Uncle Sam does the very same thing.
I am blaming managment as well. I don't care what they want us to believe its true.
You say that it still will not change the core problem, that is product. I understand your thinking, but without money there is no product.
The UAW did tell GM to buy Saab, and badge engineer there vehicles. All those contracts put a VERY HIGH fixed cost relating to the companies operations. They have less money to spend per car. The only solution is to make it up in volume. This is why we see these buying sprees and badge engineering.
At the end of the day, its all about cost structure. I wish more people could see that. GM would put in the best materials, and make the best cars if it could afford to. Its that simple.
I still think they make the best cars (my oppinnion), but the fixed cost structure means that lost sales hurt GM more than toyota, and affects the entire product line.
It's because those corps. have products that people all over the world want to purchase. Why doesn't GM/F understand this concept? They fell asleep at the wheel 30 years ago, now they are waking up,but the car is going over cliff.
They have less money to spend per car. The only solution is to make it up in volume. This is why we see these buying sprees and badge engineering.
Looking at their annual financial statements reported to the SEC, I'm not seeing that.
Admittedly, it's a bit tough to compare the two directly, because GM reports its figures in US dollars and Toyota reports its in yen, with both of them needing to convert a lot of currencies at different times to arrive at those figures. Meanwhile, I'm converting Toyota's yen to dollars at various points in time to complete this little exercise. But, based on that, here are the R&D expenditures I see for GM and Toyota for the last few years:
Without quibbling over conversion rates, etc., I'd say that in the scheme of things, the two of them are not a whole lot different from each other in terms of total investment.
What's different is the bang for the buck that each of them gets, because Toyota uses that similar amount of money to support fewer nameplates, and fewer unique platforms and motors. This allows Toyota to be a leader instead of a follower, and to get significant improvements rather than the occasional hit across a field of misses.
Undoubtedly, GM has a bloated cost structure, and the UAW doesn't help matters. But even without the UAW, there would still be too many nameplates and bad acquisitions sucking too many dollars into too many projects, with few home runs to show for it.
Kdhspyder is right -- GM is basically slowly shifting its business away from the US, betting on the growing Asian markets rather than the mature US and European markets that are far more competitive and costly places in which to do business. It's ceding market share losses at home, and hoping to score its home runs abroad, not here.
If GM did try to hire scabs, then plan on alot of UAW employees going to jail for beating the hell out of picket crossers. GM knows this and won't risk their U.S. operations going up in flames.
toyotas 7.2 billion dollars is like GM's 22 billion.
lets say the yen is 200 to 1 dollar. and the workers in japan get 40 yen an hour to do research
if that figure goes to 400, all it will affect it the eschange rate, the workers still get 40 yen, which is now 2X less expensive, and it only reflects itself in currency translations. Japan has done alot to keep itself free from foreign influence, many busineses in Japan that are foreign, are partially owned by a japanese company. So currency shifts will benefit japan as much as possible.
Toyota gets more bang for its buck because of currency manipulation. GM looks like it has allot of products and platforms, but they really know how to make versitle platforms that can fit many vehicles. GM's problem is that they cannot afford to pack a product like toyota.
Chevy Impala, which experienced a 7.6 percent increase in sales in January thanks to a well-received redesign, was one of the country's top 20 best-selling models. Other GM models on January's top 20 list were Cobalt (sales increase of 140.5 percent), Malibu (18.1 percent decrease), TrailBlazer SUV (24 percent increase) and Silverado pickup (6.6 decrease).
Toyota gets more bang for its buck because of currency manipulation.
What currency manipulation? This simply doesn't exist, and I haven't got a clue why you keep bringing it up.
Fact: The dollar has been falling against the yen (and for that matter, against a lot of other currencies) over the past three years, which hurts any company that wishes to export goods to the US.
If you're trying to claim that Toyota is paying peanuts to its workers in Japan, let's remember that Japan is one of the most expensive countries in the world, with wages to match, and much of its workforce is unionized. Toyota also has a significant R&D presence in California, and 31,000 US employees -- about 40% of its workforce is located outside of Japan.
Please, everyone -- stop it with this "currency manipulation" nonsense unless you can back it up with some facts. It's getting tiresome to hear it repeated, while nobody who claims that it happens can prove it.
toyotas 7.2 billion dollars is like GM's 22 billion.
lets say the yen is 200 to 1 dollar. and the workers in japan get 40 yen an hour to do research
if that figure goes to 400, all it will affect it the eschange rate, the workers still get 40 yen, which is now 2X less expensive, and it only reflects itself in currency translations. Japan has done alot to keep itself free from foreign influence, many busineses in Japan that are foreign, are partially owned by a japanese company. So currency shifts will benefit japan as much as possible.
Toyota gets more bang for its buck because of currency manipulation. GM looks like it has allot of products and platforms, but they really know how to make versitle platforms that can fit many vehicles. GM's problem is that they cannot afford to pack a product like toyota.
LOL..
All I can say to this is ... HUH?
I know you wrote this after an office party right?
Just to make sure we are talking about the same subject... you said.. "So currency shifts will benefit japan as much as possible." ALL currency shifts.. both plus and minus(?)help Japan? If this is so our arbitragers at the Treasury Dept would be in the currency markets doing exactly what Japan does and making an ungodly fortune for us every day.
If what you say is true can you imagine that Japan benefits from all currency shifts. Why aren't you and I in the market making millions everyday? If you benefit both ways you can't lose. EUREKA!! Cold Fusion!!!
Just to see if we are talking apples-apples. Pls explain how currency markets work. I was involved in doing this in my former job so I want to make sure we are talking about the same thing. Please.
"Japan – Last year, the Japanese government intervened in currency markets to weaken the yen seven times, spending a record 4 trillion yen ($33 billion) to keep the dollar above Y115, intervening as high as Y123. This followed a similar level of intervention in 2001, when they spent a then-record total of $28 billion to weaken their currency. Threats of action (de facto verbal intervention) by high-ranking Japanese financial officials have dominated currency markets for the past five weeks. In January 2003, for example, the Japanese Finance Minister roiled currency markets by indicating his belief that the proper level of the yen to the dollar was in the 150-160 range _ causing the largest single-day decline in the yen/dollar relationship in years. The constant drumbeat of intervention threats by Japanese financial officials prevent the world currency markets from operating freely based on economic reality and distort fundamental trading relationships."
China – Despite the most rapid economic growth in the world, enormous trade surpluses and huge foreign investment inflows - -each of which normally causes a currency to appreciate - - China has used government controls to keep its currency pegged at 8.2 yuan to the dollar since 1994. In 1994, China devalued the yuan by over 40%, helping to set the stage for the East Asian financial crisis of 1997.
In order to maintain an undervalued currency, China has amassed reserves second only to Japan’s, totaling over $250 billion during the past five years. As a result, China’s exports to the United States, which consist primarily of manufactured goods, have doubled over the past five years and now exceed $110 billion a year. Artificially low-priced Chinese exports have affected virtually every sector of the U.S. manufacturing economy. Pressures from China’s currency are affecting not just the United States, but also Mexico, Japan and other Asian countries as they seek to cope with China’s artificially low prices for manufactured goods.
>Please, everyone -- stop it with this "currency manipulation" nonsense unless you can back it up with some facts. It's getting tiresome to hear it repeated, while nobody who claims that it happens can prove it.
What you do is just ignore it when someone with whom you disagree posts something to which you have already responded. Constant challenges to "prove it" or else get "tiresome" to use words already posted.
Someone reading this discussion for the first time would read all the confrontation and head for the door. It's an interesting topic but has been allowed to become totally pugnacious in some posts. Disagreeing is life. Proving everyone else is wrong to their believing it is impossible. Read the Speed Limits discussion now closed... for proof.
On with the discussion about buying American-is it 2 or 2.5 or 3?
And how is that one iota different from what the US does? From the Federal Reserve:
The Role of the Federal Reserve Congress has assigned the U.S. Treasury primary responsibility for international financial policy. In practice, though, the Treasury's FX decisions typically are made in consultation with the Federal Reserve System. If the monetary authorities elect to intervene in the FX market, the intervention is conducted by the Federal Reserve Bank of New York. When a decision is made to support the dollars' price against another currency, the foreign exchange trading desk of the New York Fed buys dollars and sells the foreign currency; conversely, to reduce the value of the dollar, it sells dollars and buys the foreign currency. While the Fed's trading staff may operate in the FX market at any time and in any market in the world, the focus of activity usually is the U.S. market.
Because the Fed's purchases or sales of dollars are small compared with the total volume of dollar trading, they do not shift the balance of supply and demand immediately. Instead, intervention affects the present and future behavior of investors. In this regard, U.S. foreign exchange intervention is used as a device to signal a desired exchange rate movement.
Instead of listening to one-sided commentaries, get with the picture and understand that every nation with a floating currency attempts to manage its value.
Japan is no different from the US -- in fact, both the US and Japan have supported a strong dollar. The dollar has fallen as of late as investors lose confidence in the US economy due to the growing US federal budget deficit, increasing oil prices, and the costs of the Iraq War, but the US has maintained a "strong dollar" policy otherwise. In this case, overall US and Japanese goals for exchange rates have been largely similar.
"These deliberate policies of currency interventions have added enormously to the U.S. trade deficit by spurring their exports and restricting their imports. The U.S. manufacturing sector in the meantime has borne the brunt of job losses and economic contraction over the last two years, and has lost over two million jobs.
More than one in every ten American factory jobs has disappeared in the last two years. Much of this is directly attributable to export losses and to artificially low priced imports from countries that prevent market forces from determining exchange rates. The U.S. dollar has been allowed to get 30 percent more expensive in terms of other major currencies over the past four years. Since foreign currencies are 30 percent cheaper, this makes many import prices so artificially low that competing against them is almost impossible."
Again, from my perspective as a Japan (Tokyo) resident....
The general impression seems to be that average Japanese lives in a rabbit hutch, grateful for the crumbs thrown by companies like Toyota.
The reality is that the AVERAGE Japanese is far better off than the average American. US statistics look impressive because the top 5% take almost everything. In Japan, the CEO of a company gets around 10x of average salary, in US more like 400x.
If you ever visit Tokyo, try going to a large retail outlet, for example the local equivalent of Fry's. You will be stunned with the difference in the quality of offering.
Would you be surprised if I told you that Wal Mart has been trying to break into the Japanese market for the last 20 years (and has even made a major acquisition) and failed consistently? Average Japanese does not need to buy cheap importent junk.
So think again before you blame Japan for currency manipulation.
So think again before you blame Japan for currency manipulation.
Either people don't understand that the Fed behaves similarly to the treasuries of other nations, or else they hold a double standard.
It's odd that some people think that Japan has greater control over free market mechanisms than does the much larger US. When either government wants to influence (they cannot manipulate) forex values, they do the exact same stuff. Why is it A-OK when the US does it, but absolutely horrible "manipulation" when the Japanese do it?
"An artificially reduced yen of 110 yen per dollar provides a $2,000 discount for a midsize sedan and $4,000 for a sport utility vehicle."
"Announcing the reintroduction of the bill in a statement issued Tuesday, Democrat Rep. John Dingell said the three countries have been engaged in currency manipulation.
"Since 2000, Japan has intervened over 150 times in global currency markets, in the first quarter of 2004, alone Japan spent $139 billion to keep their currency low," he said."
And what this maniplution leads to, beyond just cars
"A current account deficit of $500 billion per year means we are living beyond our means by roughly 5 percent of GDP, mostly for immediate personal consumption and to a lesser extent for investment.[1] This consumer binge is being paid for through foreign borrowing comparable to the current account deficit, and the resulting $3-$5 trillion buildup of foreign debt is being left to our children and grandchildren to service indefinitely or to pay off fully in principal."
In fact, the only reason cars have survived this long in the US, is because the foreign makers were technologically inferrior for a very long time, and that the car industry is (normally) a high margin, high profit business. Look at toyota, $10 Billion in profit last year.
You didn't point out that the Democratic Congressman introducing the bill was from Michigan. I'm not sure just how unbiased his claims may be. Also, I'd be interested to know since 2000, how many times the U.S. Treasury Department has 'intervened' on the global currency market.
And finally, you left out this quote from that article:
"According to the Finance Ministry, Japan's monetary authorities have eschewed yen-selling, dollar-buying market intervention since March 2004."
Meaning that there has been NO market intervention for nearly 2 years.
"In fact, the only reason cars have survived this long in the US, is because the foreign makers were technologically inferrior for a very long time..."
Yes, the foreign makes were technologically inferior until, oh, about 1980. The reason why the DOMESTIC makes have survived for so long in the face of technologically superior cars is due to inertia of the general population and the 'Buy American' sentiment which asks the public to overlook choices which may be superior.
"Asian automakers can add more options to their vehicles, while selling them for the same sticker price as lesser equipped domestic vehicles."
That's not evidence, that's an editorial comment not backed by data. You can use this very website to compare cars to one another.
In any case, a Civic and Corolla are domestic vehicles, built in the US with largely US content. And Honda and Toyota don't control how GM or Ford set their prices.
"Announcing the reintroduction of the bill in a statement issued Tuesday, Democrat Rep. John Dingell said the three countries have been engaged in currency manipulation.
Explain to me why it is "manipulation" when Japan engages in open market operations, but A-OK when the Fed does the same thing.
"A current account deficit of $500 billion per year means we are living beyond our means by roughly 5 percent of GDP, mostly for immediate personal consumption and to a lesser extent for investment.[1] This consumer binge is being paid for through foreign borrowing comparable to the current account deficit, and the resulting $3-$5 trillion buildup of foreign debt is being left to our children and grandchildren to service indefinitely or to pay off fully in principal."
As did Imidazol, your "source" is a trade lobbyist that wants barriers so that US producers can afford to be less competitive. At least admit that MAPI has a vested interest in reducing competition and gaining more market share in the US.
Is there a Japanese equivalent of Wal-Mart that sells well-made products at a decent price versus the Chinese-made crap we see? For instance, how much better is a toaster purchased at a Japanese discount store versus one from an American Wal-Mart? I'm sure there a plenty of people who would love to buy decent, high-quality products at reasonable prices. I'd rather buy one solid toaster at $100 that lasts me forever versus four $25 toasters that don't make it two years.
I'm sure there a plenty of people who would love to buy decent, high-quality products at reasonable prices.
There are. But clearly, Walmart meets the needs of those who don't, for whatever reason, of whom there are many.
If you don't like Walmart, don't shop there. I don't. (And aside from cars, I do make an effort to buy products made in the US or western countries that pay high wages. But I'm not going to squander my money so that it's second-rate-business-as-usual in Detroit and Dearborn.
Also, may I remind you that Japan and China are different countries? Come on, folks, only Rocky missed the point that the war ended sixty-one years ago.
Don't worry. I don't even bother going into a Wal-Mart these days. Going in there is like walking onto the set of the "Jerry Springer Show." Trouble is, many of the so-called "better" stores still have the same junk Wal-Mart has at inflated prices.
I'm aware that China and Japan are two different countries. I'd have infinitely more confidence in a toaster manufactured in Japan than one from China. I also make an effort to buy U.S. products or at least those from a country that isn't some low-wage, sweatshop, prison-labor, third-world toilet. So far, the only decent toasters I've found go for $200+ at Williams-Sonoma. They were made in the UK.
Currency differences do affect the prices of imported vehicles and your numbers may be correct.. to be investigated..
However..
Currency has nothing to do with Camry's from KY, Accords from OH, Corolla's from CA, Tundra's from IN and Altima's from TN. Nothing whatsoever.. it's a non issue. They are just like Malibu's but better than Fusions because they employ Americans.
Now the flip side of this coin...
Since 1995 the US Treasury has allowed the US$ to deteriorate vs the European Euro by 15% keeping the price of US goods artificially below the prices of european goods. The tool that the Fed uses mainly is interest rate intervention. The Europeans are as pi**ed about this as you are about the $/Y ..
BTW here is exactly what you are discussing and it should put to rest all the discussions about currency manipulations: Source US Fed St Louis branch
In the last 15 yrs the Yen and dollar have fluctuated in a relatively narrow range of ~ 100 Y/$ +/- 20%. It's way way down from the 70's when it was over 300 Y/$. Presently it's also about the same 15% difference as the US$ over the Euro.
Politicians can complain, at the behest of their constituents, but just like Big Business these currency differences are discussed and settled by people like Greenspan and his counterparts in Japan and Europe. These things are watched daily and if there is an imbalance one or all intervene and then they call each other and dicuss what the 'equilibrium should be'. There is nothing sinister about this, it's the way govt's and businesses are run every day.
It's the same as Rick Wagoner visiting Toyota to tell them that he's moving his operations from the US to China. It's the courtesy one big company gives to another. It's the way business is done.
I'm aware that China and Japan are two different countries.
Some posters on the thread seem to have trouble understanding that.
The very same posters don't seem to understand that Japan does the very same types of things to manage its currency that the US and every other country with a floating currency does -- it buys and sells its currencies, as well as US treasuries on the open market, all in an effort to stimulate the market in one direction or another. (Sometimes it works, sometimes it doesn't.) It's not black magic, a vast conspiracy or "manipulation", but a normal part of how the forex markets work throughout all western countries.
Let's also understand that China's currency does not float in value, but is pegged to a basket of currencies (the euro and dollar, among others) that the Chinese have opted to use. But no nation is completely exempt from the forces of the free market, and an exchange rate too far out of whack with reality could produce disastrous results for China, so it can only do so much. (Look at the meltdown in Argentina for an example of what happens when a nation pegs its currency at inappropriate levels.)
I'd have infinitely more confidence in a toaster manufactured in Japan than one from China.
I would agree. China is doing now what Japan did decades ago -- serving as a low-cost producer, not a producer of quality. If you want higher quality goods, they will come from Japan, the US, Canada and Western Europe, but you will have to pay for the labor. And there are no Chinese cars in the US today.
WalMart argument...ROTFLMAO... this is an auto discussion.
WalMart seems to be but one in a very long line of excuses and apologies being made for the Big 2.5. It's odd how "the need to build a better car" never seems to be on the same lists...
"Asian automakers can add more options to their vehicles, while selling them for the same sticker price as lesser equipped domestic vehicles."
This means that American consumer must be stupid not to take advantage of this great offer. If somebody on purpose whats to sell you something cheaper then it costs him to produce it, then this means that you (as a consumer) is getting a great deal. This also means that this producer is loosing money on each and every car they sell.
Hey, wait a second, is it not GM and Ford who are loosing money on each and every car they sell? Does it not mean that Ford and GM are selling cars at below their price?
If you look at all of the facts I think that most people will agree that its Ford and GM who are DUMPING cars on the market because of their stupid contract with UAW where they have to keep their factories running even if people don't want to buy their cars. That is the true definition of dumping.
If you look at all of the facts I think that most people will agree that its Ford and GM who are DUMPING cars on the market
You make a valid point. Here's a definition of dumping:
Definition of Dumping: Dumping is an informal name for the practice of selling a product in a foreign country for less than either (a) the price in the domestic country, or (b) the cost of making the product. It is illegal in some countries to dump certain products into them, because they want to protect their own industries from such competition.
So, let's go through the facts:
-Are the "imports", in fact, always "foreign" products? Answer: Obviously not always, as are cars such as the Accord and Camry that are made in the US. In fact, Honda and Toyota usually import their higher priced, lower volume models, not the bread-and-butter mass volume cars like the Civic or Corolla. And their trend, unlike the Big 2.5 is to build more domestically.
-Are the foreign nameplates "dumping" by underpricing the Big 2.5? Answer: The Korean makers are (in fact, they are deliberately positioning themselves as a low-cost alternative to Toyota and Honda), but the Japanese makers are not. Go through this website, price optioned versions of various comparable cars from the US and Japan, and you won't find significant price differences between comparable cars. Add in "employee discounts", rebates and other incentives, and you'll find the Big 2.5 cars are actually often cheaper (even if they take a hit later in the form of resale value).
-Are the Japanese makers producing at a loss to gain market share? Answer: No, they are earning profits on their US sales, so they obviously aren't selling below "the cost of making the product", as the definition would require.
If GM and Ford were foreign companies importing their cars from elsewhere, then it would be completely fair to accuse them of dumping. They are selling cars at a loss to clear out excess inventories and in an attempt to win back market share, which all match the definition of dumping. Far different than Honda, Toyota and the rest, which are genuinely attempting to, and are generally succeeding at, earning a profit on their US sales.
The current issue of Fortune magazine has an article "The Tragedy of General Motors." If you can't access the article directly from Fortune's web site, you can get to it from CNN Money's site.
One thing that I think that it omitted was that bankruptcy would be a good method for GM management to defang the UAW, pass the pension obligations onto the federal government and terminate some dealer relationships that help to encourage this excessive number of nameplates and marques in GM's stable.
Bankruptcy doesn't mean going out of business, but restructuring the business while getting rid of obligations. Look at what United Airlines has done for a primer of what BK can do to rewrite the union contracts and force concessions.
Maybe you are right, Socal. Your summary makes sense to me.
However, I bet the people who read Fortune are the kind who invest money in stocks and they would not like to see their magazine recommend something that would devalue their portfolio.
Comments
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Yep, he did well with that. The profit margins to the manufacturer simply aren't as massive as many people think -- most of the money is going toward metal, plastic and people.
$1350 goes to the dealer
$400 goes to advertising
$650 goes to freight
$17600 Balance
100% of the labor is paid to US workers
80% of the parts are from the US
100% of the plant overhead is paid to local utilities etc
100% of the Sales and Marketing is paid to US workers
Product development, design, testing are all done here ( CA & MI )
How much of the $17600 actually goes to each of those categories? labor, parts, plant operation costs, sales & marketing, PD testing.
Of the 80% parts bought in US (good for them)how much is from companies that are not actually US owned--i.e., companies set up by parent company because they can't get quality parts or the price they want to pay?
The only other place I see a potential loophole is in accounting for depreciation and payments to suppliers.
Does anyone have a more thorough breakdown of the costs of an automobile? Costs for retirees and healthcare of said would also be helpful.
2014 Malibu 2LT, 2015 Cruze 2LT,
Does that really matter? I mean, essentially, wouldn't that break down in a similar manner? For instance, Honda gets their Accord transmission from a Honda transmission plant here in the US. Let's assume the breakdown of money is very similar to the car itself. That means about 5% of the transmission is truly profit that goes to the parent company.
Let's then say that transmission was $1000. So $50 of that goes to the parent company, while $950 is used for its production here in the US. You can keep taking this further and further. For instance, where were the transmission gears stamped? Let's say those cost $300. And let's say there is a 5% profit margin again ... so the parent company there gets a whopping $15. Where did they get their steel from? Etc. Etc. Etc.
In other words, obviously, the profit margin gets exponentially smaller as you go down the line. At what point do we admit its counterproductive to keep drilling into it?
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
The newspaper article was about large companies in Ohio who showed no profit or paid less than $50 of tax to Ohio. No, I didn't leave a zero off. There were large companies. That information dried up quickly. Never heard from it again even in Akron Beacon Journal.
2014 Malibu 2LT, 2015 Cruze 2LT,
It seems that some of our countrymen resent the very notion of any company aside from the Big 2.5 making any money from the auto business. For some reason, only they have the permission to make any money, even if the cars they offer us don't provide us with what we want.
Does it matter that the Big 2.5 build plenty of product outside the US in facilities that don't employ Americans while earning profits not subject to US tax? Nope, they get a pass.
Does it matter that the transplants roll most of the cash they receive into giving jobs to Americans, paying taxes to the US and feeding a large stream of suppliers and workers who do the same with most of their money? Apparently not.
It gets better than this, because that 90% of the cash receipts that go to the expense load do NOT include all of the millions of dollars in plant and equipment that is used to equip these facilities, so the extent of cash infusion into the US economy is even greater than what those numbers from Toyota above would reflect.
(And despite what some may think, there aren't going to be accounting games with depreciation on an income statement in respect to parts, because parts put into the cars are not subject to depreciation. The parts are going to be booked as expenses, and we can see that the cost of the labor and parts that go into building a car consume almost 80% of Toyota's 2005 receipts.)
It's perfectly legal and good business to 'avoid' taxes by minimizing the amount of taxes you pay. It's illegal to 'evade' taxes through fraud, etc. Anyone individual or business owner or tax specialist who doesn't use the tax code to avoid taxes as much as possible is not doing his/her job properly. Most large companies have specialists or teams dedicated to doing just this. The IRS and state tax bureaus job is to ensure that all of the avoidance is by-the-code and legal. If it is it's good business.
Example:
GM makes huge losses on it's ongoing automotive operations
GMAC makes huge profits from lending.
Net: GM pays little or no taxes to the IRS.
It's good business.
That's the answer to my question.
As to the rest, I understand how the IRS works.
2014 Malibu 2LT, 2015 Cruze 2LT,
Your queston is about 'related-party' transactions. Essentially if one company 'controls' another it's considered one entity. In your question if Toyota say owned Lear Seating ( it doesnt ) then when Lear Seating bills Toyota for a set of seats they could charge them any price they want; extreme example $40000 for the seats in a Camry. Toyota 'buys' them from Lear and builds a Camry that 'costs' $80000 but sells it for $20000 and takes a $60000 loss on each sale.
It's an extreme example but that's fraud. The IRS and others do constant audits to ensure this type of activity doesnt happen. Lear cant sell Toyota a set of seats for $40000 and then sell other makers similar ones for a real market price of say $400.
The IRS and FTC and other agencies have 'standard costs', profit margins and the like from which they build a model of what a transaction should look like between unrelated parties. They then apply this model to transactons between 'related parties'. The 'related party' transaction has to fall within a 'reasonable' range.
From the Detroit News 2-15-06
http://www.detnews.com/apps/pbcs.dll/article?AID=/20060215/AUTO02/602150361/1148- /AUTO01
Everyone is in a difficult position.
Thanks.
2014 Malibu 2LT, 2015 Cruze 2LT,
It's a lot better than just an educated guess. The "cost of goods sold" figure is going to be a reasonably accurate representation of the parts and labor costs that go into the car that the consumer purchases. That figure won't include management overhead, taxes, interest, marketing, administration, etc., nor will it include depreciation on plant and equipment, but only the bits and workers wages of what goes into the cars themselves.
I am not anti-union, but the fact is, that it is difficult to be competetive when the union is at your door. If GM miraculously does better, they will demand higher wages and GM will sink again. GM should still work with a union (as long as the leadership of GM are idiots) so that they don't overstress themselves and start paying slave wages to reduce costs, but the current deal is breaking them. Meybe GM could put some union people on its board, so they have common goals. The union needs to see that a healthy GM means a healthy union membership and healthy societies (if anyone cares about that anymore). Oh, did I also mention more American cars on the road, this is not JAPAN!
I know the execs at GM are often idiots. The Fiat deal is just one in so many examples. The fact is, that even good managment is powerless in the face of an inferrior cost structure. In fact, this whole mess GM is in is because those idiots on the board allowed GM to go into disastrous contracts with benefits and retirenment packages they knew the company could not afford. Then, those guys retired with millions of dollars in benefits and today we are essentially dealing with there mistake. They did not care about GM, only about themselves. That is the core of this entire problem, people only think about themselves. Bad parenting?
GM, the union, and the employees need to band together. The real enemy is not each other, its the Japanese and European automakers, currency manipulation, and a government at home that could not care less about its own manufacturing industry. I would expect this from democrats, but not from the reps... :mad:
I suspect that is exactly what will happen. But it won't ultimately solve the real problem, i.e. the product isn't good enough.
plus I bet for every current UAW employee gm has, for the same money GM could probably hire 2 or 3 non-union employees.
The cost difference is not nearly that much. For the price of every three Toyota autoworkers, you'd end up with about two at the current GM.
The fact is, that even good managment is powerless in teh face of an inferrior cost structure. In fact, this whole mess GM is in is because those idiots on the board allowed GM to go into disastrous contracts with benefits and retirenment packages they knew the company could not afford.
I know that's what GM management wants us to believe that, because GM management traditionally loves to blame everyone and everything for the company's problems...well, everything and everyone except for GM management.
But the UAW did not tell GM to buy Saab, blow the FIAT deal, design second-rate also-rans such as the Cobalt, or badge engineer to the point of absurdity. And GM was making plenty of money when consumers decided that SUV's were the kind, and fuel was cheap -- once again, it was GM's management that decided to disregard macroeconomic conditions that could lead to changes in fuel prices. (Given that GM is a defense contractor and selling some of the very same cars to China that increases its demand for oil, I'm surprised that they didn't see this coming...well, actually, it's GM, so of course they didn't see it coming...)
Perhaps if GM made a car that customers who weren't named Avis actually wanted , we wouldn't be having this discussion. Being disconnected from the customer is a sure-fire way to post red ink on the books, union or no union.
The same is true of Ford as the Hermosillo plant shows.
The real enemy is not each other, its the Japanese and European automakers, currency manipulation, and a government at home that could not care less about its own manufacturing industry.
I still don't see why GM is my friend, but Toyota is my enemy, so I'd like to see a cogent reason why that is.
And someone needs to explain how this Great Japanese Currency Manipulation Scheme is supposed to work, and how it is any different from what the US does to manage the value of the dollar.
If you are concerned that the Japanese buy and sell dollars, yen and US treasury bonds on the open market in an effort to create incremental differences in currency value, remember this -- Uncle Sam does the very same thing.
You say that it still will not change the core problem, that is product. I understand your thinking, but without money there is no product.
The UAW did tell GM to buy Saab, and badge engineer there vehicles. All those contracts put a VERY HIGH fixed cost relating to the companies operations. They have less money to spend per car. The only solution is to make it up in volume. This is why we see these buying sprees and badge engineering.
At the end of the day, its all about cost structure. I wish more people could see that. GM would put in the best materials, and make the best cars if it could afford to. Its that simple.
I still think they make the best cars (my oppinnion), but the fixed cost structure means that lost sales hurt GM more than toyota, and affects the entire product line.
Looking at their annual financial statements reported to the SEC, I'm not seeing that.
Admittedly, it's a bit tough to compare the two directly, because GM reports its figures in US dollars and Toyota reports its in yen, with both of them needing to convert a lot of currencies at different times to arrive at those figures. Meanwhile, I'm converting Toyota's yen to dollars at various points in time to complete this little exercise. But, based on that, here are the R&D expenditures I see for GM and Toyota for the last few years:
R&D expenditures (US$billions)
Year / GM / Toyota
2004 / $6.5 / $7.2
2003 / $6.2 / $6.1
2002 / $6.0 / $5.3
Without quibbling over conversion rates, etc., I'd say that in the scheme of things, the two of them are not a whole lot different from each other in terms of total investment.
What's different is the bang for the buck that each of them gets, because Toyota uses that similar amount of money to support fewer nameplates, and fewer unique platforms and motors. This allows Toyota to be a leader instead of a follower, and to get significant improvements rather than the occasional hit across a field of misses.
Undoubtedly, GM has a bloated cost structure, and the UAW doesn't help matters. But even without the UAW, there would still be too many nameplates and bad acquisitions sucking too many dollars into too many projects, with few home runs to show for it.
Kdhspyder is right -- GM is basically slowly shifting its business away from the US, betting on the growing Asian markets rather than the mature US and European markets that are far more competitive and costly places in which to do business. It's ceding market share losses at home, and hoping to score its home runs abroad, not here.
Rocky
lets say the yen is 200 to 1 dollar.
and the workers in japan get 40 yen an hour to do research
if that figure goes to 400, all it will affect it the eschange rate, the workers still get 40 yen, which is now 2X less expensive, and it only reflects itself in currency translations. Japan has done alot to keep itself free from foreign influence, many busineses in Japan that are foreign, are partially owned by a japanese company. So currency shifts will benefit japan as much as possible.
Toyota gets more bang for its buck because of currency manipulation. GM looks like it has allot of products and platforms, but they really know how to make versitle platforms that can fit many vehicles. GM's problem is that they cannot afford to pack a product like toyota.
BTW,
according to http://www.post-gazette.com/pg/06047/655979.stm
Chevy Impala, which experienced a 7.6 percent increase in sales in January thanks to a well-received redesign, was one of the country's top 20 best-selling models. Other GM models on January's top 20 list were Cobalt (sales increase of 140.5 percent), Malibu (18.1 percent decrease), TrailBlazer SUV (24 percent increase) and Silverado pickup (6.6 decrease).
What currency manipulation? This simply doesn't exist, and I haven't got a clue why you keep bringing it up.
Fact: The dollar has been falling against the yen (and for that matter, against a lot of other currencies) over the past three years, which hurts any company that wishes to export goods to the US.
If you're trying to claim that Toyota is paying peanuts to its workers in Japan, let's remember that Japan is one of the most expensive countries in the world, with wages to match, and much of its workforce is unionized. Toyota also has a significant R&D presence in California, and 31,000 US employees -- about 40% of its workforce is located outside of Japan.
Please, everyone -- stop it with this "currency manipulation" nonsense unless you can back it up with some facts. It's getting tiresome to hear it repeated, while nobody who claims that it happens can prove it.
lets say the yen is 200 to 1 dollar.
and the workers in japan get 40 yen an hour to do research
if that figure goes to 400, all it will affect it the eschange rate, the workers still get 40 yen, which is now 2X less expensive, and it only reflects itself in currency translations. Japan has done alot to keep itself free from foreign influence, many busineses in Japan that are foreign, are partially owned by a japanese company. So currency shifts will benefit japan as much as possible.
Toyota gets more bang for its buck because of currency manipulation. GM looks like it has allot of products and platforms, but they really know how to make versitle platforms that can fit many vehicles. GM's problem is that they cannot afford to pack a product like toyota.
LOL..
All I can say to this is ... HUH?
I know you wrote this after an office party right?
Just to make sure we are talking about the same subject...
you said.. "So currency shifts will benefit japan as much as possible." ALL currency shifts.. both plus and minus(?)help Japan? If this is so our arbitragers at the Treasury Dept would be in the currency markets doing exactly what Japan does and making an ungodly fortune for us every day.
If what you say is true can you imagine that Japan benefits from all currency shifts. Why aren't you and I in the market making millions everyday? If you benefit both ways you can't lose. EUREKA!! Cold Fusion!!!
http://www.afsinc.org/Govn/Background_Information.html
2014 Malibu 2LT, 2015 Cruze 2LT,
In order to maintain an undervalued currency, China has amassed reserves second only to Japan’s, totaling over $250 billion during the past five years. As a result, China’s exports to the United States, which consist primarily of manufactured goods, have doubled over the past five years and now exceed $110 billion a year. Artificially low-priced Chinese exports have affected virtually every sector of the U.S. manufacturing economy. Pressures from China’s currency are affecting not just the United States, but also Mexico, Japan and other Asian countries as they seek to cope with China’s artificially low prices for manufactured goods.
2014 Malibu 2LT, 2015 Cruze 2LT,
What you do is just ignore it when someone with whom you disagree posts something to which you have already responded. Constant challenges to "prove it" or else get "tiresome" to use words already posted.
Someone reading this discussion for the first time would read all the confrontation and head for the door. It's an interesting topic but has been allowed to become totally pugnacious in some posts. Disagreeing is life. Proving everyone else is wrong to their believing it is impossible. Read the Speed Limits discussion now closed... for proof.
On with the discussion about buying American-is it 2 or 2.5 or 3?
2014 Malibu 2LT, 2015 Cruze 2LT,
The Role of the Federal Reserve
Congress has assigned the U.S. Treasury primary responsibility for international financial policy. In practice, though, the Treasury's FX decisions typically are made in consultation with the Federal Reserve System. If the monetary authorities elect to intervene in the FX market, the intervention is conducted by the Federal Reserve Bank of New York. When a decision is made to support the dollars' price against another currency, the foreign exchange trading desk of the New York Fed buys dollars and sells the foreign currency; conversely, to reduce the value of the dollar, it sells dollars and buys the foreign currency. While the Fed's trading staff may operate in the FX market at any time and in any market in the world, the focus of activity usually is the U.S. market.
Because the Fed's purchases or sales of dollars are small compared with the total volume of dollar trading, they do not shift the balance of supply and demand immediately. Instead, intervention affects the present and future behavior of investors. In this regard, U.S. foreign exchange intervention is used as a device to signal a desired exchange rate movement.
Instead of listening to one-sided commentaries, get with the picture and understand that every nation with a floating currency attempts to manage its value.
Japan is no different from the US -- in fact, both the US and Japan have supported a strong dollar. The dollar has fallen as of late as investors lose confidence in the US economy due to the growing US federal budget deficit, increasing oil prices, and the costs of the Iraq War, but the US has maintained a "strong dollar" policy otherwise. In this case, overall US and Japanese goals for exchange rates have been largely similar.
"These deliberate policies of currency interventions have added enormously to the U.S. trade deficit by spurring their exports and restricting their imports. The U.S. manufacturing sector in the meantime has borne the brunt of job losses and economic contraction over the last two years, and has lost over two million jobs.
More than one in every ten American factory jobs has disappeared in the last two years. Much of this is directly attributable to export losses and to artificially low priced imports from countries that prevent market forces from determining exchange rates. The U.S. dollar has been allowed to get 30 percent more expensive in terms of other major currencies over the past four years. Since foreign currencies are 30 percent cheaper, this makes many import prices so artificially low that competing against them is almost impossible."
http://www.afsinc.org/Govn/Background_Information.html
2014 Malibu 2LT, 2015 Cruze 2LT,
The general impression seems to be that average Japanese lives in a rabbit hutch, grateful for the crumbs thrown by companies like Toyota.
The reality is that the AVERAGE Japanese is far better off than the average American. US statistics look impressive because the top 5% take almost everything. In Japan, the CEO of a company gets around 10x of average salary, in US more like 400x.
If you ever visit Tokyo, try going to a large retail outlet, for example the local equivalent of Fry's. You will be stunned with the difference in the quality of offering.
Would you be surprised if I told you that Wal Mart has been trying to break into the Japanese market for the last 20 years (and has even made a major acquisition) and failed consistently? Average Japanese does not need to buy cheap importent junk.
So think again before you blame Japan for currency manipulation.
Either people don't understand that the Fed behaves similarly to the treasuries of other nations, or else they hold a double standard.
It's odd that some people think that Japan has greater control over free market mechanisms than does the much larger US. When either government wants to influence (they cannot manipulate) forex values, they do the exact same stuff. Why is it A-OK when the US does it, but absolutely horrible "manipulation" when the Japanese do it?
"Asian automakers can add more options to their vehicles, while selling them for the same sticker price as lesser equipped domestic vehicles."
http://search.japantimes.co.jp/print/business/nb07-2005/nb20050708a4.htm
"An artificially reduced yen of 110 yen per dollar provides a $2,000 discount for a midsize sedan and $4,000 for a sport utility vehicle."
"Announcing the reintroduction of the bill in a statement issued Tuesday, Democrat Rep. John Dingell said the three countries have been engaged in currency manipulation.
"Since 2000, Japan has intervened over 150 times in global currency markets, in the first quarter of 2004, alone Japan spent $139 billion to keep their currency low," he said."
And what this maniplution leads to, beyond just cars
http://www.mapi.net/html/testimony2.html
"A current account deficit of $500 billion per year means we are living beyond our means by roughly 5 percent of GDP, mostly for immediate personal consumption and to a lesser extent for investment.[1] This consumer binge is being paid for through foreign borrowing comparable to the current account deficit, and the resulting $3-$5 trillion buildup of foreign debt is being left to our children and grandchildren to service indefinitely or to pay off fully in principal."
----------------------------------------------------------
In fact, the only reason cars have survived this long in the US, is because the foreign makers were technologically inferrior for a very long time, and that the car industry is (normally) a high margin, high profit business. Look at toyota, $10 Billion in profit last year.
2014 Malibu 2LT, 2015 Cruze 2LT,
You didn't point out that the Democratic Congressman introducing the bill was from Michigan. I'm not sure just how unbiased his claims may be. Also, I'd be interested to know since 2000, how many times the U.S. Treasury Department has 'intervened' on the global currency market.
And finally, you left out this quote from that article:
"According to the Finance Ministry, Japan's monetary authorities have eschewed yen-selling, dollar-buying market intervention since March 2004."
Meaning that there has been NO market intervention for nearly 2 years.
"In fact, the only reason cars have survived this long in the US, is because the foreign makers were technologically inferrior for a very long time..."
Yes, the foreign makes were technologically inferior until, oh, about 1980. The reason why the DOMESTIC makes have survived for so long in the face of technologically superior cars is due to inertia of the general population and the 'Buy American' sentiment which asks the public to overlook choices which may be superior.
That's not evidence, that's an editorial comment not backed by data. You can use this very website to compare cars to one another.
In any case, a Civic and Corolla are domestic vehicles, built in the US with largely US content. And Honda and Toyota don't control how GM or Ford set their prices.
"Announcing the reintroduction of the bill in a statement issued Tuesday, Democrat Rep. John Dingell said the three countries have been engaged in currency manipulation.
Explain to me why it is "manipulation" when Japan engages in open market operations, but A-OK when the Fed does the same thing.
"A current account deficit of $500 billion per year means we are living beyond our means by roughly 5 percent of GDP, mostly for immediate personal consumption and to a lesser extent for investment.[1] This consumer binge is being paid for through foreign borrowing comparable to the current account deficit, and the resulting $3-$5 trillion buildup of foreign debt is being left to our children and grandchildren to service indefinitely or to pay off fully in principal."
As did Imidazol, your "source" is a trade lobbyist that wants barriers so that US producers can afford to be less competitive. At least admit that MAPI has a vested interest in reducing competition and gaining more market share in the US.
There are. But clearly, Walmart meets the needs of those who don't, for whatever reason, of whom there are many.
If you don't like Walmart, don't shop there. I don't. (And aside from cars, I do make an effort to buy products made in the US or western countries that pay high wages. But I'm not going to squander my money so that it's second-rate-business-as-usual in Detroit and Dearborn.
Also, may I remind you that Japan and China are different countries? Come on, folks, only Rocky missed the point that the war ended sixty-one years ago.
I'm aware that China and Japan are two different countries. I'd have infinitely more confidence in a toaster manufactured in Japan than one from China. I also make an effort to buy U.S. products or at least those from a country that isn't some low-wage, sweatshop, prison-labor, third-world toilet. So far, the only decent toasters I've found go for $200+ at Williams-Sonoma. They were made in the UK.
However..
Currency has nothing to do with Camry's from KY, Accords from OH, Corolla's from CA, Tundra's from IN and Altima's from TN. Nothing whatsoever.. it's a non issue. They are just like Malibu's but better than Fusions because they employ Americans.
Now the flip side of this coin...
Since 1995 the US Treasury has allowed the US$ to deteriorate vs the European Euro by 15% keeping the price of US goods artificially below the prices of european goods. The tool that the Fed uses mainly is interest rate intervention. The Europeans are as pi**ed about this as you are about the $/Y ..
BTW here is exactly what you are discussing and it should put to rest all the discussions about currency manipulations: Source US Fed St Louis branch
http://research.stlouisfed.org/fred2/data/EXJPUS.txt
In the last 15 yrs the Yen and dollar have fluctuated in a relatively narrow range of ~ 100 Y/$ +/- 20%. It's way way down from the 70's when it was over 300 Y/$. Presently it's also about the same 15% difference as the US$ over the Euro.
Politicians can complain, at the behest of their constituents, but just like Big Business these currency differences are discussed and settled by people like Greenspan and his counterparts in Japan and Europe. These things are watched daily and if there is an imbalance one or all intervene and then they call each other and dicuss what the 'equilibrium should be'. There is nothing sinister about this, it's the way govt's and businesses are run every day.
It's the same as Rick Wagoner visiting Toyota to tell them that he's moving his operations from the US to China. It's the courtesy one big company gives to another. It's the way business is done.
Some posters on the thread seem to have trouble understanding that.
The very same posters don't seem to understand that Japan does the very same types of things to manage its currency that the US and every other country with a floating currency does -- it buys and sells its currencies, as well as US treasuries on the open market, all in an effort to stimulate the market in one direction or another. (Sometimes it works, sometimes it doesn't.) It's not black magic, a vast conspiracy or "manipulation", but a normal part of how the forex markets work throughout all western countries.
Let's also understand that China's currency does not float in value, but is pegged to a basket of currencies (the euro and dollar, among others) that the Chinese have opted to use. But no nation is completely exempt from the forces of the free market, and an exchange rate too far out of whack with reality could produce disastrous results for China, so it can only do so much. (Look at the meltdown in Argentina for an example of what happens when a nation pegs its currency at inappropriate levels.)
I'd have infinitely more confidence in a toaster manufactured in Japan than one from China.
I would agree. China is doing now what Japan did decades ago -- serving as a low-cost producer, not a producer of quality. If you want higher quality goods, they will come from Japan, the US, Canada and Western Europe, but you will have to pay for the labor. And there are no Chinese cars in the US today.
I've been counting now that's the 5th different domestic auto advocate that has brought up the WalMart argument :confuse:
WalMart argument...ROTFLMAO... this is an auto discussion.
WalMart seems to be but one in a very long line of excuses and apologies being made for the Big 2.5. It's odd how "the need to build a better car" never seems to be on the same lists...
This means that American consumer must be stupid not to take advantage of this great offer. If somebody on purpose whats to sell you something cheaper then it costs him to produce it, then this means that you (as a consumer) is getting a great deal. This also means that this producer is loosing money on each and every car they sell.
Hey, wait a second, is it not GM and Ford who are loosing money on each and every car they sell? Does it not mean that Ford and GM are selling cars at below their price?
If you look at all of the facts I think that most people will agree that its Ford and GM who are DUMPING cars on the market because of their stupid contract with UAW where they have to keep their factories running even if people don't want to buy their cars. That is the true definition of dumping.
You make a valid point. Here's a definition of dumping:
Definition of Dumping: Dumping is an informal name for the practice of selling a product in a foreign country for less than either (a) the price in the domestic country, or (b) the cost of making the product. It is illegal in some countries to dump certain products into them, because they want to protect their own industries from such competition.
So, let's go through the facts:
-Are the "imports", in fact, always "foreign" products? Answer: Obviously not always, as are cars such as the Accord and Camry that are made in the US. In fact, Honda and Toyota usually import their higher priced, lower volume models, not the bread-and-butter mass volume cars like the Civic or Corolla. And their trend, unlike the Big 2.5 is to build more domestically.
-Are the foreign nameplates "dumping" by underpricing the Big 2.5? Answer: The Korean makers are (in fact, they are deliberately positioning themselves as a low-cost alternative to Toyota and Honda), but the Japanese makers are not. Go through this website, price optioned versions of various comparable cars from the US and Japan, and you won't find significant price differences between comparable cars. Add in "employee discounts", rebates and other incentives, and you'll find the Big 2.5 cars are actually often cheaper (even if they take a hit later in the form of resale value).
-Are the Japanese makers producing at a loss to gain market share? Answer: No, they are earning profits on their US sales, so they obviously aren't selling below "the cost of making the product", as the definition would require.
If GM and Ford were foreign companies importing their cars from elsewhere, then it would be completely fair to accuse them of dumping. They are selling cars at a loss to clear out excess inventories and in an attempt to win back market share, which all match the definition of dumping. Far different than Honda, Toyota and the rest, which are genuinely attempting to, and are generally succeeding at, earning a profit on their US sales.
http://money.cnn.com/magazines/fortune/fortune_archive/2006/02/20/8369111/index.- htm
One thing that I think that it omitted was that bankruptcy would be a good method for GM management to defang the UAW, pass the pension obligations onto the federal government and terminate some dealer relationships that help to encourage this excessive number of nameplates and marques in GM's stable.
Bankruptcy doesn't mean going out of business, but restructuring the business while getting rid of obligations. Look at what United Airlines has done for a primer of what BK can do to rewrite the union contracts and force concessions.
However, I bet the people who read Fortune are the kind who invest money in stocks and they would not like to see their magazine recommend something that would devalue their portfolio.