Due to globalization, Ford, General Motors, and Chrysler,
often referred to as the “Big Three”, have faced steep competition over the
years from many foreign producers (particularly Japanese companies such as
Toyota, Nissan and Honda).
Consumers in the U.S. are open to openness. We are
continuously looking for the best “bang for a buck”. Competition aids us in our
desire to shop around, but can create some disadvantages to U.S. producers. This
increased rivalry has resulted in lost market share for the Big Three and has
forced them to review all areas of their business to help gain efficiencies and
cut costs.
The majority of operations for the Big Three are unionized,
resulting in higher labor costs than their competitors, including those that
have manufacturing facilities in the US. Due to the extended amount of time
that the Big Three have been in business they have a larger number of retirees
and therefore have higher pension and benefit obligations. According to the
article supplied by the U.S. Department of Commerce, Toyota’s health care costs
advantage is about $1,300 per vehicle, compared to the Big Three. This is a
substantial advantage for foreign competitors allowing them to put this
differential towards other features that make their products more appealing. In
addition, they also have cheaper labor. Toyota has a $6.00 per hour advantage over
that of the Big Three. These additional expenses will continue to diminish the
Big Three’s comparative advantage.
Does the obligation of healthcare benefits negatively impact
the comparative advantage of U.S. businesses? Can they compete with countries that
offer national healthcare? Are there other policies that could be enacted to
improve the comparative advantage of US car manufacturers?
I believe that additional obligations of U.S. companies have
a negative impact on their comparative advantage, but cannot state to what
extent. Although other nation’s have national health care, if the U.S. were to
convert to such a program it would ultimately be paid for through taxes. I am
also not fully aware of any additional expenses that other foreign businesses
have that the U.S. may not. Although there are some unknowns, I would imagine
that U.S. companies are still at a disadvantage since they currently pay their
employees $6.00 more per hour than foreign companies operating in the U.S.
The U.S. government has already provided GM and Chrysler with
a $17.4 billion loan to prevent them from failing, while also forcing them to
shrink their labor force, slash debt, terminate or sell low performing brands,
and decrease the number of models for sale. Why should the government have to step
in and tell these corporations how to run their business and provide assistance
when they fall short? If they fail to be efficient shouldn't the natural cycle
be to remove themselves from the market? Survival of the fittest. Providing
assistance is not forcing these businesses to explore every option possible on
their own and in the end, even after assistance, they filed bankruptcy anyways.
At what point does the government decide to allow companies
like GM and Chrysler to turn to the general principle of comparative advantage
and force them to find other means of cost savings or make them close their
facilities? It is costing tax dollars to keep them afloat. Yes, citizens of the
U.S. benefit from the jobs that these facilities offer, but if GM and Chrysler
were to close (Ford seems to be surviving on their own), it would leave more
room for foreign competitors to open additional facilities in the U.S. which
will take on some of the unemployed workforce.
Of course it is easy to have this opinion since I would not
be directly affected by the closing of these facilities. My job would still be
safe, but at the same time if my company was failing to compete with international
suppliers, I wouldn't expect the government to bail us out. Instead I would
work hard to find the company advantages in other areas, search for a new
position is a growing company or explore other careers. Competition creates
innovation. U.S. auto manufacturers have
to be on the top of their game to find new ways to save costs and create demand
for their products just like other businesses.
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