making billions but losing money

17 11 2008

How can so many large companies / corporations have revenue of billions of dollars yet not be profitable?  There’s so many examples, especially in the financial sector, plus the “Big 3” U.S. automakers (Chrysler, General Motors, and Ford) that are seeking a cut of the $700 billion bailout.

Let’s look at General Motors for an example, who has said they might not make it through the year if they don’t get a bailout.  Total revenue in 2007 was $182.3 billion!  Total assets in 2007 was $148.9 billion.  But somehow they had a loss in 2007 of $38.7 billion.  I know sales of SUVs are down, and we’re in a recession so maybe people are spending less this year.  But back to the total revenue — how in the world can you bring in $182.3 billion and not find a way to be profitable?

I just don’t get it.  I wasn’t a business major, so perhaps I just don’t understand.  Is it just terribly bad management?  Is it partly due to capitalism and the pressure to make more money each year, leading to unsustainable expansion?  Why is this happening to so many companies this year?  Can someone explain it?

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13 responses

18 11 2008
Fab

Unions. Pensions for retirees. Health care for retirees. Paying workers too much (6 figures for a lot of assembly line workers? Please.). It all comes back to the Union. Funny how Honda, Nissan and Toyota are still making money. They pay a reasonable factory wage, have decent benefits, and don’t bow to the United Auto Workers Union. The Union has run the U.S. auto industry into the ground. I’m not against health insurance and retirement accounts for workers and retirees, but if you’re already paying an exorbitant wage, there is no way to sustain that output of money. When your payouts for retirees approach and sometimes surpass your current payroll, you will go under. It is just a matter of time.

18 11 2008
Kri'

One word: UNION.

Let the big three fail, and the shackles of the Unions will go away. The assets won’t go away. The engineers won’t go away. The laborers won’t go away. LET THE MARKET WORK. An investor would chomp at the bit at re-starting a new American car company with all the assets in place and no further ties to Unions.

As Obama would say, “yes we can!”

20 11 2008
Beppo

I agree — the union is a large part of this. Perhaps a bankruptcy filing and subsequent restructuring will lead to the dissolution of those unions.

Also, in one of the articles about it, I read that in 2006, the average U.S. hourly worker for GM made $81.18 per hour in wages and benefits. That seems quite high. I heard the figures for the foreign car makers who have plants in the U.S., and it was in the 50s & 60s per hour (which is still a lot).

20 11 2008
Fab

I heard on Rush today where a caller called in and said that he was offered early retirement at age 55 from one of the “Big 3” (he wouldn’t say which one) and he has been drawing a pension for 31 years. He said he has now drawn that pension for longer than he worked for the company. Gee, I wonder why they’re not profitable?

I’m not against retirement plans that are employer sponsored such as 401k accounts where the employee also contributes to his own savings. The reason for pensions originally was to draw workers when there weren’t enough. They’re not short on workers anymore, but the unions’ demands for pensions hasn’t gone away. I’m with you guys. Let them restructure in bankruptcy and let the market work. Hopefully the unions will lose their grip on this once proud U.S. industry. Sadly enough though, you know and I know that if the Dems have their way O’bomber and the Dem congress will bail them out to throw some $$$ at the unions and bailout their compatriot Jennifer Granholm, the lousy Dem governor of Michigan.

20 11 2008
Beppo

When the “Big 3” automakers went to Congress to ask for the $25 billion bailout, they showed up in their individual private jets. One of the representatives had this to say about it:
{
There’s a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand, saying that they’re going to be trimming down and streamlining their businesses. Couldn’t you have downgraded to first class or something, or jet-pooled… to get here? It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. ~ Rep. Gary Ackerman
}
You can read the full news release here.

ABC news covered this ironic situation, and they checked on Expedia how much normal flights would’ve cost from Detroit, and they started at $200.

I suspect a lot of people — including Congress — are wondering how responsible the automakers will be with a loan (bailout), given their latest actions. If times are truly as desperate for these companies as they claim, they should be cutting costs at all reasonable places.

20 11 2008
Fab

If bailouts are ever offered to any companies, all upper management should be forced to resign (with no golden parachutes) as a condition to receive the money. It’s obvious that if they need a bailout, they’re not running things right so they should have to go!

21 11 2008
Beppo

I agree. If a company requires a bailout or is filing bankruptcy, upper management shouldn’t get to keep their jobs, nor should they collect these multi-million dollar severance packages.

I just heard in the news where big-city transit services (such as subways and commuter trains) are requesting a bailout from the government. Apparently most of them were funded by AIG. So perhaps they have a case, but this has to stop. The government can’t just keep handing out money.

Doesn’t anyone know how to run a business anymore? Are all companies drowning in debt?

I’ve heard it said that most households in America are just one missed paycheck away from financial disaster. That’s probably true, and apparently many corporations are run that way also.

3 02 2009
Beppo

About the auto bailout, I want to quote Sen. Tom Coburn (R-OK), from a floor speech he made about it:

“In the year 2007, GM sold 9.3 million automobiles and lost $38 Billion dollars. In 2007 Toyota sold 9.3 million automobiles and made a profit of $17 Billion dollars.”

No government bailout is gonna fix that.

8 02 2009
Auto-crat

I say we need the money. Democrats are good providers of economic security. Look at the recent election. Millions of people cannot be wrong. Have you heard of government “for the people, by the people”?? We need government. Since we need it, shouldn’t it be expanded? Example, Look at what we do with the military. Governement is doing a good job there. My point is as a socialist, we can accomplish great things in this world if we put our faith in us. Our elected by majority, always charming, epitome of being an agent of change, President Obama, will make this country better than ever before.

Our auto industry is american made. Not shipped-over-seas-stuff that the republicans love to do.

Also unions were created to curb the abuses of power hungry, greedy CEOs with there workers getting a fair cut of the profits. Don’t lie and say that you wouldn’t want $70 dollars/hr. with retirement benefits equal to when you actually worked???? The problem is not the auto unions. The problem is not having enough unions throughout our economy. Humanity can solve its own problems if we believe in each other.

9 02 2009
Fab

History says otherwise, Auto-Crat. Socialism has failed every time it has been tried, from the early colonists at Jamestown, to the Union of Soviet SOCIALIST Republics, to the miserable conditions in Cuba. Socialism and its offspring Communism have a way of stifling the very hope and change so many so desperately want. If we want change, let’s change back to following the Constitution. Individual freedom has always birthed ingenuity, prosperity, and social order by default. When the government gets involved in business or other corporate or individual affairs, things always get worse.

Unions once had their place in American industry, but there are fair labor laws that protect workers nowadays. Unions are obsolete and should go the way of the dinosaurs.

Also, most of the “foreign cars” you speak of that Americans and “evil” Republicans buy are also made in America by American workers. Honda, Toyota, Nissan, Hyundai, and Kia all have plants here in the good old USA.

18 02 2009
Auto-crat

Dear Fab,
I finally have a mind as superior to my own. 🙂
Come now, let’s banter for the world to see.

#1 our current labor laws do not require the big CEOs to adequately compensate our laborers. For instance, WITHOUT THE UNIONS, carmakers can hire people only for minimum wage and not a cent more. perfectly legal. it stinks for the worker. but legal.

#2The reason the auto industry is failing is due to lack of innovation on the part of management. Old habits die hard. That is not the fault of the worker.
Take a poll. Majority of american workers feel they can run a business better than their bosses. Blame leadership but don’t let the industry collapse because of the stupidity of a few.

#3 Foreign Cars are great. I like’em. Never said I didn’t. However, as a Socialist, I am nervous about other people getting OUR money for OUR labor even if their plants are here in america.

#4 Love us or Hate us. We Democrats are the stuff brilliance is made of. I mean, common sense will tell you that the government is gonna step in to help out the american people. We want to help americans. What citizen abhors the government taking care of its own??

#5 The bailout is coming in some form or another. Whether it is keeping businesses viable or paying out unemployment insurance or any other type of government assitance to people who are laid off (or poor). What would you prefer?? Viable business (and citizen) through bailout or viable citizen on welfare/unemployment/etc. through bailout. Republican or democrat, it doesn’t matter, the money is gonna be spent no matter what. We democrats prefer to invest into the american economy and not let our people suffer.

May you be blessed by the wisdom I bring forth. As a socialist, I am my brother’s keeper. 🙂

19 02 2009
Fab

OK, Auto-Crat, I’ll humor you.

Response to #1: Foreign car makers in the U.S. factories are not unionized, yet they pay good wages but do not pay workers for not working and thus turn a profit.

The minimum wage is a joke anyway that Democrats and sucker Republicans-in-Name-Only (RINO’S) use to get votes from poor people because it sounds good to them, even though the vast majority of “poor” people already earn more than minimum wage. They just think it helps people like them when in reality, it causes one less pimple-faced high school kid to have a summer job because the minimum wage increase sucks money out of the payrolls of companies that hire that kind of unskilled labor.

Response to #2 : The auto industry is failing because unions have strong-armed companies like GM and Chrysler into commitments that no business can sustain over the long-term. Combine that with ridiculous EPA mandated CAFE (Corporate Average Fuel Economy) standards and innovation-sapping restrictions on our technology that could be built, and you have to wonder why the American car makers haven’t failed already. This didn’t happen overnight. The downward dip in the economy simply accelerated these companies’ demises.

Response to #3: As an American, I’m concerned about socialists getting my money and giving it away without my permission to somebody that may not ever hit a lick at a snake. Oh, and those foreign car plants, OUR workers make money working there. They don’t import Japanese assembly line workers.

Response to #4: If government wants to help, it should get out of the way and let the recession be nothing more than a bump in the road rather than exacerbating the crisis by the devaluation of our own currency with the ever busy printing presses putting out greenbacks like there is no tomorrow. If they keep this up, there won’t be one.

Response to #5: The bailout reverts our country back to the time before welfare reform. I know you were likely just a pup during the Clinton years, but the Gingrich-led House of Reps. passed laws limiting welfare to those who were truly in need and placed time limits (welfare to work) on it causing workers to search harder for work–any work. The bailouts essentially recreate a dependent class of people who before would have used their entitlement checks for a limited time to get a leg up. Now, instead of a leg up, they are getting a hand out. Any time the government subsidizes something, you always get more of it, including poverty.

Real conservatives are the most compassionate people around and are always willing to help a neighbor in need rather than letting the government do it. The government doesn’t have the money to invest in bailouts unless we print it and devalue everyone’s money.

Response to #6: There wasn’t a #6, so I’ll just use it to say that it’s easy to tell that you don’t believe all that stuff because liberals rarely have a full understanding of their positions. They usually just resort to insulting those with alternate points-of-view without letting the facts get in the way. So, because you have such an understanding of “your” side’s views, I doubt you’re actually a part of that side. Does that make sense?

19 02 2009
Thomas Wayne

Fab, that was very well-said! You should write for a blog! Oh, wait, never mind… 🙂

(See, Fab does have a blog, and I have to give him a hard time b/c he hasn’t written much lately. But we should all be understanding, b/c I’m sure he has lots of “stuff to do”. So I should probably erase this, since that joke really isn’t necessary… but, uh, oops, I just clicked Submit… too late!)

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