GM's overhaul and the effect it will have on the RR's?

Trains Magazine General Discussion
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Well Im sure you all have heard about General Motor’s big overhaul of their US operations with the announcement of at least 25,000 US jobs gone and numerous plants and other related operations being shut down by 2008. This is in response according to the CEO, high health costs and tough economic conditions… ie: foreign competition and above average fuel prices.[8)] Low auto sales resulted in a billion dollar loss for the company last quarter.

So what are your thoughts on the effects this will have in the RR biz? It will trickle down to everyone that is associated with the auto industry. Its definatly going to hurt this already weak economy.

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I don’t think EMD will be affected, due to it being sold off a few months ago.

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The economy is doing very well, good growth, low unemployment, inflation under control. Even jobs growth has been decent if unremarkable. I just don’t know how you get the other impression. Among the OECD nations, the US is doing better than just about anyone. I think GM’s problems, like Ford’s, are due to poor responsiveness to the market, health costs, pensions, and putting all their eggs in one basket, i.e. large vehicles. I’m not certain what the connection is between GM’s ills and RRs, except they may use them to ship cars and parts. In that case its problems will have little effect on the bottom lines of the RRs.

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Slim
a little side bar.gm has contract negotiations with their workers this fall.i really dont see any ramifacations as far as hauling parts or finished goods by the railroad.
stay safe
Joe

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They’re talking about closing plants and reducing the blue-collar work force by 20 percent–for starters. The article I read was bemoaning the affect that this is going to have on Michigan (in spite of the fact that no announcement has been made concerning which plants would be closed).

Yes, this will have an effect on the railroads–GM is in many cases a railroad’s largest shipper. Any plant that closes will be lost as an origin and/or destination for business, and that could mean the loss of some yard jobs (if not the yards themselves) and possibly some dedicated trains. On the other hand, if production is shifted to other plants that could possibly add a shift efficiently, the railroad(s) involved would benefit.

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Read today that one of the plants’ whose longevity is in question includes the Janesville, WI plant- this would eliminate two (4 including the reverse) trains from UP’s Harvard Sub- these are the main trains on the line too.

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Eastside, I still stand by my comments on the weak economy. Unemployment in the county of WI where I live in is one of the highest in the state. With that being said and seeing that we have a GM plant that employees close to 4000 workers and numerous other local suppliers that employ countless hundreds, its gonna be very very difficult for the job market in the county and the local area to support an extra 4000+ jobs that we don’t have available. I can’t see a person who was making $15+ an hour going to work for Wal-Mart for minimum wage. Just isent gonna happen.

And for me, who is unemployed at the moment and is constantly filling out applications, its very hard to get a job. BTW I lost my job a few weeks ago. The business is still operating but they decided it would be better for THEIR bottom line to put their production in Mexico and employing people for a few cents an hour vs the $12.50 I was making. [:(!] The job market let alone the economy is no where near the levels it was in the late 90’s and if your comparing that era to today, you must be dreamin it cause I and countless others across the country are not seeing it.

Maybe job growth is rising, but Im sure most of those jobs are Wal-Mart type jobs that you can barely live off and definatly dont replace those high paying manufacturing jobs that were once here and are now off in China or Mexico just so they can sell their products at Wally Worlds low prices.

Just read where NC furniture industry got a royal beating once again with the announcment from Thomasville that 1000+ good paying jobs are no more. These scenes are being played around the country. Try telling the economy is great and the job market is excellent to these and many others who lost their jobs or are laid off.

Now back to trains. Gluefinger yep your right. UP serves the plant here in Janesville and UP also has a large yard south of the city that supports the GM plant. I believe the only other customer on the UP line is the bi

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The payroll for the 25,000 targeted for layoff is somewhere around $2 billion a year. Of course that won’t include the of loss jobs and income for the workers employed by suppliers of goods and services to GM.

The railroads will take a hit. The AAR’s numbers for the year to date May 31, 2005 show that carloads of autos and parts are down almost 19,000. The automotive business accounts for almost 10 percent of the Class 1 rail revenue. The example mentioned by Chris K above is on the mark.

The kinds of jobs that will be lost are among best paying in the manufacturing sector which means a pretty good hit on money going for discresionary spending.

Maybe eastside can provide the rose colored glasses.

Jay

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Slim, obviously I don’t know your personal affairs, but if I were in your shoes - unemployed railfan - I would be making every effort to hook up with one of the railroads to get that job that most of just dream about. You may have a golden opportunity awaiting you. Go for it if you can!

As for the economy in general and GM in particular, I see the economy as very good overall and GM’s problems as self-inflicted. GM has for years produced poorly designed, ugly vehicles of relatively poor quality. It’s no wonder they are losing market share. They will continue to lose until they produce something more people want to buy. The company that foisted upon us the abominable Pontiac Aztek is deeply disturbed and in need of outside intervention.

Your point about living in Wisconsin’s worst county for unemployment is irrelevant, except that you probably need to move. Your county is worst and some other county is best, but that says nothing about the overall state economy, let alone the national. The national trend is toward lower unemployment. And lest you believe everyone is going to minimum wage jobs, look at the statistics. You will find that incomes are rising as workers transition to new jobs in our post-industrial economy. What is happening today is the same thing that has happened throughout our history. Old jobs fade away to be replaced by new ones as technology advances. Individuals can get lost in the shuffle, so they have to work hard to keep pace with what’s new. Overall, the economy marches on.

Anyway, I wish you the best. Unemployment is tough. I know because I have been there more than once. I wish I could offer you more than sympathy. My advice (worthless I know) is to figure out what you really want to do and go after it. And don’t be afraid to take risks to get it.

Tim

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…With the postings above lising the ills in our economy, I need not try to list details but if GM some how doesn’t get the glide path they are on altered…They are in big trouble and it’s been in the works for some time. Ford as well…Chrysler is already controlled and owned by the German Co. and countless other manufacturing jobs are leaving this country daily…This is a serious game we’re in now and I can’t see that we have any good hand to play…Changes are a must from the Government and many of the serious pension and health care responsibilities somehow must be solved…This time it is deep and to look at GM and see the problems, we know it is serious.

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Yes, it’s very serious. But what’s the government going to do?

  1. Prohibit or limit people from buying foriegn cars? That would help the people in Janesville, but it would also hurt consumers who would have to pay more for a car.

  2. Prohibit foriegn car manufacturers from building plants in the US? Again, that would help the folks around Janesville, but also deny opportunity to people employed assembling Hondas in Ohio, etc.

I once had an economics instructor who kept repeating “You can’t take pain out of the economy.” He kept saying that. I think he realized that it was the most important teaching he could give to us students.

Plants are going to close. Companies are going to fail. Even General Motors.
Nothing man creates lasts forever. Government can mitigate the pain. It can, for example, offer economic incentives for other enterprises to locate in Janesville.

But it can’t block off imports without transfering the pain to people who would have to pay more for what they buy, thereby reducing their quality of life. One of the principle causes of the Civil War was the “protection” of northern industry at the expense of southern people.

As to the effect of GM’s decline on the railroads…the effects will be localized and minor. (Except to those who do loose their employment. There will be nothing “minor’” about that to those folks.) The US demand for automotive vehicles will continue. It will be supplied. The railroads will haul their share of the freight. Things will shift around. And the sun will come up tomorrow.

I am now of the belief that GM will follow United Airlines into bankruptcy. It ain’t gonna’ be pretty.

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Rose colored glasses?[8D] As far as the economy is concerned I’m just stating the facts.

The other auto companies also use the rails. If total car sales in the US remain about the same, what GM doesn’t sell some other company will, thus making up, in part, for the loss of traffic due to GM’s cutbacks. This assumes, of course, that GM will cut its output after the cut in its work force. That’s not a given. Of course, the effects may not be spread out evenly among the railroads. BTW, take a look at the RR stocks. Except for the UP, which seems to be turning away business, the Class Is are nearly at three years highs.

The rap on Wall Street is that the announced moves are window dressing, not likely to correct GM’s problems. There seems to be an opinion that these are part of the ongoing steps that GM’s management has been taking for awhile, and their management announced them at the annual meeting to make it appear that they’re doing something. On analyst (at UBS) says that this will mean the closing of 3 or 4 of GM’s 66 plants in the US. Not a very large number.

GM hasn’t announced how many or which plants will be closed, so everything in this thread is speculative.

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“But what’s the government going to do…” Lets start by leveling the trading field. Both parties have been involved in agreeing to unbalanced trade policies over this decade and this countries jobs are flowing out of the country like water flowing over Niagara Falls…! This is going to continue and one day we’ll look around and wonder how the average wage has dropped so low…down to almost third world countries level…{Which we help to develop and put them in business}…Our standard of living is going slowly down hill and at the rate we’re losing jobs and manufacturing base it will continue to slide downwards.
It’s not only GM…Ford is following close behind…and market share of our {auto}, production continues to decline…Do we think this can go on year after year without causing problems…I’d think not.

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A good read about GM’s problems is in the July 2005 issue of Smart Money magazine. A brief summary follows:

"The downfall actually started over 5 decades ago. The slow march toward their problems of today has resulted in a company with $165 Billion in future pension and health care liabilities and only $17 Billion in market value.

For every car GM sells, $1,525 of its sticker price goes toward health care benefits for its empoyees. Ford’s comparable figure is $1,100 while Toyota’s is less than $400 per vehicle.

GM’s problem is the same as Social Security’s pending problem. Too many retirees, too few workers.

In 1977, GM had 580,000 workers earning $12.56 per hour including benefits producing 6.7 million vehicles (44.9% market share) and only 182,608 retirees.

In 2004, GM had 150,000 workers earning $73.73 per hour including benefits producing 4.7 million vehicles (27.2% market share) and 458,319 retirees.

In 1977, roughly 3 workers per retiree. In 2004, it had reversed to 3 retirees per worker.

In 1977, stock price was $30.81 (split adjusted). On 5/13/05 share price was $30.98.

Bankruptcy is not at hand. GM is paying its debts and is expanding in places like China. Its pension is fully funded and its bonds are still a good deal. Its just that after all the bills are paid there may not be any value for the shareholders."

As stated earlier in this thread, GM’s decision to eliminate 25,000 jobs should not affect the railroads’ automobile traffic volume if vehicle production levels remain constant. Only origins/destinations would shift. However, the loss of 25,000 high paying jobs could affect other areas of railroad traffic volume slightly, especially if the 25,000 lost jobs are concentrated in a few small geographical areas.

Jay

FYI, the 1977 wage w/o benefits was $9.64 per hour and the 2004 wage w/o benefits was $36.96 per hour.

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As for railroads…drop in the bucket.

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…It is just a small amount of business with GM and other auto Co’s but it’s more wide spread throughout our GNP totals and if the trend isn’t altered…It will make a difference to freight transportation of all means.

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It is also possible that other manufacturers, possibly foreign, possibly not automotive, will buy any closed GM plants. GM closed a plant in Antwerp, Belgium, and one of the European light railcar manufacturers bought it to make the new light rail cars ordered for Gent, Antwerp, and the coastal interurban line centered on Ostend. Probably, when that order is completed, they will probably find other customers. Possibly Brussels.