Saturday, December 10, 2005

UAW, Ford Reach Tentative Health Care Deal - Forbes.com

Sell oil buy autos!

How about that sentence as a contrarian pick! Capacity at auto plants is dropping like a two ton anchor. GM and Ford will each lay off 30,000 employees and close numerous plants. On the other hand, billions and billions of dollars are being invested around the globe in new oil refineries.

Those who invest in auto stocks now will have to be very patient. They will have to ride a "Ken Fisher bucking bronco" but they will be happy for the ride in a few years. Those who continue to ride the oil stocks may "win" for a while, but the market has already discounted the profits of $45 oil. The price could easily be at $45 or less in the next year or two. The market price of the stocks will sniff the new price long before the commodity actually trades at the new price.

The word bankruptcy is being used often in regard to auto stocks. This word has scared many investors out of their positions. Only the strong are left (maybe a few sellers left but short sellers will be buying back shares fairly soon).

Business is really not very complicated, if you and your competitors cut production and costs, you make more profit per unit of production. Ford and GM are taking a knife to costs. The companies now use robots to do most of the production work. Heath care for existing workers is being cut but, more importantly, the number of workers is being cut.

Please don't whine about the loss of "good manufacturing jobs". The whines for the loss of good jobs started more than 300 years ago. China lost millions of manufacturing jobs in the past 10 years. The United States makes more products per capita than any other country. The USA is a manufacturing champion. Intel (INTC) now makes $450,000 of product per employee each year!

For folks to resent a poor Chinese man or woman because they are willing to make socks and underwear cheap is incredibly selfish. We should be glad to help the poor and we should be thankful for the cheap socks (apparel inflation has been negative in this country for more than 10 years).

I support, wholeheartedly, educational programs to retrain American workers who have lost jobs making socks. I support the elimination of Ford and GM jobs where the employee is making substantially more than the value he or she is adding. No American should have to pay an extra $1,500 to $3,000 for a US made car to provide extravagant health care and pension benefits to a very small group of Americans. The cost of the steel in American cars is less than the cost of the heath care and, as was mentioned before, robots are doing most of the work.

Ford and GM have each lost market share to the Japanese, who do not overpay their production workers. The number of "good" American jobs will expand if the wages are competitive. The fact that is commonly missed by many Americans is that when American companies are artificially forced to pay higher wages, he poor are the ones who are hurt the worst! You hurt them in two ways; the poor must pay too much to buy a car and the number of jobs is reduced.

John D. Rockefeller once said that the most charitable thing one can do is to give a person a job. A handout can be demoralizing and drive the recipient to a state of dependency. A job is a wonderful gift that keeps on giving.

Now that Ford and GM are winning concessions, the total costs of their products will become more competitive with others. Henry Ford said the most difficult work of all was the thinking. Henry Ford did a lot of thinking. He is most famous for inventing the assembly line but he and his good buddy, Thomas Edison were constantly thinking up new ideas and inventions. Seven years before the start of the assembly line, Ford solved the major problem of manufacturing cars by standardizing the mechanical parts.

The good news is that in many industries, Americans are getting paid well for doing the thinking, the production is outsourced to overseas suppliers. The foreign suppliers are doing most the work but Americans are getting most of the profit.

Ford and GM designers can and will build a good car. Each will be around a lot more years to build them. In 1999, when GM and Ford had huge profits and when the price of oil was only $12 per barrel, the oil companies were suffering from lack of earnings. It was an excellent time to sell GM and Ford and an excellent time to buy XOM. Now the situation is reversed. GM and Ford do not have earnings but oil stocks are at their peak.

2 comments:

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