In the year 2006, American Car Companies find themselves in a heap of financial trouble. Most people know that sales for American Car companies such as Ford and General Motors
have decreased. The question is why? I answer that and more.
American car companies are in so much trouble because of the labor unions for car factories in the United States. The labor unions negotiate with Ford and GM for contract rights such as pensions and health care. Pensions have completely destroyed car manufacturers. The pensions that the car companies have to pay extend for decades as more and more people are living longer due to better health care and medicine. Other benefits such as workers compensation make companies pay even more money for injuries or damages on the job. The money that GM and Ford have to pay for these worker benefits increases the costs of the cars that they sell.
The car companies are getting hurt financially by this because European car manufacturers don’t have to pay for benefits like workers compensation or pensions. This allows for prices to be sold cheaper than American made cars. The American public doesn’t care about buying an American made car from Ford or GM and the American public doesn’t care about the pensions that are being paid. The only thing that people care about is having a reliable and cheap car. European car manufacturers are the ones who are making reliable and cheap cars on the world market.
Further panic was incited by American car companies when earlier in January of 2006, China announced that it was coming out with a car company line of its own. How does this affect American companies? Not only is the Chinese car line one more competing car company on the world market, but Chinese cars could be sold for half the price of American cars. China has a population of 1.4 billion people and because of the huge labor force available in China, labor costs especially in car factories are much cheaper than in the United States. In addition, China doesn’t enforce labor laws nor do they have pensions or workers compensation. This means that while American car manufacturers will be financially stuck paying pensions and benefits, China will be free of that burden.
The huge labor force and low wages means that the Chinese car company will be able to mass produce cars for very cheap prices. According to one Chinese economist, he estimated that when the Chinese car line is on the world market by 2009, the starting price of a car will be dirt cheap at only $10,000! This will surely hurt American companies and cause a loss of jobs and money.
The American government and car lobbyists are pressuring the government to subsidize and take over or cancel out the pensions that are owed to the workers at the American car factories. However no action has been taken by the American government. The U.S. government must act quickly or GM and Ford will continue to lose money and will have to go bankrupt.