Week2: Detroit's Big Three Face Obstacles in Restructuring

The 'Big Three' automobile manufacturers that we talk about are Ford Motors, General Motors and Chrysler. In the past, they controlled more than 90 percent of the US market. As time went by, their market share has greatly diminished because of foreign competition, mostly Japanese companies. This problem forces “the big three” to alter price policies, production methods, work rules, compensation levels, and product quality.

The topic that will be focus is healthcare benefit. The American auto industry is one of the last bastions of generous benefits that were once part of many employers' largess: fully paid health insurance, retiree medical coverage and pensions. In my opinion, I think paying a portion of healthcare benefits make it hard for “the big three” to compete with foreign competitive. Healthcare benefits will limit the company from reduce their products’ price. Also, it is a huge portion of company cost and can’t fix or decrease it easily. Moreover, "It is a well-known fact that the U.S. automobile industry spends more per car on health care than on steel," says Lee Iacocca, the retired chairman of Chrysler who in the early 1990s advocated a national health care program as a solution.

To improve the comparative advantage of US car manufacturers;

First, they should import the necessary technology for manufacturing, build labor and management skills, and develop a home market for US vehicles. A compilation of elements, such as low-cost skilled labor and cheap raw materials, will help US modify their manufacturing processes. 

Secondly, they should emphasize on exporting automobiles to the rest of the world. The success will directly relate to the automobile manufacturers' ability to achieve gains in labor productivity through new manufacturing processes. In order to keep their employees' goals consistent with company productivity goals, they should offer annual bonuses and incentives to employees based on productivity gains and company profitability reinforced this strategy. Also, Automobile manufacturers should begin benchmarking their products after manufacturers in other countries.