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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: ild who wrote (22603)2/1/2005 8:38:15 PM
From: Elroy Jetson  Read Replies (2) of 116555
 
Upon the next expiration of the UAW contract this changes.

If not incentives then how are they going to move their stuff? Who can afford to buy $40,000 trucks without $10,000 off and 0% loan for 7 years?

In exchange for lower wage increases, the auto makers signed "take or pay" contracts which guarantee work for all employees. So until the contract expires, which may be this year, I forget, the labor component is a fixed cost.

This means over-production of cars and trucks priced to sell at any price, just so long as it exceeds the marginal cost of buying the parts etc.

Once the current labor contract expires, most expect the auto makers to cut back on their production substantially. GM and Ford are already well on their way to being banks rather than auto makers.

I don't know if they are close enough to the contract expiration to be able to get less aggressive about selling vehicles.
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