Sunday, October 23, 2005

GM and the independent trucker

GM has been in the news a lot lately. GMs sales have been in the dumps for many years. Today they have to use incentives to move cars at a loss. Why do they keep making more cars than they can move at a profit? Because they have a lot of fixed costs that they can't get rid of. Under their contracts with the UAW they have to keep paying workers for the duration of the contract as well as the benefits and pensions for former workers have to be paid. So in order to keep the money flowing they have to move metal even if they lose money on the deal, sort of a slow motion Ponzi scheme. Your money for your new GM car is in part paying the costs for the cars GM sold years ago.

How does this tie into truckers? Independent Truckers have high fixed costs: truck payments (typically over $1k/month), insurance, plates and permits. The variable costs aren't cheap either (70-100 gallons of fuel a day at over $3 a pop), tolls (over $40 for a truck to get across Chicago), and an engine overhaul runs about what you'd pay for a decent used car. Yet they still run for less than their true costs. Why? the same reason GM does what it does. If they stop they will be steamrolled by their fixed costs. Freightliner doesn't care if you're making money, they just want their payment on the due date. The Independent doesn't want to lose their business that they have invested years in building so they just keep running faster on the treadmill. Of course sooner or later it will catch you, hence Delphi and the record truck repossessions the last two years.


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