The Postal Service is once again in the news, and much of the news, especially on cable TV, tells the wrong story.
The Postal Service is nearly bankrupt the story on TV goes, mostly due to “high labor costs” and declining mail volume. Well, although it’s not easy to communicate in a 30-second cable news segment, the truth is that the USPS budget problems are mostly due to, what else, Congress.
It is certainly true that mail volume has declined about 20% since 2006, much of the decline hitting the more profitable First-Class Mail®, caused by the email and online revolution.
And it is also true that the Great Recession and the ongoing weak economy has hurt the Postal Service. True, too, is the fact that the Postal Service will have a $9 billion budget shortfall this fiscal year, 
and it will not have enough money to meet all of its obligations, as it fast approaches its $15 billion debt limit, which was authorized in 1970.
But the point is that its largest obligation shouldn’t be one of its obligations at all.
A 2006 law, passed in the heady days of Republican dominance, forced the Postal Service to pre-fund 75 years of future—future—retiree health benefits to the tune of 10 annual payments of $5.5 billion. Congress did this over objections from USPS and its unions.
Think about that. The law requires the Postal Service to fund retirement benefits for employees who haven’t even been born yet! No other agency in the federal government—including Congress itself—has such an onerous obligation. And most American private companies, to the extent they provide them, don’t even bother to pre-fund health benefits for retirees at all.
As the postal unions have demonstrated—and USPS management does not dispute it—if this one obligation were eliminated, the Postal Service would have actually realized a small profit since 2007. You read that correctly. A profit.
Here is how The Washington Post reported it:
“The last four years’ reported losses can all be attributed to this prefunding and then some,” Fredric V. Rolando, president of the National Association of Letter Carriers, said in an interview.
He is correct.
According to the USPS white papers, from 2007 to 2010, mail volume declined 20 percent while postage remained capped at the rate of inflation, “resulting in net losses over the period of just over $20 billion, including a loss in FY2010 of $8.5 billion.”
During that period, the prefunding of retiree health benefits cost $21 billion. Without that congressional mandate, the USPS would have cleared $611 million.
“The USPS would have cleared $611 million.” Have you heard that on TV?
Lest you think that future retirees would be in danger of losing benefits, don’t worry. The Postal Service Retiree Health Benefit Fund has $42 billion sitting in it right now, which is enough to pay insurance premiums for retirees for 20 years. Surely the Great Recession will be over before then?
Predictably, USPS management has seized the opportunity to go Tea Party-crazy and appeal to the anti-union sentiment that exists among most Republican lawmakers.
Postmaster General Patrick Donahoe, besides wanting to take the service out of the Postal Service and cut 220,000 jobs, is asking Congress to use its power to strip a negotiated no-layoff clause from union contracts—achieved through collective bargaining—and to give him permission to withdraw all postal employees from the Federal Employee Health Benefits Program (FEHB) and place them in, as The Washington Post put it, a “less generous” program.
Ironically, Paul Ryan’s infamous kill-Medicare budget plan was sold to the public as a plan based on the FEHB, which covers all federal employees including Congress. Not only was that Republican claim a falsehood and a ruse to reduce benefits and shift costs to future seniors, now we find out that the Postal Service is begging Congress to boot 563,000 current postal employees from the very system that Republicans held up as a paragon of health coverage virtue.
Cliff Guffey, president of the American Postal Workers Union, the Post reports, called Donahoe’s scheme, “outrageous, illegal, and despicable.” Unfortunately for postal workers, the chairman of the Senate committee in front of which Donahoe will testify today is the retiring Joe Lieberman, who says he has an “open mind” on the USPS proposals.
The last time the ex-Democrat had an open mind he urged us to put Tea Party-convert John McCain in the White House.
Finally, in addition to at least temporarily suspending the pre-funding obligation, postal unions and other groups have advanced another solution. Two independent audits conducted by Hay Group and The Segal Company have found that the Postal Service has grossly overpaid the Civil Service Retirement System (CSRS), which covers employees hired before 1984. The USPS Inspector General estimates that USPS has overpaid by a mind-boggling $75 billion since 1971.
The solution proposed would involve:
♦ Using that $75 billion to pay off the current unfunded liability in the CSRS (about $10 billion)
♦ Paying off the Postal Service’s current debt ($15 billion)
♦ Adding the remainder ($50 billion) to the current balance in the future retirees health benefit fund ($42 billion)
♦ Voilà, there is enough to cover the almost $90 billion in obligations to those future retirees.
That solution is not one that neatly fits into a cable news segment, but it is a solution that would save the Postal Service from cutting services and going postal on postal workers.
The Erstwhile Conservative: A Blog of Repentance 
hlgaskins
/ September 6, 2011Duane
The Post Office is just another target of Reagan’s “Starve The Beat” policy. The Republican congress could care less about employee retirement benefits, but I bet they’d like to get their hands on all that retirement money. I can’t see the Post Office being privatized because it’s more than just an important service, it’s part of American History and culture.
On the McLaughlin Group this Sunday, Pat Buchanan openly stated that he wouldn’t like to see the Post Office closed and replaced with privatization. I suspect that there are other old time republicans who feel the same way about this great American institution, so good luck Tea Party.
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R. Duane Graham
/ September 7, 2011HLG,
You are right that the PS has always been a target of some libertarian-conservative types who want to privatize everything they can get their hands on. Milton Friedman was a big proponent of privatizing the PS, as was James Miller, Reagan’s Budget Director late in his second term. Mr. Miller, unfortunately, is the chairman, right now, of the USPS Board of Governors. He is no friend of the Postal Service as we know it.
I’m surprised about Buchanan’s comment, but welcome it. I’m very interested in the so-called package that the Obama administration is readying for the PS’s salvation. My union has been very supportive of him, obviously, and we shall see if the proposals are along the lines of what the union has sensibly proposed.
Duane
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Jim Wheeler
/ September 6, 2011Before commenting here I listened to a CNN report on this news, and based on what I heard, it does seem that the USPS has been singled out for a unique financial burden, i.e., the onerous pre-funding requirement. I was hoping to to hear in the report why this was done, but it wasn’t in there. I can’t but help the suspicion that this might be one way of squirreling away money for a rainy day – we are talking tens of billions of dollars.
The facts don’t look good for the USPS. Despite the fact that it employes more people in the U.S. than anyone else except Wal-Mart, its most profitable line of business is falling like a rock. They lost some $8 Billion dollars last year, and that is despite the fact that the USPS has zero competition for First Class mail. And that’s not all – I see the internet continuing to reduce the demand for First Class mail, particularly the billing industry. I personally feel pressure often from my services trying to get me to go paperless. (I have resisted most such, fearing computer shut-down, but I do pay virtually all our bills online now.) I think it won’t be too many years before the only mail left for USPS to deliver will be non-First Class and packages, against which they must compete with UPS and FedEx.
Now, I am not saying the USPS doesn’t do an efficient job, I’m just saying that if First Class mail were opened up to commercial competition and if that competition were paid less or had fewer benefits, then low pay workers could outbid high pay workers. However, there is the factor of having to deliver mail to unprofitable places so that everyone gets service, even remote farms in western Kansas and North Dakota for example. Commercial outfits would want to charge a premium to do that. The country (read, Congress) will have to decide whether snail-mail is still important enough to protect and ensure delivery by subsidizing the USPS, or whether to allow it to die a death of a thousand cuts (pun intended) over a period of years.
Frankly I think the USPS is something of a luxury, but one I would like to see us keep. Post Offices are islands of stability in small-town America. And we could keep them, and other luxuries as well, if we could only reform entitlements.
But the 2006 pre-funding thing is a puzzlement. I agree with Duane, it doesn’t seem fair. Would Congress play games with money? Heaven forbid!
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R. Duane Graham
/ September 7, 2011Jim,
The PS or its unions aren’t asking for subsidies and don’t need them. The PS is not a luxury that we either have to choose or not choose to continue with handouts from taxpayers. It is run like a business these days (to the detriment of service, I have argued forever). The solution to its budget problems can mostly be solved along the lines the unions have outlined, and I might say, have outlined for years now. We’ve been talking about these things at least since 2006 in our various union gatherings, and my union has been working to get the thing fixed since the law that contained the pre-funding requirement was passed that year. The shame is that we couldn’t get it done before the Republicans took over—largely, I think, because of the amount of legislation bottled up by Republicans in the Senate.
Most of the things you hear the Postmaster General say, and most of the talk about the high labor costs, are red herrings. Of course labor costs are higher in the Postal Service than Fed Ex or UPS. The post office delivers every day to every address in the entire country. And many of those deliveries are made on foot, for God’s sake. Some letter carriers walk 10 and much more miles a day delivering their routes. That is labor intensive.
The real intent here is to partly solve this crisis by weakening the unions and lowering wages and benefits. There is a dwindling number of middle class jobs in this country, and the more than 500,000 postal jobs are now a target of the same forces in this country that have previously been successful in weakening unions and driving down wages. By the way, when I started in 1979, I believe there were almost 800,000 employees.
Duane
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kabe
/ September 6, 2011hlgaskins- I bet that there are already a few IOUs in this fund already. Many Republican politicians are calling the request by the USPS to alter the 5.6 B payment altered a “bail-out”, but it seems the other way around. We have been bailing out congress with our over payments into these funds.
Mr Wheeler- we touched on this subject earlier,but that 8 B$ loss that gets thrown around includes the billions of the pre funding commitments. It is not at all puzzling to me. It was injected to do exactly what it is doing, and that is make it look like we are going broke. The USPS still generates nearly 70 b in revenue and there are special interests that want to claim the best parts of that. Also, if there were no Postal Service, do you think that services provided on the net will not rapidly rise?
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Jim Wheeler
/ September 6, 2011Kabe,
You said,
<blockquoteAlso, if there were no Postal Service, do you think that services provided on the net will not rapidly rise?
A valid point. If a giant corporation like UPS or FedEx were to take over and the USPS expire, I have no doubt the rates would be chaotic and high. One has only to look at, say, AT&T to see what it would be like. On the other hand, if it could be structured for a myriad of small, local contractors, I can see where it could be very efficient.
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R. Duane Graham
/ September 7, 2011Jim,
UPS or FedEx would never take over the services of the USPS, except for only in the high-density areas. There isn’t a premium large enough (that folks could actually pay) to make what the PS does profitable for most areas outside large cities. And by the way, UPS and FedEx use the USPS for the “last mile” delivery of many of their packages. They don’t want any part of the letter and magazine delivery business because the cost per piece would be prohibitive. They make money off packages and next-day premium service, which service is very expensive. UPS offers next-day service on letters starting around $15 and it goes up from there.
The problem with small local contractors, besides the sheer logistics of the network needed, is that those local contractors tend to hire folks for next to nothing and with little benefits. It wouldn’t be long before your mail service deteriorated and big-time mailers would stop using the service.
Duane
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ansonburlingame
/ September 7, 2011A good critique from a union perspective, Duane,
I have long seen you as a very good Union negotiator with your research and agrument skills. You would be a good lawyer, whom I don’t trust either, unless I really need one!!
Jim has hinted at the basic question, as I see it. What if there was NO Postal Service today, anywhere in the USA?
Would the world as we know it come to an end or would we adapt with modern technology just as we did in the West when the pony express ended?
There is another fundamental question at stake in this discussion as well. Should ANY pension or retirement HC fund be “pay as you go”, “pay as you think or plan to go”, financed on debt to a degree, or some other combination of such funding.
If the USPS or any other organization pays out say $1Billion in benefits “this year”, should there be at least $1Billion plus a contingency in that bank account “somewhere” at the beginning of the year. Yes, an emphatic yes, in my view. No pay. today benefits to retirees based on contributions for workers over the course of this year.
By doing otherwise, that is exactly how SS and Mediare future funding is now all screwed up, today. We must pay today with money collected yesterday and not go to Congress as a Payday Loan center on Rangeline.
OK, that takes care of “this year”. So the question becomes how to take care on “next year” to ensure the accounts in a bank somewhere will be sufficient for the “out years”.
To me that means how do we calculate the “unfunded liablities” that we hear so much about. And such numbers, how much money for “tomorrow” is going to be available is undetermined and NO ONE can politically agree on that figure. Instead we leave those financial battles for “tomorrow” while we spend like crazy today for poltical purposes.
Long ago we all had to save for retirement, and some were unable to ever retire. Today everyone retires and we expect “government” to save the money for us.
Yet government itself does not save the money today. Look at the IOUs in SS alone. Nope we spend like crazy as a government today and hope that politically the money will be there tomorrow for our kids retirement.
In that sense the situation with USPS today is only a microcosim of our much bigger “retirement” problem in the future, a future coming closer and closer today.
And THAT problem with future “retirement” is a HUGE part of the “cliff” that I forsee coming our way, today, Duane. No, it is not the only segment of the “cliff”. There is the whole issue of how we must defend ourselves, etc tomorrow as well.
But even you must admitt, Duane, that we sure as hell are not saving today for those tornadoes coming our way tomorrow. We spend as we go today on borrowed money and HOPE for “something” in the future to fix that future problem, that I call a very large cliff, today.
But then Jim admits that the amount being required of USPS to “save” today for tomorrow’s USPS is “not fair”. Well not fair in comparison to what exactly? Maybe SS which is going broke as well???
Anson
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Jim Wheeler
/ September 7, 2011I will answer Anson’s question above. By “not fair” I meant not fair relative to the reasonable contractual and organizational expectations of workers who committed to careers in the USPS in prior years. I see this as similar to Anson’s and my own expectations of military retirement and benefits when we both committed to a career in the U.S. Navy those many years ago.
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ansonburlingame
/ September 7, 2011Fine with me in that context Jim, of fairness.
Any organization, but particularly a government organization with the “full faith and country” behind it, that promises something MUST pay for it.
How they pay for it and how future promises might be restructured is my issue, not regniging on earlier promises. Today we promise our kids government benefits that I see no way to pay for in the future. There is where huge changes are needed, like raising now the retirment age just for starters.
And if we MUST renige on a previous promise that do so for those that can still live comfortably and safely today. Means testiing if done correctly can achieve such a short term goal. But means testing will not solve the later problems as well.
anson
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R. Duane Graham
/ September 7, 2011Anson,
The situation with the Postal Service and SS and Medicare isn’t the same thing at all. The Postal Service has made money, albeit not much, over the last five years or so. And that was during the Great Recession. The Postal Service has also paid its future HC liabilities out to twenty years and has $75 billion in the bank for civil service retirees. That’s pretty damn good these days.
And the reason the pre-funding amounts aren’t fair is explained in the piece above. They are much more than required and there is already a hefty fund in the civil service retirement kitty. Besides that, even if the pre-funding were somehow prudent, no business would bankrupt itself to pay for employees health benefits who hadn’t even been born yet!
The larger problems you outline with the way politicians (of both parties) have borrowed from the SS trust funds and failed to adequately adjust Medicare taxes and premiums to at least remotely match up with benefits is disgraceful. I agree with all that. SS is an easy fix (as I’ve stated before) and Medicare should be expanded to everyone (current premiums would become taxes) and the government should use its resulting clout to control costs. That’s my solution to the problem. The private medical sector would simply have to adjust to that new reality.
Duane
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Jim Wheeler
/ September 7, 2011Duane,
You said,
Could it be that simple? It leaves me wondering how that might differ from the whole single-payer concept? Seems to me it amounts to the same thing, except it saves a lot on new paperwork. And the best thing about it is the positive esteem held by the public for Medicare – a priceless political patina. The cost control would work, just as it would have if the GOP had let Medicare negotiate drug prices. I like it. Won’t happen in this Congress though.
Jim
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Jim Wheeler
/ September 7, 2011Just for the record, here is a comment about the USPS issue that I made today on my classmate Grant Rees web site:
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R. Duane Graham
/ September 7, 2011Jim,
I’m sorry, but you couldn’t be more wrong about the efficiency issue.
The truth about productivity in the PS is that today there is somewhere around twice as many delivery points as there was in 1971, and more than twice as much mail. Yet, the service uses about the same number of work hours as it did in 1971 when it was reorganized as the Postal Service. Think about that. Since 1971, labor productivity has grown by 50%. And that is in a business in which a large number of those deliveries are made on foot!
Add to that the fact that postage in the U.S., without any subsidies, has increased less than the CPI and PPI since 1971. Postage is a bargain.
And you say that the “primary reason” the service lost $8 billion last year was inefficiency. I don’t have the slightest idea how you could substantiate that, my friend. Most of the operating deficit is due to the $5.5 billion payment into the future health benefits fund. That leaves an operating loss of “only” $2.5 billion, which given what has been happening with the decrease in mail volume, the increase in fuel costs, and the increase in medical costs, isn’t too bad. We were in a recession, a deep one, and we aren’t exactly on economic fire right now.
The service has issues, no doubt. But efficiency isn’t one of them, unless you are prepared to have everyone pick up their mail at the post office.
Duane
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Jim Wheeler
/ September 7, 2011Peace, my friend. What we have here is a different take on the context of “efficiency”. I was not talking about the inefficiency of the work force or the management, I was talking about the inefficiency of the business model. Notice that I specifically said “the USPS system“, and that includes for example the mandate to serve remote and unproductive areas as well as delivery 6 days a week when 3 would be more efficient. The USPS, being slave to Congressional mandates, has no control of their business model and hence are not to blame for such inefficiencies.
The USPS system is like the luxury automatic windshield wipers on my car. I certainly don’t need them, but they make life nicer, just as having rural 6-day delivery makes life nicer. As I told Grant, I hope we can continue to have it.
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R. Duane Graham
/ September 8, 2011Jim,
Peace, too.
While I don’t necessarily see your point about the business model–all service industries have that kind of inefficiency built into them, don’t they?–I am glad we are not arguing over worker productivity.
I’m thinking of the hotel business. Why pay someone to make the bed and vacuum and clean the shower on the second day of your stay? ‘Cause normally that’s what folks want, I think.
It would be less expensive for the hotel to say, “We’re not gonna clean your room unless you’ve barfed on the rug.” But part of the nice experience of staying at a hotel is that someone will come in and clean your room and bring you new towels, even if you don’t cough up the previous night’s beer and pizza!
Peace, again, my friend.
Duane
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hlgaskins
/ September 7, 2011Jim
“Notice that I specifically said “the USPS system“, and that includes for example the mandate to serve remote and unproductive areas as well as delivery 6 days a week when 3 would be more efficient.”
It’s been estimated that cutting mail delivery on Saturdays alone would be enough to turn red ink into black. Talks are already underway to end Saturday mail delivery.
“And, despite annual rate increases, Potter said 2009 could be the first year since 1946 that the actual amount of money collected by the post office declines.
“It is possible that the cost of six-day delivery may simply prove to be unaffordable,” Potter said. “I reluctantly request that Congress remove the annual appropriation bill rider, first added in 1983, that requires the Postal Service to deliver mail six days each week.
If the change is made, that doesn’t necessarily mean an end to Saturday mail delivery. Previous studies have looked at the possibility of skipping some other day, such as Tuesday.”
Note the mention of “remove the annual appropriation bill rider, first added in 1983,” which again goes back to Reagan era policies.
Completely ending or privatizing postal service could result in ” the laws of unintended consequences.” For instance, many businesses use mail services as an affordable means of advertising, selling, and even shipping product when they could have used UPS or FedEx instead. This especially becomes an issue when we consider fringe and rural areas of the country. As both you and Duane observed albeit from moderately different perspectives, the real issue is dealing with entitlements, especially healthcare and not the Post Office.
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Jane Reaction
/ September 7, 2011You did a very good job of explaining the real funding situation. Too bad it got twisted around to the point it has now reached.
It seems once the televised agreed script hits all the airwaves simultaneously, it becomes the first mover, so to speak. It is really more like the first big LIE. Truth comes in second.
Your proposed solution sounds both adequet and realistic. Good luck with that!
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ansonburlingame
/ September 8, 2011to all,
I started to only reply above just to Duane when he wrote: “no business would bankrupt itself to pay for employees health benefits who hadn’t even been born yet!”
Is not that why GM went bankrupt, no not for people yet born, but for extending benefits to workers that were unaffordable? Was not that a “main” but not the only cause of GM’s problems?
The whole USPS problem seems to me to be how to offer the “right” retirement benefits in the future. And THAT is the essence of how to deal with SS and Medicare today, to fix it for tomorrow, Ponzi scheme or not.
EVERYONE wants a secure retirement and now we expect government to provide such for EVERYONE. Over the years such has become a “right” for everyone. Unions will also try to trump that and get more from corporations as well with SEUI being a huge player in that game today. Note that a teacher after 30 years today generally gets more retirement dollars, both as a percentage of working income and total today dollars than say a retired Army Colonel, today.
The extreme solution for our debt and deficit issues today would be “go back” to NO government involvement in any retirement other than retirement for government employees. Corporations and others would then do the same for their employees. And for self-employed they would have to make their own nest eggs as was done long ago.
Of course that goes too far and some retirees need help just as some younger “workers” (or non-workers) need help. That is the kind of change that is needed, in my view today. We must help those that CANNOT (now or in the past) help themselves.
There will always be the “slugs” that refuse to do today what is needed to secure their own tomorrow. A kid will dropout of school and then demand help later. Someone that could save for retirement but lives high on the hog today falls into the same category. Someone that could afford health insurance refuses to do so today as well.
Here is but one example, a personal example. As a mid-grade naval officer, a LCDR, my wife and I began to really do something in our retirement planning. We got together with a good life insurance company, a man that was also a good financial advisor, beyond just life insurance.
We purchased whole life insurance and laid out specific other financial goals as well to establish a “one day (or paycheck) at a time” approach to retirement security, long before there was any plan to retire at age…… The important point there was that our plan DID NOT INCLUDE ANY SS when we laid out such plans around 1972 or so, about 25 years before I actually retired.
The only reason that I am not “fat and happy” financially today is that my first wife and I divorced after 33 years.
Now don’t try to tell me “yes but…” in my case, particularly that I was an “officer and therefore had the financial means” to do so “back then”. I made “peanuts” back then compared to my civilian counterparts but stuck to my limited plan established.
Hell’s bells, when my first son was born in 1965 we put $5 a month, automatically, in savings bonds at that time and kept it up for about 21 years. When he graduated from college he used that fund to purchase his first car!! Same with son #2 two though he did not buy a car upon graduation.
Today, with a lot more money than I made “back then” my two sons are taking the same prudent approach to their own retirements and both are in their mid-forties today. You can believe their is no SS in their retirement plans today.
Today hardly anyone plans for retirement today. They instead expect government to “save” the money for their individual retirement. But government does not do that either.
Instead we in fact have a government run Ponzi scheme in place for SS and Medicare tomorrow. Obviously without borrowing authority SS is in great jepoardy TODAY. All SS is today is a bunch of IOUs and THAT needs fixing does it not?
As for USPS, maybe Duane is correct in that Congress demands too much to be set aside by USPS for tomorrow. But if there was in fact a “ton of money” in such accounts today for future USPS retirees, I am sure some politician would be trying hard to spend it today, would they not?
Somebody needs to be saving today for retirement tomorrow. Government refuses to do so, individuals by and large refuse to do so. For now we just hope the Chinese and others will keep us afloat for today with NO plans or hope in my view for tomorrow,
THAT in my view is what ALL Rep candidates are saying today. And Obama does NOTHING to address THAT problem. Bush at least tried but picked the wrong way to change things. He was not wrong in that regard, to recognize the problem and TRY to do something about it. Dems won’t touch such with a ten foot pole today, now will they?
Anson
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R. Duane Graham
/ September 8, 2011Anson,
Jim stated very well the fault in your logic:
As usual, Anson, you don’t account (in terms of what to do with them) for not only those who won’t prudently act, but those (most, these days) who don’t have the mean$ to prudently act. I suppose your idea is to just let ’em eat dook for breakfast, after working all their lives for tiny wages?
You see, that view of the world is one that Americans can embrace next November, if they so choose and if Rick Perry survives the GOP primary. You and Rick just keep calling SS and Medicare “Ponzi schemes,” and see how that sells.
Duane
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hlgaskins
/ September 8, 2011“Is not that why GM went bankrupt, no not for people yet born, but for extending benefits to workers that were unaffordable? Was not that a “main” but not the only cause of GM’s problems?”
No! Who told you that? Or did you just meander your way to it alone?
GM faced bankruptcy for a number o reasons which include.
“1. Bad financial policies. You might be surprised to learn that GM has been bankrupt since 2006 and has avoided a filing for years thanks to the graces of the banks and bondholders. But for years it has used cars as razors to sell consumers a monthly package of razor blades — in the form of highly profitable car loans.
And the two Harvard MBAs who drove GM to bankruptcy — Rick Wagoner and Fritz Henderson — both rose up from GM’s finance division, rather than its vehicle design operation. (Read more about GM’s bad financial policies here.)
http://www.dailyfinance.com/2009/05/31/why-gm-failed-1-bad-financial-policies/
2. Uncompetitive vehicles. Compared to its toughest competitors — like Toyota Motor Co. (TM) — GM’s cars were poorly designed and built, took too long to manufacture at costs that were too high, and as a result, fewer people bought them, leaving GM with excess production capacity. (Read more about GM’s uncompetitive vehicles here.)
http://www.dailyfinance.com/2009/05/31/why-gm-failed-2-uncompetitive-vehicles/
3. Ignoring competition. GM has been ignoring competition — with a brief interruption (Saturn in the 1980s) — for about 50 years. At its peak, in 1954, GM controlled 54 percent of the North American vehicle market. Last year, that figure had tumbled to 19 percent. Toyota and its peers took over that market share. (Read more about GM ignoring the competition here.)
http://www.dailyfinance.com/2009/05/31/why-gm-failed-3-ignoring-competition/
4. Failure to innovate. Since GM was focused on profiting from finance, it did not really care that much about building better vehicles. GM’s management failed to adapt GM to changes in customer needs, upstart competitors, and new technologies. (Read more about GM’s failure to innovate here.)
http://www.dailyfinance.com/2009/05/31/why-gm-failed-4-failure-to-innovate/
5. Managing in the bubble. GM managers got promoted by toeing the CEO’s line and ignoring external changes. What looked stupid from the perspective of customer and competitors was smart for those bucking for promotions. (Read more about GM’s managing in the bubble here.)
http://www.dailyfinance.com/2009/05/31/why-gm-failed-5-managing-in-the-bubble/
GM’s failure after 101 years is an indictment of American management in general. It highlights the damage to our economy that results when finance becomes the tail that wags the economic dog. And it shows what happens to any company that rests on its laurels and fails to adapt to change.”
Now what was that you were saying? Maybe you’d should check to see what Limbaugh has to say?
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Jim Wheeler
/ September 9, 2011HL,
I believe your summary of GM’s past sins to be accurate and can add some personal experience to the story. In addition to having owned a couple of Pontiacs in my lifetime and having reliability and maintenance troubles with them, I had occasion to rent a GM car from time to time when I was still working.
One occasion in particular stands out in my memory. My wife and I had gone to Maine on vacation and we rented a car in Portland. All they had was a Pontiac sedan. The sun was setting as we drove away, so I sought to turn on the headlights but couldn’t find the controls, so I ended up pulling over to figure it out. The radio was also strangely hard to control because the design was very odd – not at all the usual knobs and buttons. There was no owner’s manual in the glove box. Later I pulled up to get gas and spent 10 minutes before finding out how to open the gas flap.
Look, I am not mechanically inept – in fact I have an engineering degree. This thing was the worst automobile design I have ever seen. I don’t know a good antonym for “ergonomic”, but if I did I would use it to describe this car. It was as if the designers set out to change the position of as many controls and instruments as possible simply to make them unique. Fortunately the steering wheel, brakes and accelerator pedal were in the usual positions.
This kind of design isn’t just bad. It had to take real effort to make a car radio hard to work. I’m guessing the damn thing was probably designed by a mechanically-inept MBA on a Monday after a really bad weekend. Yuk.
Jim
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hlgaskins
/ September 9, 2011Jim
“I believe your summary of GM’s past sins to be accurate and can add some personal experience to the story.”
I wish I could take credit for the summary but it’s all borrowed. I had to provide proof of what I basically knew but some of the information even surprised me.
I’m always shocked by how ignorant Americans have become. Far too few of us take the time to listen to and to question the barrage of misinformation that fills our airwaves. Many latch onto pseudo intellectuals such as Limbaugh, and make heroes of them. Carelessly allowing themselves to be imprinted by these intellectual fakes in a willing transference to surrender their free will. It’s more important to ask the right questions than to pretend to know all the answers.
Anson assumes to know all of the answers without ever having asked any of the questions, and if the answers disagree with his perception of the truth, then the truth becomes subordinate to his perceptions. HLG
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ansonburlingame
/ September 10, 2011To both,
I do not discount, in this case HLGs links or research in the matter of GM or actually just about any huge corporation that fails. Certainly it is not all about unions. Look at the story of AIG providing “insurance” for terrible packages of housing loans. Simply crazy, just like building a car where no one can figure out how to put fuel in it.
The larger point, beyond pointing out that unions will bilk a company dry as a bone unless management does not allow the union to do so in negoitiations, is just that, a larger point.
It is one where companies FINANCES are managed at the expense of the PRODUCTS the company produces. One is a shorterm goal to spur “growth” financially for investors and the other takes a longer ranger view of real value in the product.
In GM’s case they produce a “clunker” the shines for a while then falls apart. In AIG’s case they sell an insurance policy that collects a big premium then “falls apart” when mortgages start to default. I see little differences between the two.
It is what to do AFTER any company or group of companies gets into such trouble as well as what to do to prevent them from being so stupid. THAT is where liberals and conservatives depart in solutions.
The market itself takes care of “dumb” companies. Eventually they fail. If they produce “clunkers” and buyers are dumb enough to buy them, the buyers “fail” as well.
But no, liberals insist that government itself must “prevent” managers from making “dumb” decisions through regulations. And through government consumer protection regulations, it tries to protect “dumb” consumers as well.
I could make examples of this government practice over the last decades for the rest of the day but will not do so. But here is an example.
Why should government dictate the fuel consumption of an auto? I agree that the standards by which fuel consumption are determined and the posting of such on a new vehicle. But to say that X% of the fleet MUST achieve a certain milage goal is NOT the role of government, it is the role of a buyer to decide how much fuel he needs to drive a “clunker”.
Anson
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Jim Wheeler
/ September 10, 2011Anson, you said,
I really don’t know what kind of “dumb decisions” you might be referring to here, but I do know that most if not all consumer protection regulations only seek a level playing field for the consumer. Surely you must know that advertising is likely more effective, and I submit, more deceptive, than ever. It is difficult any more to find an appealing statement in an ad without an asterisk or tiny footnote qualifying the offer in an important way.
In any contract, such as the contract for when Mollie and I went on our last cruise, the fine print eliminates almost all risk for the cruise company. Same with buying a car or taking out a loan – except, thanks to government, certain rights still extend to the customer, rights such as spelling out terms in consistent, standard language. Such rights used to protect the consumer from usury too. In my opinion, that should be restored.
However, when it comes to government specifying auto fuel consumption for manufacturers, I agree that it makes no sense. In fact, I have wondered how the car makers manage it – buyers should indeed be able to buy what they want. Like you, I would much rather let the market decide, and here’s how I would do it. Raise the gasoline tax to the level that would provide for proper maintenance and construction of safe, durable highways, roads and bridges. I think we both know, however, why it’s not done that way – that nasty word “tax”. Our national culture is to wait until the bridge falls down before borrowing the money to fix it right. Right?
Jim
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ansonburlingame
/ September 11, 2011Jim,
You and I are in agreement, to some extent on gas taxes. But there is great doubt in my mind that we could raise those taxes high enough today to pay for what is needed just through the gas tax.
It would be like raising the Medicare tax or SS tax today to keep those programs self sustaining as well. And even when such programs become self sustaining like SS used to be, then a politician uses the money for something else.
Bottom line is we the people put a lot of money into one big pot, the general fund, and politicians keep piling on more programs such that today we cannot pay for everything needed.
That becomes a challenge of prioritization of what government CAN do today, not what it SHOULD be doing. In today’s world of expectations for government to do almost anything, we should get back to basics and realistically decide what government MUST do constitutionally and then CAN do with what is left over from taxation.
A balanced budget forces us to do so. Certainly reasonable political constraints to “not spend the farm” has not worked for now several decades.
Anson
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Jim Wheeler
/ September 11, 2011There’s no disagreement here, Anson, that we need to get back to sensible budgeting. Speaking of WSTMM, I am about 1/3 finished reading Top Secret America by Priest and Arkin. It is a real eye-opener on the budgeting issue and I hope you will read it.
Jim
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ansonburlingame
/ September 12, 2011Jim,
I saw your reference to it in another comment but thought you were refering to the Wash Post series. I will get the book now for sure and study it.
But before I draw real conclusions from that book that at least sound very anti-Bush, I would suggest a read or reread of the 9/11 Commission report. I studied that one soon after publication and thought it was a the best compilation of what went wrong and what we should do, at the time it was written.
But as mentioned elsewhere, I again wonder what things may look like in 2021, considering where we are today, as a country, as well.
Anson
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Jim Wheeler
/ September 13, 2011I’m only about 1/3 through the book at this point, Anson. It has some similarities to Woodward’s in that it is very factual, so much so that I occasionally feel overwhelmed by the mass of detail. It is unlike Woodward’s, at least so far, in that the authors seem to have no access to top planners. At least so far.
If the book is “anti-Bush”, it is only because the facts are damning, not the authors. Again, at least so far.
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Terry Van Remortel
/ September 15, 2011I’ll tell you what, how about a “consumption TAX”? I am tired of paying the same amount in taxes for something I use a lot let less of out of choice that someone else does because I CHOOSE to be frugal and one of those things is GAS and utilties, etc…..If I want to conserve, drive a small fuel efficent car, live close to my job, be green, retrofit my home with solar panels or do things to get “off the grid” etc and not live excessive miles out of town and drive a big gas hog to work everyday or jack up the A/C or heat just because I “want to” or I “feel like it”, why should I pay the same TAX on it as some greedy comsuming PIG?
I have always been a staunch conservationist, environmentalist who abides by these practices and I don’t want to “subsidize the pig oil companies either” so why SHOULD I?
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Terry Van Remortel
/ September 15, 2011Personally, those of us doing the “conserving” s/b getting a tax “break”, not the oil companies polluting the whole freaking PLANET making BILLIONS and us taxpayers are forced to give them MORE billions in SUBSIDIES on top of it!!!!!
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CDub
/ November 22, 2011PS-
I’d also like to point out one little tidbit of info that NEVER makes it into the media discussion.
IT’S THE PRICE OF GAS, MAN.
Not the drop in mail volume.
Not the Internet.
Not Text Messaging.
Not your freakin’ cell phone.
The main multiplier in the cost of doing business for the USPS
is the cost of fuel, from $1.75 in 2004, doubling and staying that way
to this day.
That’s the deal killer.
There is no mechanism in place to guard the USPS from oil and gasoline market manipulation, they buy at close to the same rate as the rest of the public.
It’s a shame an airline-style fuel derivative is not used for the protection of lot pricing on a year-over-year basis.
Thanks for letting me vent ;-).
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lattn
/ August 26, 2012HR2309 and S1789 attack on Postal Emploees
I understand that HR2309 will be on the House Floor sometime this August
.Just because Issa made considerable profits as a business owner doesn’t qualify him to dictate how the Post Office should be run particularly when his solutions promoted as saving the Post Office, if enacted, would do the exact opposite.
If Issa wants to save the USPS he should look at what expenses can be deleted without disrupting the service.
#1. The Postal Accountable and Enhancement Act needs to be rescinded. In 2006 the PAEA ,signed by Bush, mandated that the USPS fund 75 years of retiree health benefits in 10. As the USPS was solvent before the PAEA (HR6407) was passed it stands to reason that the USPS would once again become solvent if this law was rescinded.
#2. Overpayments the USPS has made to the Civil Service Retirement Service should be returned.
#3. Overpayments the USPS made to FERS need to be retrieved.
#4. Charge more for delivering UPS parcels that UPS has the Post Office deliver to places they don’t.
#5. Adjust the ratio of managers to workers .
But Issa, in HR2309 hasn’t proposed that any of these things .
Issa’s solution is to cut the workforce by at least 100,000. Issa’s solution is to weaken the unions, so that Postal Workers’ wages and benefits would depend on a separate board when a contract wasn’t agreed upon by the USPS and a union.
This is a case where Issa’s cure would cause the death of the USPS as a public service and have it revived as a business with lower paid workers, higher rates and less service.
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