Jay Reding.com

How The Unions Are Killing The American Auto

The Los Angeles Times notes that the Big Three automakers are trying to blame their woes on Japan rather than try and fix the problems which are making American automobiles non-competitive. As the piece notes:

The Big Three have hurt themselves with overly generous union contracts, including lavish health and retirement benefits and restrictive work rules; an overemphasis on light trucks and sport utility vehicles that have lost their appeal amid higher gasoline prices; and a lack of exciting new models. No appreciation of the yen will save the Big Three from competition against nonunion plants turning out stylish, dependable and fuel-efficient cars in the American heartland.

CNN has some interesting background on why Ford is hemorrhaging the equivalent of a new Ford Mustang every minute:

Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle – costs that the Japanese don’t have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.

Here’s one example of how knotty Detroit’s labor problem can be:

If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn’t make.

If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands.

The Big Three are facing a “perfect storm” of factors — better quality competition, higher gas prices, poor labor management, and greedy and uncompromising unions. The massive losses at Ford can’t be blamed on anyone but the management and union leadership that have tried to preserve an unsustainable system. Union rules have made Big Three plants far less flexible that non-union shops, and skyrocketing labor costs add thousands of dollars in costs to each and every American car.

Sooner or later the system will collapse, and it appears that collapse has already begun. The union activists who demanded the moon and the executives who caved will end up both losing together — while the American workers who have jobs in the non-union plants in the South continue to make just as much as their counterparts in Detroit and have more job security thanks to a system of labor that doesn’t encourage workers to try to take everything they can get from their employers.

For all the talk about how unions protect the interests of American workers, the only ones who seem to be benefitting are the influential few who have been gaming the system to their advantage to decades.

UPDATE: Robert Kuttner argues that GM’s biggest problem is that they produce crappy cars. I won’t argue against that one, although I have a feeling that the reason that they produce such crappy cars is that they can’t hire enough good engineering talent because of the costs of their manufacturing labor. The Japanese automakers, despite having roughly equivalent labor costs, save so much on shop flexibility and healthcare costs that they can afford to reinvest in other areas. In some ways it’s a chicken and egg problem — which means that if the Big Three want to survive, they’re going to have to fix the whole system rather than just replace the management at the top.

3 responses to “How The Unions Are Killing The American Auto”

  1. M. Murcek says:

    And most unfortunately, the usual suspects in government will call for a S&L bailout style “soft landing” (paid for by American taxpayers) for all those union fatcats and their greedy, not-so-hard-working membership…

  2. Erica says:

    I see the GOP “blame the base” strategy is in full swing. No the problem can’t possibly be that Ford banked its sales strategy on gas-guzzling trucks and SUV’s in an age of three-dollar-a-gallon gas; no, it has to be those damn fatcat assembly-line workers with their mansions, their Rollses, their vacations in the Bahamas, and those multi-million dollar severance packages.

    They make cars that nobody wants to buy. End of story. The fact that they have to pay their expert employees expert wages has nothing to do with it. It’s called the “free market”, which I thought conservatives were fans of, or something.

  3. Mark says:

    For as many shockingly stupid things that are conveyed in this post, perhaps the most striking was M. Murcek’s comment on how a government bailout of the magnitude of the S & L scandal (remind me again which party orchestrated that bailout and whose brother was involved in the scandal?) to save the Big Three.

    I hate to break it to you, genius, but one of the primary keys to the success of the Japanese automakers is their ability to extort an average of $400 million worth of corporate welfare freebies from the state for every new production facility they build. For all intents and purposes, the non-union slobs at these Japanese auto plants piggybacking on decades worth of UAW collective bargaining efforts are not employed by Toyota or Honda, they’re employed by the state of Kentucky…or the state of Alabama…or the state of Indiana…or specifically the taxpayers of these states who got suckered into paying for these plants.

    And after the Chinese automakers enter the marketplace in a few years and quickly undercut the currently insurgent Japanese automakers, the non-union Toyota and Honda workers will be powerless to fend off the same kind of bloody concessions current being faced the Big Three workers. And I have full confidence that when that day comes, Jay Reding and M. Murcek will once again be excoriating those sleazy, nasty, smelly, and overpaid blue collars for being so GREEEEDY and forcing the Japanese automakers out of business.