Sunday, February 01, 2009

The Union Label

UPDATE: below

On Saturday, I posted a Mickey Kaus quote noting that the UAW predicts it can survive the current crisis in Detroit without wage concessions. A commenter (who is afraid to be named) objected:
You anti-union people just never want to look at the facts objectively. The facts are that union workers income represents only about 10% of the price of cars. It was greedy, incompetent management that did the US car manufacturers in, not labor. The distortion of the union wages (e.g., $73, rather than $27) indicates the intention to distort. Your prejudices against labor won't solve any problems, but will merely prolong the existing problems. Labor made the cars; management made memos and mistakes in deciding to ignore what American consumers have been clearly expressing since the 1950s, i.e., quality, economical cars like OTHER COUNTRIES produce.
I agree that the management of the Big-Three automakers is incompetent--one reason why I've opposed a bailout. If unions (and the commenter) really wanted to help dump Detroit management, they would favor the bankruptcy-first approach I've advocated.

But the unnamed critic is wrong to minimize the deleterious effect of union contracts on the industry, for several reasons:
  1. No serious analyst says union wages are around $70, vs. just under $30 for non-union wages. The issue is salary and benefits, where the disparity today between, say, Ford and non-unionized U.S. facilities is $58 vs. $49 per hour. That would mean Detroit's labor costs are about 20 percent higher than other automakers. No wonder the Big Three's pre-tax operating profit is far below that of Japanese-owned automakers.

  2. The mysterious commenter says "union workers income represents only about 10% of the price of cars," a figure the UAW touts. But total labor wages, benefits and legacy payouts to retirees are far greater: health care alone for active and retired workers costs GM $1635 per car. Even just considering current employees, the numbers are high. It requires about 32 labor hours for Detroit to make a car, vs. about 30 for Toyota. Multiplied by $58 and $49, respectively, that's $1856 vs $1470. Is the UAW, and supporters like the cloaked commenter, saying a nearly $400 dollar per car difference--2 percent of a $20,000 new car price--can't possibly be significant?

    This isn't a purely rhetorical question: the New York Times actually calculates the "union difference" as twice my figure, then argues that an $800 per car cost reduction wouldn't actually alter Detroit's disadvantage. So I guess Arthur "Pinch" Sulzberger would be indifferent to reducing the Times' production costs by 4 percent in an era where newspaper circulation is dropping, and paper press is losing market share to electronic media and the Internet. (No wonder the Times got a bailout from a Mexican media-king billionaire.) The point here: there's something suspicious about pro-UAW math.

  3. It's not just wages and benefits. The big picture includes the hugely wasteful collective bargaining process resulting in unwieldy contracts (pictured here) and fiendishly overcomplicated "work rules" that inhibit the big-three's flexibility to respond to competition, as the Mickey Kaus quote noted. A few years ago, the UAW fought for the right of workers to smoke on the assembly line--something that would never be raised, much less allowed, at a domestic Honda or Toyota plant. The time wasted (by labor and management) addressing such issues is an added indirect cost of unionization, one absent from charts of comparative labor costs and UAW press releases.

  4. Contrary to the comment's claim, the Federal CAFE (fuel economy) standards--not just management--prevent Detroit automakers from producing what American consumers want. By specifying threshold "fleet-average" mileage, Detroit has to sell lots of unprofitable small cars to make up for the larger cars and light trucks that are its comparative advantage in America. Indeed, Detroit often loses money on small cars. Foreign manufacturers, by contrast, can more easily meet CAFE standards simply by not selling their largest cars in America (if you've ever been to Japan and seen the monster Toyotas available there, you know what I mean). Even apart from differences in the effect of CAFE on domestic and foreign-owned manufacturers, the recently increased mileage standards add to automobile costs and further harm the industry (the UAW opposed increasing CAFE). So, those wanting to protect autoworkers should support getting rid of the CAFE law. Would my critic agree?

  5. Step back for a moment and consider: The global auto industry suffers massive over-capacity and is going through tough times. The Big-Three are flirting with extinction. Sales of U.S.-made automobiles of foreign-based manufacturers also are down. But the latter companies--with plants exclusively in right-to-work states, none of which has been unionized--still can produce cars on a cost-effective basis. There's no particular reason why all the good managers should be numerous in those plants (and abroad) while absent from Detroit. The key difference is labor benefits, the loss of competitive nimbleness and the above-market legacy obligations incurred for retired employees. All three are products of unionization.
Conclusion: I'm not anti-worker. Nor am I pro-management, especially Detroit management. But it's impossible to ignore the fact that the autoworkers unions contributed substantially to the current crisis among the Big-Three. Bankruptcy might allow the companies to eject both management and unions--which might be GM, Ford and Chrysler workers' only hope.

If that's "anti-union," as the anonymous commenter claims, so be it.


From MaxedOutMama:
We've got proposals for a stimulus bill that will deliver much less stimulus than last year's bill in the current year. We've got green proposals out the butt, but we are essentially trying to keep our unionized car industry staggering along, when the reason why our unionized car industry can't compete on smaller vehicles is the union labor premium. Green vehicles are smaller, lighter vehicles that have a lower profit margin per vehicle, and those are the vehicles that Detroit can't sell at a profit. When your auto industry can't profitably build those models, you can't keep bailing it out while demanding that they build more of them.


Anonymous said...

> Is the UAW, and supporters like the cloaked commenter, saying a nearly $400 dollar per car difference--2 percent of a $20,000 new car price--can't possibly be significant?

In numerous discussions regarding manufacturing costs, if you replace one part with another equivalent part that costs US$0.50 more, the final retail price is increased by $5, a 10x difference as a standard rule of thumb (don't ask me to justify that, but I gather it's a valid rule). I don't know if that applies to labor costs, but if so, then your 2% difference means a 20% difference in delivered price, and a lot of stuff that might seem unobvious falls into line.
-- OBloodyHell

Carl said...

If that rule is right, the numbers certainly would work. But I admit, I don't know much about retail and pricing.

Anonymous said...

I wonder what kind of bonuses auto manufacturer management was awarding itself as the US car industry was sinking. And how were the non-union portion of the cost of manufacturing an auto distributed? How much was paid to the management that made all the wrong management decisions? I wonder why that doesn't upset you boringly, consistently right-wing knee jerkers.

Carl said...


Uh, I've said that Detroit's management was awful and that I favored "bankruptcy first" so current management could be flushed out. And though the unions brag about their unwillingness to compromise on union jobs, each of the Big-Three CEOs volunteered to work for a dollar in salary this year. But, I guess facts are "boring" and "consistently right-wing."

Anonymous said...

Sometimes....better never then late. Have you no comment on the generous bonuses paid to auto top management all those many years that the US auto industry was spiraling downward? Could the $1-a-year thing possibly be a PR ploy?
Quite selective about which facts you dwell on. Perhaps these people are not worth $1 a year. Vision and response to genuine consumer demand might be appropriate for auto company manufacturers. Toyota and Honda seem to be aware of authentic consumer demand and they seem to respond. What motivates US management?

Carl said...

It's a mystery why in the face of my repeated pleas to dump Big-Three managers you imply I'm defending them. So is your failure to account for the limits on Detroit's flexibility to respond to consumers forced by union work restrictions and CAFE requirements.

Anonymous said...

Your acknowledgement is weak. The problemn goes way beyond the auto industry. This is merely an example of the larger problem of workers being grossly underpaid and management being grossly overpaid with respect to their value. As business spiraled downward in all industries, management reaped huge salaries and bonuses. This is not limited to the auto industry. It is pervasive and explains in part the many crises we are now experiencing.

Carl said...

There is no objective measure of value other than what the market will pay. By that metric, both labor and management were overpaid in Detroit. The only way the auto companies can survive is by bankruptcy reorganization, which will both eject current management and re-work the union and dealer contracts.

But blaming the current recession on management overcompensation and low labor wages has to be a new zenith in unsupported babble. Lower labor wages would, of course, make a company more competitive. I note that domestic plants of foreign-owned automakers are in much better shape, in part due to lower wages and more flexible employee contracts. If you're going to defend your improbable theory, have the courtesy to supply cite and syllogism.

OBloodyHell said...

> If you're going to defend your improbable theory, have the courtesy to supply cite and syllogism.

I note, long after the fact, how this demand brought the death knell of his argument.

Whether that was because he didn't understand the request or knew he could not win on the basis of facts is up to the reader to surmise.