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.

MORE:

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.