Memo to Obama Auto Task Force: It Ain't About Labor
By Michelle Krebs March 11, 2009By Bill Visnic
This week, the United Auto Workers union agreed to more cutbacks to help the Detroit Three automakers get back on their feet. The UAW rank and file at Ford ratified concessions. UAW and General Motors negotiators reportedly hammered out similar concessions Tuesday night that will be voted on by GM workers. Next up for give-backs will be Chrysler workers.
But once again, the predicament the Big Three are in isn't about labor costs; it's about the product.
Apart from the foreboding agreement to accept equity in Ford and GM in exchange for a significant portion of the billions of dollars the automakers were obligated to pay the UAW over the next two years as its portion of a fund established to assume the costs of retiree health care, the UAW's latest wage concessions are mostly symbolic.
But "symbolic" is synonymous with "required" in the current politicized climate surrounding the fate of Chrysler and GM, in particular, due to their current $17 billion of indebtedness to the U.S. Treasury's Troubled Assets Relief Program. Whatever else may transpire in the coming weeks as the Obama administration's automotive task force debates whether GM and Chrysler merit further taxpayer investment, the politicos made it clear the UAW was expected to be one of the first to pony up for more concessions.
By now, the UAW's "haircut" is looking like a really high and tight brush cut.
You can get distracted about labor costs and productivity comparisons if you must, but let's be clear one final time: Despite what some -- mostly Southern -- senators insist, high labor rates for Detroit automakers aren't what got them here.
Union wages certainly were a component of the bloated structural costs that, when new-vehicle sales revenues tanked along with the U.S. economy, swiftly brought Detroit to its knees. In 2007, GM itself admitted its labor costs were between $25 and $30 per hour higher than for non-unionized workers at foreign-automaker transplant sites.
But that deficit already has been addressed.
Even before this week's important UAW contract amendments with Ford and GM, wages already agreed to in the 2007 contract with the Detroit Three established a two-tier wage system that is anything but lavish: Future new hires start at something near $14 per hour. A school system in Ohio recently made headlines when it had hundreds of applicants for a janitor position at a junior high school. The pay: $15-$16 per hour, plus benefits.
Labor cost has some impact on the price of a new vehicle, but labor is a comparatively small portion of the cost of building a car. Company execs, union officials and outside analysts say labor represents a mere 8 percent of the cost to assemble a car. Detroit's long slide to this point has never been about labor cost; even with the UAW rates that prevailed in the '80s and '90s, there was sufficient profit margin.
The real reason for Detroit's downfall always has been about market share, not the cost of its labor. Buyers flocked to foreign makes for the last three decades because foreign automakers were building better stuff.
Precious few Detroit cars, trucks and SUVs didn't get sold because they couldn't compete on price -- it was quality, reliability, design, cachet. Those were the mostly emotional assets frittered away by a legion of Detroit executives more concerned with the cut of their suits than the allure of their cars' sheet metal.
Ask someone who hasn't bought an American car for a generation why they haven't done so. There will be a lot of reasons, but the high cost of American labor isn't likely to be one of them.
Let's hope that the members of President Obama's automotive task force who sat with the UAW for two hours in Detroit Monday understand the work is done at Solidarity House. Instead, the automotive task force should be combing through GM's and Chrysler's future-product plans. If there's not some meaningful new thinking therein, nothing else really matters.
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It wasn’t the high labor cost that drove away buyers. It was the artificially low labor cost of transplants that forced
cost reductions in product – i.e., and so lower quality content – in order to be competitive with transplants (most of whom
receive government support including national health care where the real costs lie – design and engineering, and a
younger US assembly force without legacy costs).
Although there are countless examples of labor contract abusive costs, we have to decide if we want a
solid and prosperous middle-class – i.e. with decent earnings, healthcare, and some retirement assistance,
or the lowest cost car, refrigerator, toaster, socks, whatever.
The V.I.B.A.will help lower costs more than UAW "haircuts".
Before the 2007 contracts, GM was spending $5.2 billion on healthcare annually. That amounts to $1,500+ per vehicle built - more than they spent on steel.
So now that the Jobs Bank(s) has/have been terminated, do the layoffs get public assistance? What did that solve?
Part of the situation now with Foreign Inc. vs Detroit is market momentum. D3 cars really were shoddy 20-30 years ago; ask any Chevette or MustangII owner. But now for many, it's a stigma; "I hope the coffee clatch/parents/kids/neighbors won't humiliate me if I get a (insert US brand here)" I am sure there are Domestics salespeople out there who have had deals bubble largely or solely because the customer was ostracized for it. It happened in my selling days.
Quality of the domestics is finally better, I hope we as American's can give them another chance. Most of the quality metrics indicate GM and Ford is equal to or better than others but unfortunately perceptions lag.
Quite sad for our country...I go to Germany and see the roads filled with Audi's BMW's and Mercedes...proud of their automobile industry, yet we turn our back on ours. Hopefully we don't have to lose all those jobs (and supplier jobs) before we understand the value of it.
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