Why the Big Three are going down

I recently had an aborted discussion here about the effect of the unions on the Big Three car makers. If I recall correctly I was being accused of anti-union bias, and I tried to respond, but CHB's web site would not let me post a reply. I suspect I posted one too many URLs and their filter filtered me. Took me a couple of days to figure it out and the article went off the front page.

Anyway, I decided to make my response into a blog post:

Here's one place that shows almost exactly the numbers I put in my post: 
 
http://mjperry.blogspot.com/2007/07/uaw-pricing-themselves-out-of-market.html 
 
I heard this data on CNN while I was doing some cooking this AM. And it shows overall costs, which is exactly what I said. 
 
As to whom to thank for the 40 hour week etc. it's my belief you should thank Otto von Bismarck, as it was his proto-fascist government that brought those into the world, definitely not the unions. Bismarck decided on this course of action to keep the unions from getting a hold in Germany, and it worked for a LONG time. 
 
"The two main reasons why foreign automaker have lower employee costs are: 1) the automakers negotiated HUGE tax breaks by bringing industry to areas with depressed economies. 2) In these depressed economies, competition for jobs lowered the level of acceptable wages and benefits." 
 
1. Wrong. The tax breaks are minuscule in relation to the overall financial picture. Not paying four or five million or so dollars worth of property taxes every year is chicken feed to a major auto maker, but the forgoing of that tax is a cheap investment for the local county or city in a depressed area where there are no jobs. 
 
2. My point exactly. The union people who work for the Big Three are WAY out of the labor market. Why the hell should Toyota pay $73 when they can get the same work for $48? 
 
"Most of the foreign auto makers have plants in rural communities with low local costs of living." 
 
And it must have been completely impossible for Ford, Chrysler, and GM to see the handwriting on the wall and move their factories out of the high wage area and into one with lower expectations for wages. That's pure crapola. That's the kind of business plan that has those three companies circling the toilet. 
 
I'll stand by the snobbish statement. If auto workers want jobs they have to be competitive. HAVE to be. With emphasis on HAVE! The world is not the same as when their fathers and mothers worked for the auto companies. The unions are going to destroy the Big Three by refusing to accept the fact that they are insisting on making way too much money in this world's economy. 
 
And as to the cost of living in different areas: I am sure all the UAW workers in Oakland are really worried about the cost of housing. I can't seem to find any Ford, GM, or Chrysler plants around there for them to work at, so they must be REALLY worried. Might be one, but a quick search on the web didn't reveal it. 
 
"Unions haven't priced themselves out of anything, it takes at least two parties to negotiate a contract. Automakers AND unions agree to the terms of the contract." 
 
You are certainly correct. They have an agreement. But it is not an agreement with the rest of the financial world. If the unions don't give there won't be any jobs. Seems shortsighted and snobbish to me, but then again. . ..

That's the text of my original post, and I'd like to expand on it just a bit.

As I said above and before, there's a potential difference of $25 per hour between total costs for a Big Three employee and the same costs for a similar employee of one of the foreign companies which build cars here in the US. Let's assume that the $73/hour is for an employee at the top of the union scale. Instead of using that number, let's use say $65/hour for the average employee of the Big Three. And let's assume that all the employees of the foreign companies make the max of $48/hour including benefits. That's a difference of $17 an hour.

The Big Three have 250,000 hourly workers among them. Every day their payroll costs are $17 times 8 hours times $250,000 more than the max paid by the foreign competition here in the US. That's $34 million a day. EVERY DAY!!! Multiply that times 260 work days in a year and you have a total of quite close to $9 billion dollars a year in excess labor costs.

Now, who the hell pays for that? The Big Three Companies? When pigs fly. That cost is passed directly to the consumers of the cars made by the Big Three. So if the Big Three sold 9 million vehicles each one would come with an excess price of $1,000 over the per unit cost of the foreign competition.

And the foreign companies seem to build better cars.

And the UAW smugly says, “We have an agreement. We are sticking to it.” So when Ford, GM, and Chrysler fold, each of the hundreds of thousands of employees who lose their jobs can look back and say, “Daggone, the union really protected me. I'm getting the max unemployment compensation check. Daggone. Let's have another beer.

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By promoting moving to

Submitted by woody188 on November 20, 2008 - 4:54pm.
  1. By promoting moving to depressed areas you assume companies should abandon their communities for better profit. These are nomad operations where they move every 15 years or once the abatement runs out. This isn't how strong communities are built, and is one of the reasons many once strong communities are now crumbling. We don't need businesses that act in this manner, and I hope they all move overseas, end up in the middle of a religious war, and disappear forever.

    Really smart businesses work and build the communities they are in, and don't eat up all they can and then move on to another community like a parasite. It's called corporate social responsibility and it's been missing from the picture in America for some time now.

    By your argument, all manufacturing should concentrate in the cheapest areas like Asia, and to hell with the rest of the world. Never mind there won't be anyone outside of Asia that could afford to buy their products anymore. It's cheaper so it must be better!

    And once Asia is used up, they'll all pick up and move to India, or Africa, or where ever else they can pay next to nothing in wages and benefits, exploit the environment, and skirt on paying any taxes. Global corporatism at it's finest!

    What a poor Wal-mart like mentality. It's morally depraved to think like that. But there it is again, morals versus profit, and we know which way executives (and apparently gazelle1929) are going to vote when it comes to those.

    Henry Ford knew he had to pay his workers well so they could afford the product they made. This seems to be lost on today's batch of executives. Soon, very few in America will be able to afford any such luxury as a new vehicle. It will be bikes, walking, and public transportation for most, just like China.

  2. New UAW workers get $11.60 per hour. Honda pays $10 per hour. These are Ohio and Michigan wages, not the bloated California wages I assume you have quoted, and it makes them clearly lower end middle class workers. That's not way out of range. Blaming unions for poor executive guidance, lack of R&D, and few compelling products is just silly. Those are white collar executive errors and not blue collar union mistakes. Auto executives seem to be extremely out of touch with reality as seen while they were begging for a handout from Congress yesterday.
  3. Foreign companies do not build better cars. But they do seem to have better PR. They would have to for people to believe that their cars are better built. Look at all the cheap junk from Asia that breaks frequently. Look at Jaguar, Volvo, KIA and Hyundai. Did you consider the Yugo a superior auto? What a myth!
  4. This is our market, not the world's. We could end all this BS right now and either tariff the foreign products into real competitiveness, or just ban them outright.

    What's going to happen to the Japanese manufacturers when China sends it's first auto import to America with a retail price of $5,000?

    Is that fair, exploiting your communist peasant population that will work for less than $0.49 cents per day to create a product and sell it abroad for 50% less than your nearest competitor?

    Shouldn't the Chinese import be price adjusted so the whole market doesn't collapse until all the cars are all built in China, just like all electronics, toys, and any other market China wanted to make all it's own via it's low labor costs and non-existent environmental standards?

    Or should we all make less than $0.50 cents a day, breathe smog filled air, and drink technicolor water like the Chinese do?

    This race to the bottom is going to bring our standard of living down instead of our free market bringing up the rest of the world out of poverty.

    If you want to live like the Chinese, move to China. I'd rather be a protectionist/isolationist than a communist/fascist.

    It's great you would rather sell out your fellow Americans than support them. That's freedom for you. But don't expect to convince others it's the right thing to do because it's cheaper or reportedly more reliable.

    Americans died fighting the Japanese so you can buy that Toyota or Honda. Support our troops and their families by buying American products. It really does matter!

Morally depraved? I am

Submitted by gazelle1929 on November 20, 2008 - 5:47pm.

Morally depraved? I am morally depraved because I point out that the unions appear to be hell-bent on destroying the Big Three? You believe that the taxpayers are going to bail out the Big Three so the unions can continue to rape the American public? Bloated California wages? Those are not my figures. I am not making the news, only reporting it.

You apparently neither heard nor understood what I was saying. I am truly sorry you cannot get beyond argumentum ad hominem in your vicious attack on my moral fitness and my "poor Wal-mart like mentality."

I urge you to go back and read my post and analyze it with something other than raw emotion.

Morally depraved? I am

Submitted by woody188 on November 20, 2008 - 11:31pm.

Morally depraved? I am morally depraved because I point out that the unions appear to be hell-bent on destroying the Big Three?

No, you are morally depraved because you would rather stiff your fellow countrymen and support unfair trade practices with foreign countries. Then you blame the unions instead of the government and corporate practices which are a huge part of why the auto industry is failing, the housing market collapsed, and the banks went belly-up.

You believe that the taxpayers are going to bail out the Big Three so the unions can continue to rape the American public?

No, I don't want any bail-outs, including TARP. To hell with them all. I'd rather my kids and grand kids keep the money they haven't made yet.

What in God's name are you blathering about when you claim unions "rape the American public?" Unions stopped the rape of the American public, or would you rather see 3-year old kids working the factory lines 16 hours a day for $0.50 cents?

Bloated California wages? Those are not my figures. I am not making the news, only reporting it.

I'm sorry, I didn't see your link to your reference. Just "I heard this on TV while I was doing something else." I know of no factory worker making those types of wages except perhaps out in Cali. The factory I work at that is more than the factory owners make per hour. I should know, I run their payroll. You are ALWAYS harping on my references so turnabout is fair play.

You apparently neither heard nor understood what I was saying.

I'm sure I read it fine. I just don't agree with you, and I never will. Go on and blame the unions for bankrupting the auto industry. But tell me, which union said SUV's are the mainstay of the American auto industry?

Which union told the Big Three not to re-tool and focus on efficiency?

All were told that in the 70's, 80's, and 90's but after Chrysler's first bail-out they all gambled they would never be allowed to fail. Why pay to re-tool when you can declare bankruptcy, shake off your pension burden, have the tax-payers pay to re-structure and re-tool, then be "forced-out" with a golden parachute and retire to some Caribbean Island without even a slap on the wrist.

Which union said we can't put more than 2 cup holders into a vehicle, only for the passengers up front, and that they can only hold a 12 ounce can?

Which union said we should allow all the cheap imports around the world into OUR market and allow them to compete against American made products without penalizing them for not paying their foreign laborers a livable wage or for destroying the environment?

Likewise, which union then told corporate America to outsource and off-shore anyone and everyone that they could to these same nations?

Here's a hint: It was the bankers, brokers, and government, not the unions. Started under Clinton, but the Labor Dept. under Bush played an active role encouraging off-shoring. Your tax dollars hard at work bankrupting America. Create the crisis to fix the crisis. It's all about taking more money from tax-payers.

I'm just waiting for people to connect their job troubles with the unfair foreign labor practices that American executives and our own government are now embracing in a big way. Things like H-1B VISA's and off-shoring, or ignoring the borders and allowing unchallenged entry to our country. Just wait for the back lash against all things foreign and the stores that carry the foreign junk. Folks might not be buying but they might be looting and stealing. Don't be surprised if someone tosses a brick through your Lexus window.

And if you thought my "attack" was vicious, you should stop blogging this instant. You ain't seen nuthin' yet.

I don't blog and don't

Submitted by matthews22 on November 20, 2008 - 11:45pm.

I don't blog and don't really care to start, but I feel i must put my two cents in here. What woody188 says isn't fully related to what gazelle said and is not even based on facts. Clearly woody has no knowledge on business or economics and should consider learning non-biased information to support opinions. (Some call it education.)

That's why I've run my own

Submitted by woody188 on November 21, 2008 - 11:47am.

That's why I've run my own successful business since 2004. Because I haven't a clue on business and am uneducated. Great comment matthews22, did you think that up all by yourself, or did you need gazelle1929 to help?

FYI, adding comments to a blog isn't really blogging.

Perhaps you could tell me where we aren't talking about the same thing, or where my facts are supposedly skewed instead of shooting off drive-by comments without merit. Maybe explain to us what "non-biased information" you are referring to and how it differs from my "biased information."

I'm trying to foster a discussion here because the attitude that we have to allow foreign competition and that unions are to blame for the manufacturing base eroding out from under us is fatally flawed and bringing about America's demise.

What is it you are trying to accomplish matthews22?

Hmm, and Ann McFeatters posts today:

This is not a matter of labor giving more concessions. Workers gave back significant wage and health care gains in 2005 and 2007 for active workers, new hires and retirees. Scott Paul, head of the Alliance of American Manufacturers, warns against a cultural bias in giving white collar workers a bailout for their industries while denying it to blue collar workers.

Guess I'm not the only one with this "biased information" that you have the clairvoyance to avoid.

Woody has hit the nail on

Submitted by Ladywolf55 on November 23, 2008 - 3:14pm.

Woody has hit the nail on the head as to what's happening in this country to the American blue-collar workers. It's a class war and most Americans have the common sense to see it. Some don't, that is apparent.

I finally found why your

Submitted by woody188 on December 1, 2008 - 2:22am.

I finally found why your numbers are so off:

But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted friday, the claim that workers are getting $70 an hour in compensation is just "not true."

Paul L. Caron, Associate Dean of Faculty, Univ. of Cincinnati College of Law

In other words, you have been mislead, bamboozled, lied to, and made to look a fool with false information from the corporate media who would like nothing more than to see all unions destroyed and stomped out of existence.