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: 
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.