How Unions Are Destroying The Auto Industry
Fortune Magazine lays out all the reasons why America’s automakers are failing, and points out that a big problem are the labor costs foisted upon them by the unions.
As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.
Health care is the biggest chunk. GM (Charts), for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota (Charts) pays nothing for retired workers - it has very few - and only $215 for active ones.
Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle - costs that the Japanese don’t have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.
For those of you keeping score at home, that’s approximately $2,615 in costs per vehicle manufactured which GM has to pay (and thus pass on to its customers) that foreign automakers don’t. But that’s just the beginning. Labor work requirements, which state that workers can’t be laid off even when the auto company has no work for them, cost the auto industry even more:
If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn’t make.
If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands.
Chrysler experienced the vicissitudes of over-production last year when it built cars without dealer orders and was forced to store them in open-air lots all around Detroit while it frantically sought buyers. It damaged relations with its dealers and was eventually forced to cut production anyway.
What’s more, not only is the union work force a terrible expense for the auto industry it’s just flat-out less productive than it’s non-union counterparts:
...nonunion U.S.-based auto assembly plants made 1.1 million more vehicles in 2005 than they did in 2001, while production at unionized plants fell by 1.1 million, he said.
Of course, one way to look at that statement is to say that the non-union automakers (Toyota, etc.) are just selling more cars than the union automakers. And that’s probably true, but it still proves the point that a union labor force is bad for business. Companies like Toyota are selling more cars because their cars are cheaper (thanks to lower labor costs) and better made (thanks to better workers). Both of those facts are an indictment of the union workers.
And it also exposes a larger truth. The more we foist costs like health insurance, high taxes and heavy regulation on American businesses the worse they’ll do in competing with their international counterparts. Something that will drive jobs and economic growth overseas.
robert108
gilbyguy
likwidshoe
C. Y.
Carrick
Richard Rhodes