Unions and Detroit

In reference to the auto bailout that the House passed last night and appears to be stalled in the Senate, there’s been heavy invocation by Republicans of the roughly $70 per hour that Detroit ostensibly pays UAW workers. This is drawn in contrast to the $49 per hour of labor costs that other domestic manufacturers like Toyota and Honda, the idea being that if only it weren’t for the pesky unions, America’s automakers would be in much better shape. David Leonhardt explains the fallacy in the New York Times. Read the whole thing, but basically, the calculation is made by dividing total labor costs by hours worked, which sounds reasonable until you realize that “labor costs” include the pensions and benefits paid to retired workers. Having been established for a considerably longer period of time, Detroit has amassed a significantly greater number of retirees than than the nascent foreign car makers. So much greater is this cost, that with legacy costs excluded, UAW workers make only $10 more per hour than their counterparts (which go predominately to expanded benefits). And verily, there is still a difference, but Leonhardt explains:

So here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.

So, in conclusion, higher labor costs associated with unionized employees do increase cost, but not nearly as much as anti-labor Republicans would have you believe. What’s more, roughly 50 percent of these costs go to to paying health benefits to retired workers, which underscores the importance of comprehensive health care reform. Or as a conservative might suggest, cutting the capital gains tax.

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2 Responses to “Unions and Detroit”

  1. mike Says:

    okay, but i’ll still take the small cut. thats still a very significant percentage, even if its not as big as republicans are claiming.

  2. Jon Says:

    Well, the point is that the UAW isn’t Detroit’s _central_ problem and that it shouldn’t be viewed as the _cause_. More to the point, the UAW shouldn’t be cast as diametrically opposed to the concept of industry when they’re health care costs aren’t particularly outrageous, nor is their desire for health care coverage. Like I said in the post, it’s an important reminder for why we need health care reform. I imagine — but am not sure — that workers for Toyota, etc. probably place their own strain on outlays through crappier health coverage.


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