Monday, December 1, 2008

Auto Industry Bailout - Supplement II

The CEO's of GM, Ford and Chrysler will apparently fly back again to Washington, D. C. tomorrow to reconvene with key members of Congress and the Administration to present their new business plans and presumably a more compelling case for their urgent requests and supporting information for a large federal bailout. Although they likely will encounter significant skepticism from many in the Congress, most probably a conditional bailout at some level will ultimately be approved, given general encouragement from both the Bush Administration and Obama and his transition team. No doubt the substantial political contributions from the UAW and other labor unions made to Obama's election campaign and the Democratic National Committee will be a contributing factor in the outcome.

Nevertheless, I'm hopeful that the influence on the UAW and other labor unions will be limited, given some of the major reasons why our auto manufacturers have performed and competed so poorly, especially in recent years. One of those major reasons has, of course, been the great difference in labor costs between the UAW staffed auto companies, GM, Ford and Chrysler, and the non-union labor of the foreign owned auto companies' plants in the U. S. In a very convincing editorial opinion in today's respected Wall Street Journal under the title "America's Other Auto Industry," it indicated the gap in hourly average costs, was as much as $29 or 40%, largely due to the cost of job benefits separate from take-home wages. That's a substantial disadvantage for the American companies.

Another related reason for the poor performance has been the UAW's insistence in labor negotiations that certain model cars must be made in the U. S. rather than in foreign facilities with lower labor costs which would enable the Detroit Three to be more successful.

Certainly these factors must be taken fully into account in the bailout discussions, requiring very material concessions by the UAW in order both for the CEO's business plans to be found credible and a realistic and sustainable rescue and bailout to be approved.

1 comment:

aglimme said...

One thing that I think is interesting is that many of the Auto industry competitors don't need to pay health or retirement benefits because these are taken care of on a national level. If the US had national health care and retirement many companies in the US would see their labor cost drop by 40%, that would certainly make them more competitive.

Of course make cars people want to buy would help as well.