A December 1, 2008 editorial piece in the Wall Street Journal entitled "America's Other Auto Industry," notes the rise in market share of foreign auto companies with plants in the U.S. from less than 30% of the market in 1986 to 54% in 2008. The current difference in market share looks closely correlated with the efficiency drain of the United Auto Workers union on the Big Three auto companies. And any benefits that may have gone to the auto companies in the past because of their market power will now only go the the UAW--the very cause of the Big Three's floundering.
Greg Mankiw had a post on November 16, 2008 in which he showed the following chart that compares the total compensation per hour of the Big Three versus the three main Japanese car companies producing in the U.S. The $29 average pay gap is striking.
The Wall Street Journal makes the following case for the cause of the difference between the foreign auto producers and the Big Three U.S. companies.
"The root of this other industry's success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.... Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one. The international producers' relatively recent arrival has spared them these legacy burdens."
The UAW, and unions in general, constitute the only unregulated monopoly that I can think of. This monopoly may have been more justified before 1990 when the Big Three still controlled more than two-thirds of the U.S. market and thereby reaped plenty of their own monopoly rents. But the environment now is much more competitive. The first graph above shows, in fact, that it may be close to perfectly competitive. The foreign auto makers in the U.S. have just as much market share, and that market share is projected to increase.
So any bailout that Congress might gift to the Big Three will be passed right through to the United Auto Workers and help perpetuate the key cause of the uncompetitiveness that brought on their crisis. All this talk about poor management and senior salaries is a sideshow. Their hands have been tied by the increased power wielded by the UAW over the last 20 years.
In a New York Times Op-ed piece from November 18, 2008, Mitt Romney proposed a plan for saving the U.S. auto industry that would avoid the current problem of bailing out the UAW (not the auto industry) and perpetuating the fundamental cause of the problem. If Congress is going to donate a taxpayer funded bailout package to Detroit this week, they need to be honest about who it is really going to--the UAW. Aside from the union shackles currently worn by our domestic auto industry, there is no reason why U.S. ingenuity and productivity should not be able to restore the Big Three to being industry leaders in design, efficiency, power, and competitiveness.
The Wall Street Journal makes the following case for the cause of the difference between the foreign auto producers and the Big Three U.S. companies."The root of this other industry's success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.... Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one. The international producers' relatively recent arrival has spared them these legacy burdens."
The UAW, and unions in general, constitute the only unregulated monopoly that I can think of. This monopoly may have been more justified before 1990 when the Big Three still controlled more than two-thirds of the U.S. market and thereby reaped plenty of their own monopoly rents. But the environment now is much more competitive. The first graph above shows, in fact, that it may be close to perfectly competitive. The foreign auto makers in the U.S. have just as much market share, and that market share is projected to increase.
So any bailout that Congress might gift to the Big Three will be passed right through to the United Auto Workers and help perpetuate the key cause of the uncompetitiveness that brought on their crisis. All this talk about poor management and senior salaries is a sideshow. Their hands have been tied by the increased power wielded by the UAW over the last 20 years.
In a New York Times Op-ed piece from November 18, 2008, Mitt Romney proposed a plan for saving the U.S. auto industry that would avoid the current problem of bailing out the UAW (not the auto industry) and perpetuating the fundamental cause of the problem. If Congress is going to donate a taxpayer funded bailout package to Detroit this week, they need to be honest about who it is really going to--the UAW. Aside from the union shackles currently worn by our domestic auto industry, there is no reason why U.S. ingenuity and productivity should not be able to restore the Big Three to being industry leaders in design, efficiency, power, and competitiveness.
This article (might require signing up) has a graph that breaks down the $73/hour.
http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?partner=permalink&exprod=permalink
Thanks for the link, Bart. Leonhardt semi-correctly says that the magnitude of the pay gap is incorrect. The last $15 per worker comes from benefits to retirees. However, these benefits are a function of previous labor contracts and therefore should be included in the calculation. Those expenses represent compensation that Honda, Toyota, and Nissan in the U.S. don't pay.
Also the Japanese companies in the U.S. will their own retiree expenses in the future as well, but they will be less than that of the Big Three because their current contracted pension benefits are less.
Now let's say, for argument's sake, we calculate the pay gap using Leonhardt's $10/hr difference ($55 vs. $45) rather than the $29/hr suggested by including expenses to retirees. The $10/hr number still represents a compensation differetial of 22%. How can you be competitive with that? Then if you take the $29/hr number, that represents a 66% differential.
It's true that the UAW isn't the only problem with the U.S. auto industry. A lot has been said in the media about CAFE standards and forced incentives to make "green" cars that only sell when gas is high. My argument is simply that these other real problems are smaller and more short-term than the union problem.