As a young staff member in the office of U.S. Secretary of Commerce Malcolm Baldrige, I was asked to help compile some documents for a senior staff meeting, who were going to discuss the problems of the U.S. auto industry during the 1982 recession. When I asked my boss at the time if the focus of the discussion would be the auto industry’s constant caving-in to their labor unions, thus pricing low and moderate end autos out of the market in the face of heavy Japanese competition, he said, "oh no, we aren’t going to discuss labor; don’t include anything on the cost of labor, we are just going to talk about productivity."
Of course, productivity is labor. It is making labor more productive that creates better productivity. And the cost of labor is one of the biggest factors in whether it is ultimately productive.
But it was easier for the government to ignore the problem of high labor costs and the hard decisions needed to change union contracts, when they could have their meeting and talk about how robots could help the ailing auto industry, rather than getting to the heart of the matter: a history of poor management.
Why the reluctance to get to the root of the problem? Politics. Unbalanced labor influence in government. And a lack of heros in the industry.
As a political lawyer in California, one observes very quickly, and repeatedly, that labor is the dominent force in Sacramento. The Service Employees International Union and the California Teachers Association hugely outspend all other influence peddlers of any nature or stripe in our State Capitol. Their political action committees are enormous, their networks are skilled and dynamic. And in the case of the CTA, while their members benefits continue to improve, there can be little doubt those benefits come at the cost of mounting failures in our educational system and lower test scores.
The U.S. auto unions perhaps aren’t such a similarly huge presence in Washington, D.C., but with auto industry management being as shortsighted as it is, they don’t have too.
The New York Times business section includes an interesting story today about the failure of the British government in attempting to bail out British Leyland, starting in the 1970s. The conservative Thatcher government was convinced by business executives to pour $16.5 billion of taxpayers money into that bailout. The end result? Jaguar and Land Rover are now owned by Tata Motors of India.
GM is buying adds stating that one in every 10 Americans is employed because of the U.S. auto industry. That is bunk. Regardless, if GM fails, there is always Tata Motors to pick up the mantle! It is time to "just say no" to these bailouts.
November 23rd, 2008 at 12:00 am
I’d like to know why you think the Big 3 were short sighted. Because the didn’t build small, economy cars that, when gas was under $2.00, very few people wanted to buy? Because they built larger cars and trucks that were what most [peoploe wanted until the gas prices spiked and the mortgage meltdown destroyed customer financing.
Except for a couplevery small cars, and 2 hybrids, the Big 3 produce cars that are similar in size to most foreign cars and close in fuel economy. Hybrids account for less than 3% of sales.
Dpmestic manyfacturers had flex-fuel vehcile before the foreign manufacturers but had trouble selling them because there were no gas stations that handlerd the flex fuel. The government just admitted they have purchase hundreds of millions of dollars of flex fuel vehicles, but can’t find the E85 fuel they need to clean up emissions. Thses flex fuel vehicle get about 25% less fuel economy than standard gas vehicles. Go figure??
PS If you figure all the people employed, either directly or indirectly in the auto industry, the number is probably closer to 1 in 12 now.
November 23rd, 2008 at 12:00 am
The biggest problem facing the Big 3 is the manufacturing cost differential caused by past Union contracts. The $1500 to $2000 per vehicle is a tough hill to climb. This differential developed over time due to the way the contracts were negotiated. The Union always picked one of the Big 3 to strike, knowing that once that one settled, the other two would follow suit. This put tremendous pressure of the strike designated company because while it was being struck, and production was shut down, it competitors were “business as usual”. The struck company was losing millions/billions in sales and profits, not to mention market share. When the struck company finally settled, the other two did also and the playing field was again level. In those days, without as much competition as today, it was easy to pass along to the public the increased costs. These increased costs have now been compounded into today’s greater costs, including healthcare and pensions, that have allow the foreign manufacturers to put $1500 to $2000 more content into each vehicle and still be price competitive.
I don’t know of any other industry that had this almost coercive labor negotiation situation.