Monday, January 29, 2007

Unions Killing Detroit Auto Industry

So reports CNN Money.

According to the latest calculations, the gap between Japanese and American carmakers' profits average out to about $2900 per vehicle, and the home team does not have the advantage.

A big reason is the cost of labor. 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, for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota 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.

Here's one example of how knotty Detroit's labor problem can be:

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...

All in all, the report paints a bleak picture. While Nissan was making $1800 per vehicle during the first half of 2006, and Toyota and Honda racked up $1,400 apiece, nine-month results for Ford saw them losing $1,400 per vehicle - a number that will go up when the fourth quarter's loss is tallied - while DaimlerChrysler dropped $1100 and GM $333.

I was going to wait for Mickey to post on this and then link it, but he's already covered the news.

If the American auto manufacturers are smart - a matter somewhat in question - they'll make a big push for the Democratic Congress to lighten their health care cost burden. It's certainly fertile ground - with Democrats still largely devoted to an old-style view of the economy, and a desire to promote government involvement in health care.

Assuming that Iraq is winding down by the time of the election, will health care be a primary issue? And if it is, will that help the Democrats or hurt them?

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