Senate Republicans shot down a bill to bail out the Big Three automakers yesterday, demanding that the UAW agree to pay cuts before they would agree to a deal. The Republicans are shooting themselves in the foot. First, the labor cost differential is not driving down Big Three profits by very much. Fact: the average labor cost differential on a $24,000 sedan between the Big Three and Honda and Toyota is about $600, and was projected to trend lower in the future in the last Harbour survey. Maybe the reason labor costs aren't as big a factor as they once were is because so many workers on the right have been replaced by those on the left. (Both pictures from Ford factories.) The real problem is that the two Japanese car makers (who make their cars in Ohio (Honda) and Kentucky, California, Indiana (Toyota)) can sell an equivalent vehicle for about $2000 more than their Detroit brethren, because consumers value the higher quality of their vehicles. Click on graph for larger view.
Second, by falsely blaming pretty decent workers, the Republicans send an anti-union message not helpful to their electoral prospects. I am no fan of unions, and I especially loathe the teachers' unions. But the UAW has gotten serious about productivity and it is starting to show. For instance, the most recent labor agreement had stiff penalties (reading firing) for no show absenteeism because the average worker resented picking up the slack when the slugs didn't show up for work. This shows that unions could be forces for good in our country. If unions helped ensure a higher quality workforce in addition to protecting their members you might see higher union membership as employers dropped opposition.
Third, by blaming unions they obscure the role of the incompetent management that is asking for the bail out in the first place. l that said, I am still absolutely opposed to a bailout for the Big Three. They need to declare bankruptcy, reorganize and have new management brought in. A bailout will only leave in place management that has allowed quality to slide, and continued a lazy design approach that makes cars difficult to manufacture. But to couch opposition to this bail out in anti-union rhetoric obscures the real issues and is a recipe for electoral disaster.
H/T Carpe Diem. I just discovered Professor Perry's blog yesterday. He is an insightful, even entertaining economist, and that's saying a lot. Full disclosure: He disagrees with me about unions not being the problem in a later post, but he blames work rules, not wages, as the culprit.
Update - The Intellectual Redneck (it's not an oxymoron, trust me) has a picture of the current UAW contract, weighing in at 2215 pages and 20 lbs. His blog has a series of articles on the auto industry that are clearly the product of a keen intellect and personal knowledge. KT at the Scratching Post also, weighs in, stealing material that I stole with a pretty decent analysis as well. Despite some differences of opinion, consensus among conservative/libertarians is trending towards letting the Big 3 file for bankruptcy.