Detroit vs. Alabama

December 9, 2008 at 6:11 pm 1 comment

     Now the idea of a Big Three Bailout isn’t even negotiable anymore.  Headlines boast that the White House is having “constructive discussions” and inching closer to an agreement with the troubled automakers.  The suggestion that seems to be gaining the most ground is to appropriate money reserved to help Detroit restructure its cars to be more environmentally friendly and technologically advanced to simply help Detroit survive.  (But, since the environment is high on House Speaker Nancy Pelosi’s list, some promise will be made to somehow, sometime, pay that money back and use it for its original intent).

      But in the midst of the crisis and speculations and worries surrounding Detroit, there is another piece of America that is making cars that is doing just fine: The foreign companies manufacturing in Alabama, and other places spread out along the South and West.

      Why?

      To quote the Wall Street Journal’s concise explanation, “the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.”

      The incredible hold the United Auto Workers union holds over the Big Three has been catastrophic for these Detroit businesses.  First, the workers and the companies are mutually distrustive, although relations are much better now than in previous years.  Second, there have been some disasterous strikes along the line – won by the unions, but the management’s treatment of workers during that time only exacerbated the strained relations.  And, although big strikes are rare these days, the Wall Street Journal says that “small impassess occur regularly.”  (Yes, I quote a lot from them.  That’s because I don’t, of course, just know any of this by myself).  

      Third, the union’s wages and benefits are sapping the companies of money and capitol.  They’ve “won healthcare and pension benefits far more generous than almost any other American industry,” the WSJ reports.  Just how big is the gap?  If you calculate benefits along with hourly wages, foreign carmakers offer, on average, $44.20 – on par with most manufacturing jobs.  The Big Three pay $73.21, or a $29 per hour difference.  This is fantastic for the workers.  But with unions continually striking for more benefits, and more wages, their employers are simply not able to survive.  And I think that right now, those workers would prefer a regular wage with a healthy manufacturor than a great wage with a company that is rapidly deteriorating and laying off workers left and right.  In addition, this constant negotiation with the unions has made production management clunky, and the extra wages have sapped money needed to modernize production.  

      Those are some of the things Detroit has done wrong.  What have the other car-makers done right? 

      Well, they’ve been blessed with better timing: the transplanting of these companies to America has been rather recent, and hence they are not fighting battles of mistrust with unions that began in the 1930s.  But they were smart to plant their factories in non-union states, and to build up a good relationship with their employees.  Management and decisions are smooth, enabling them to think up a plan and quickly put it into operation.  They also have newer factories with better equipment and more recent technology (they can switch production from one kind of car to another in minutes; it takes the Big Three weeks).  And they were also meticulous about making quality cars, a move that gave them business during the 1970s when the poorly made American cars were rolling over and exploding.  Thus, they also have a pretty good reputation.   

      Ford, Chrysler, and GM have been trying to make up and implement new and efficient strategies like their foreign counterparts.  But these strategies may come too late.  While last year Detroit bargained with the union and agreed to unload retiree health benefits to a trust fund, this won’t come into effect until 2010.  Other strategies are also excellent, but a little too late to be of much good. 

 

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Entry filed under: Economics.

Christmas, Life, and Scrapbooking Maddoff and the SEC

1 Comment Add your own

  • 1. Christa Taylor  |  December 30, 2008 at 7:35 pm

    That’s really interesting, this economic issue is affecting everything, there are so many differing factors. I really need to sit down and study this a bit more so I can understand how it all unfolded.

    Thanks for posting, and keeping me informed.

    Reply

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