ECONOMY DECEMBER 31, 2008
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It's been more than a month since the auto industry came to Washington, begging for a rescue. And, since that time, it's become clear just how dry Detroit's reservoir of goodwill has run. For conservative opponents of bailout legislation, like Alabama Senator Richard Shelby, the U.S. auto industry is an object of scorn—"dinosaurs," he has called them. For the liberals who support a rescue, like Connecticut Senator Christopher Dodd, Detroit remains an embarrassment. "I wish that these companies had not gotten themselves into this situation," Dodd said recently, noting that they need to undertake "painful, fundamental changes if they are going to be competitive internationally and viable in the long term."
Who can disagree? In today's political lexicon, "Detroit" has become synonymous with failure—a shell of a city inhabited by a shell of a once-mighty industry. It is, in various tellings, the product of individual achievement laid low by collectivism run amok, or of innovation smothered by addled corporate managers and sclerotic labor contracts. Libertarians against unions, environmentalists against gas-guzzlers, or car enthusiasts against bad engineering—everybody can find something to loathe.
But, for all of Detroit's mistakes, it is also a victim of something it did right: ensuring a middle-class lifestyle for bluecollar workers. When the carmakers, pushed by unions, agreed to provide workers with a steady level of purchasing power, comprehensive health benefits lasting into retirement, and various forms of workplace rights, they were promising something that all Americans covet. And, while the financial costs and managerial constraints associated with that effort have helped bring domestic carmakers to the edge of collapse, ultimate responsibility for this situation lies beyond Detroit.
In a more enlightened society, after all, government would have made those promises and extended them to all workers, thereby spreading the burden of financing them to all taxpayers. That's how it's done in Europe and in Japan—which, not coincidentally, is the home of Detroit's most successful competitors. But the U.S. government never took that step. So, instead of a public welfare state, we got a private one, administered for only some workers and paid for by their employers. Sooner or later, this arrangement was bound to fail.
The creation of this privately run welfare state came neither easily nor quickly. It was the result of a decades-long transformation, carried out in two stages: first, when unions took advantage of New Deal legislation to transform life on the factory floor; then, when unions used their bargaining power to secure more generous compensation. And, to appreciate just how dramatic those changes were, it's worth recalling what life as an autoworker was like before this transformation began.
Building cars has never been cushy. And, as late as the mid-1930s, it was a good deal worse than that—particularly during times, such as the Great Depression, when the high demand for jobs put workers at the mercy of management. At factories like the General Motors complex in Flint, Michigan, work was tedious, physically demanding, and frequently dangerous. Injuries abounded as foremen sped up assembly lines in an effort to weed out weaker laborers. Workers were afraid to take breaks lest capricious supervisors give away their jobs. "If guys had to urinate or whatever, it went in their pants or on the floor," recalls Arthur Lowell, now 91, who started working in the Flint factory in 1936, when he was 18. "The boss could fire you if he didn't like your looks, so you were very careful about what you said."
The story was the same throughout the auto industry—and there wasn't much workers could do about it. They didn't have formal or legal channels for recourse. Collective action wasn't much of an option, either, since carmakers were under no legal obligation to bargain with unions and had few constraints on their anti-union activities. When workers went on strike, companies brought in permanent replacements; when workers staged occupations, companies hired spies and security forces to infiltrate labor efforts and, if necessary, take out protesters by force.
In 1935, however, President Roosevelt signed the Wagner Act, which forced companies to recognize unions. Late the next year, members of the fledgling United Auto Workers (UAW) staged an epic 44-day occupation at the Flint complex where Arthur Lowell worked. The "Great Flint Sit-Down Strike," as it became known, ended when GM finally agreed to recognize the union. Subsequent negotiations brought modest pay raises and what labor historian Nelson Lichtenstein describes as a system of "industrial justice"—work rules, seniority privileges, and grievance procedures designed to protect workers from random firings and to allow them to stay with the company even as age eroded their physical skills. It was suddenly possible to think of GM as a career, just like their supervisors did. To this day, workers in Flint wear white shirts on February 11, the sit-down's final day, to reaffirm the essential credo of those strikers: Factory workers deserve as much respect as their management.
GM's clout and size meant others would inevitably follow. Within a few years, nearly the entire auto industry had recognized unions. But if, by the 1940s, the typical factory worker had won a fairer and safer workplace, he still lived in a world of financial insecurity. Every time the economy slowed down, factories went idle and workers ended up on unemployment. And, even in the good times, workers saw their standard of living slip because of inflation, which was a recurring problem after World War II.
The UAW agitated again—and, this time, the industry was more eager to compromise. In 1950, General Motors agreed to provide regular "cost of living adjustments," so that paychecks would keep pace with inflation. It also pledged large payments toward its workers' health insurance and pension benefits—payments that would grow even larger in future contracts. Five years later, Ford made a historic decision to create a special fund for supplementing unemployment benefits. That way, even when the plants weren't operating, workers could keep collecting decent paychecks. (The payments to that fund would also increase, until eventually workers could get almost all of their regular pay during plant closings.) In each case, one carmaker's agreement set a standard that the others had to follow.
This "Treaty of Detroit," as Fortune memorably called the 1950 agreement, did more than broker peace between labor and management. It completed the evolution that had begun in Flint, reserving for workers a place in the middle class. Homeownership. New cars and college tuition for their children. The dignity of a career. Now guys on the line had those, too.
For many unions, achieving such terms for their members would have been enough. But, for most of the UAW's history, the union's leaders have said they were fighting for all working Americans, from the poor right up to the middle class. Walter Reuther, who helped organize the Flint strike and went on to serve as UAW's president for more than two decades, called for solidarity and practicality. "We are not going to operate as a narrow economic interest," Reuther vowed. If a unionized autoworker's standard of living rose too far above the typical American's, he knew, it would breed resentment.
Up through the 1960s, this seemed like a pretty distant concern, in no small part because UAW members' income gains had such huge ripple effects on the economy. Manufacturing dominated the economy, and unions, like the UAW, dominated manufacturing. Even though constantly rising wages helped create what's known as a wage-price spiral, or repeating cycle of inflation, the net effect still seemed to be positive. Between the 1940s and '70s, real wages—that is, wages adjusted for inflation—for the typical American worker doubled. As Paul Krugman, the Nobel Prize-winning economist, concluded, "everything we know about unions says that their new power was a major factor in the creation of a middle-class society."
Still, the UAW had even bigger aspirations. It leveraged its organizing success into political clout, on behalf of progressive economic legislation. It fought for more generous unemployment insurance and won. It fought for the extension of labor-law jurisdiction to African American farmworkers and won again. (This presaged the UAW's strong commitment to civil rights in the 1950s and '60s.) As Harold Meyerson noted recently in The Washington Post, "The UAW not only built the American middle class but helped engender every movement at the center of American liberalism today."
Overall, though, union efforts to secure legislation in Washington were never as successful as the efforts to win raises at the bargaining table. Along with other unions, the UAW fought—but lost—a battle to block enactment of the Taft-Hartley Act in 1947. Taft-Hartley radically altered the legal landscape for legal organizing—allowing, among other things, states to prohibit closed union shops. Thanks to that provision, states across the South and the West were able to pass so-called right-to-work laws, making the establishment of unions in those states difficult if not impossible. The wide-open organizing days of the Wagner Act were over.
Perhaps more famously still, the unions failed in their quest to win national health insurance. The UAW was an early and vocal advocate for universal coverage. But the best it could do was to help secure the passage of Medicare and Medicaid in the 1960s—a huge victory, but one that still left large chunks of the working-age population without health insurance and left even retirees needing supplemental coverage.
The autoworkers, of course, had these things. Their collective bargaining agreements guaranteed them not just insurance but generous insurance—and not just for themselves but for their spouses, into retirement and even as widows (or widowers). They cherished these gains and, after careers spent doing tough physical labor, many needed the medical coverage. But the lavish insurance was creating precisely the sort of disparity that Reuther had feared. It was a sign of things to come.
If the postwar boom had lasted beyond the 1960s, none of this really would have mattered that much, since, in the good times, management seemed content to pay a high premium for keeping peace with unions. But it was only a matter of time before the financial burden of running this private welfare state rendered U.S. manufacturers vulnerable to cut-rate competition—whether from across the ocean or below the Mason-Dixon line.
Health benefits, and retiree health benefits in particular, became the most glaring problem, since foreign competitors didn't have similar burdens. Workers in the factories these companies maintained abroad benefited from national health insurance programs. Workers in the plants these companies established here didn't have that advantage. But, with no unions to please, the companies didn't have to promise such generous benefits. And, since the plants didn't start up until the 1980s, they also had younger workforces—which meant many fewer retirees. By 2007, estimates showed that so-called legacy costs alone meant U.S. auto companies had to add a few hundred dollars to the sticker price of each vehicle. As Princeton University economist Uwe Reinhardt quipped, GM had become a giant social-insurance program that just happened to sell a few cars on the side.
It wasn't just the benefits in union contracts that were weighing down the car industry. It was also some of the job protections, including the system of workplace justice dating back to the 1930s. Work rules and grievance procedures designed to protect diligent workers from unfair managers sometimes ended up protecting less-than-diligent workers from appropriate oversight. These problems were not the only or even primary cause of the car industry's struggles. But even union supporters concede that the legacy costs created a real burden—particularly once, in the wake of the 1970s oil crunch, American consumers gave Japanese cars a close look and discovered they were delivering better quality and higher fuel efficiency, all at lower cost.
To become more competitive on price, U.S. automakers began doing what all manufacturers were doing: outsourcing what they could, to non-union companies at home and abroad, thereby shaving their labor costs. The union fought many of these moves, perceiving them as the latest in a long line of business assaults on labor. But the UAW also understood the financial reality, finally agreeing last year to a breakthrough contract designed to bring overall compensation closer in line with that of foreign-owned competitors. It slashed wages for some newly hired workers and vastly reduced the automakers' liability for retirement health benefits. It also streamlined the old system of work rules and grievance procedures. The UAW's Ford contract, for example, reduced for the entire company the number of skills classifications from 350 to 22, while allowing regular assembly-line workers to take on routine maintenance work that had previously been reserved for other workers.
All of this promised to make the Detroit carmakers more competitive with foreign counterparts. And the changes in production methods—designed to replicate the fast, flexible style of Honda and Toyota—were necessary. But, if the 2007 UAW agreement represented a lifeline for the industry as a whole, it also represented a death knell for the old way of doing things. No longer would the auto industry guarantee its factory workers a middle-class way of life, because it simply wasn't possible for a company to accomplish that on its own. The global economy had rendered the Treaty of Detroit null and void—and pushed the ambitions of Flint's sit-downers farther out of reach.
To hear some critics tell it, this change is long overdue; the reason so many Southern Republicans oppose the bailout right now is that the 2007 contract won't drag down autoworker compensation quickly enough. Alabama Representative Spencer Bachus said, "I'm sure that I'm going to be asked, 'Congressman, I work at Honda' or 'I work at Mercedes. I get $40 an hour [including benefits]. Why are you going to take my tax dollars and pay it to a company that's paying their employees $75 an hour?'"
But is the problem that UAW members get too much? Or that everybody else gets too little? There's a broad consensus that, over the last 30 years, real wages for the typical American worker have stagnated—in contrast to the 30 years before that, when unions thrived and real wages doubled. As an exercise, I asked Dean Baker, from the Center for Economic Policy Research, to calculate informally where wages for the typical working-age American would be if they'd continued to rise as they had done before the 1970s, while the unions were strong and helping to raise living standards for everybody. He determined that somebody between 45 and 55 years old, roughly the average UAW age today, would be making about $25 per hour—which is very close to the $28 per hour the typical UAW member makes. Factor in the (slightly) higher cost of living in the upper Midwest, where the auto industry is concentrated, and the figures would be even closer.
Data like that suggest that the insight of Reuther and his early UAW counterparts was right—that unionizing more of the workforce really would help raise everybody's living standards. Passing legislation that would allow workers to ratify unions quickly by written affirmation, as Canadian workers commonly get to do, could help organizers fight employer anti-union campaigns and break through some of the roadblocks thrown up by anti-union laws like Taft-Hartley. And particularly in the service economy, where outsourcing to low-income competition would be more difficult, greater union presence could have the same sort of ripple effects that organizing the autoworkers back in the 1940s and '50s did.
But, even if the government enacted more progressive labor-law legislation, the realities of the global economy—and the existence of right-to-work states—will always limit labor's unilateral power to raise wages. Putting so much of the burden for rising living standards on the backs of companies again simply doesn't seem viable. If the idea is to resurrect the Treaty of Detroit, or at least its spirit, there's got to be a different way.
Fortunately, there is. It's a model for the welfare state that already exists in other parts of the world and that, as it happens, has been getting a lot of international attention in the last few years. It's the Nordic or Scandinavian model, so named for the part of Europe where it's practiced, and its philosophy is simple. In these countries, government guarantees everybody, even blue-collar workers, most of the things Detroit once guaranteed its workforce—like middle-class wages, full health benefits, and subsidized day care. The government also guarantees nearly full incomes for the unemployed. Organized labor is still a big part of the picture; Scandinavia is actually the most heavily unionized part of Europe. But unions there serve a somewhat different function. Instead of trying to restrict hiring and firing—or, for that matter, obstructing trade—they focus on improving labor conditions and training displaced workers to find new work. They have a less adversarial relationship with management, although that has a lot to do with the fact that Scandinavian employers don't constantly attack unions the way American employers do.
Even though it takes high taxes to support such generous government programs, the Scandinavian economies are strong. That's led some center-left economists to suggest that this model for the welfare state represents the best hope for guaranteeing the kind of economic security companies once provided, but no longer can. As it happens, President-elect Obama's agenda includes universal health insurance, more subsidized child care, and better worker retraining—not to mention labor-law reforms. And, while Obama hasn't been talking up Sweden lately, his approach to policy suggests that he, too, believes government must assume the responsibility for providing benefits—and guaranteeing livelihoods—that once belonged to corporate America.
Of course, even if Obama succeeds, it may come too late for the automakers. On the same day I visited Arthur Lowell, I drove into Flint to get a glimpse of the place where it all started, the old GM plant where he and his co-workers went on strike for 44 days. There's almost nothing there anymore: GM has razed the factory buildings. But, as I traversed a small bridge over the Flint River, I spotted a small historical marker commemorating the strike, and the violence that injured 27 people until "GM recognized the UAW as the bargaining agent for GM factory workers." I looked around at the flat, fenced-in wasteland around the sign, trying to imagine what it looked like when it was in full swing—or when the union staged that famous strike. Then I walked away, as a light snow obscured the sign and cold wind blew through.
Jonathan Cohn is a senior editor at The New Republic.
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73 comments
We make it sound as if these workers are owed health benefits and a pension well into retirement. They're not. White collar workers in any other industry are expected to invest in 401k's, to put away money for retirement, rather than be guaranteed a significant portion of their salary and exceptional health benefits for the remainder of their lives after they leave the workforce. I know I sure as heck don't get those kind of benefits. Detroit, and the UAW, needs to wake up and understand that in order to move forward, they have to cut the chain to workers that have been retired for decades and stop paying ridiculous benefits. They can't be competitive against companies like Toyota or Honda unless they can compete on the same field. Right now, they're spotting the other team points.
- Adam Licht
December 22, 2008 at 2:09am
As a minor note: I am not aware of any libertarian objections to unions (made early in the piece) From a libertarian perspective, they seem perfect. They are voluntary organization of people organizing themselves to further their interests. I wish that were people's first instinct and that they were less eager to invoke the coercive power of the state to further their goals.
- Ben Munda
December 22, 2008 at 2:26am
Detroit's competitors manufacture cars in America with American workers. They to provide a middle class life to their workers. Only the executives are of manifestly different nationalities, and I don't see the point of clinging to American auto management...
- Mick
December 22, 2008 at 4:31am
"it is also a victim of something it did right: ensuring a middle-class lifestyle for bluecollar workers." this really says it all. mr cohn believes that an entity, corporate, government, whatever, should "ensure" that i am employed and taken care of for my entire adult life. spinning a web of, well, spin, mr. cohn can't bear a simple truth: there are no guarantees in life. and worse, he can't bear to admit that the trouble with detroit is one thing: they make cars of inferior material and build quality vs. their european and asian competitors. in short, what a bunch of nonsense. not that i expected anything else, LOL..... sUb, NYC
- sUb
December 22, 2008 at 5:46am
A fine Cohn analysis, as usual, but this coin has two sides. The price of middle-class wages and defined benefits was the saddling of the Big 3 with legacy costs that could not be sustained by even the most brilliant managers executing the cleverest and most far-reaching strategies. The price of collectively-bargained, astonishingly generous health insurance benefits was the devil's deal that linking such insurance to the worker's employment situation. The price of Wagnerian labor laws was the crippling work rules and lack of flexibility that has made it virtually impossible for the Big Three to realign production to meet demand with anything like the flexibility or agility that their Japanese and German rivals enjoy. End of an era, sure. But not one we should lament. Time to move on and fashion a different labor model for a different century. Federalize the Big 3's legacy and health insurance obligations, and then let them sink or swim. There's a huge and flourishing auto industry in this country that pays excellent wages-- but it ain't the one strangled by the labor aristocrats of the UAW.
- teplukhin2you
December 22, 2008 at 6:35am
Thanks Jonathan, this is a great article. I've been patiently waiting for such an excellent historical summary with the suggested solutions.
- Ken
December 22, 2008 at 6:58am
Although this is a nice counterweight to some of the reflexive anti-Detroit anti-UAW sentiment that is so prevalant, it's also intellectually dishonest, because Cohn fails to answer the big question: could the US economy have succeeded if relatively unskilled workers across the country had earned UAW-like compensation and work protection? The Nordic model doesn't really inform here - those are small countries with relatively homogeneous populations, not the diverse mainspring of the world economy (as the US was from 1945 well into the early 80s). You can't just assume the same thing that works in Sweden will work in the United States without some careful social and economic analysis. The past twenty years suggests very strongly that in fact it could not work here - it is after all, not just the auto manufacturers who are on their knees. Manufacturing has been devastated in this country by Chinese and other Asian competition precisely because it does not require much in the way of skilled labor (and because energy has been cheap). Cheap peasants from the countryside will do just fine, thank you. Most of the manufacturing jobs we've lost never did, nor could have, paid anything like UAW scale. No doubt assembling a quality car requires a little more skill than the low end of manufacturing, but the delta isn't that much. Honda can take a high school graduate from some of the worst schools in the United States and train them into a successful assembly line worker in less than 6 months. Try turning that same person into a nurse, or software programmer (let alone a doctor or engineer) - it takes years, if it's possible at all. Nonetheless, the total cost of compensation for autoworkers in the recent past easily exceeded compensation in these job categories (nurse, not doctor). Maybe we go overboard bashing the big three and the UAW - but this thesis that somehow the UAW, absent Taft-Hartley and other anti-Union sentiment could have led the US to a workers paradise economy is pretty thin, to my mind.
- Steve from Iowa
December 22, 2008 at 7:51am
Too bad the US doesn't have the proportionally sized Scandinavian state owned oil companies (and reserves) to subsidize their way of life. Also they lack the same entitlement mentality there which would make such a practice impossible in the US. Nice dream though.
- Lando034
December 22, 2008 at 8:07am
It is a real tragedy in making: a brain-dead pinko cannot avoid facing the brutal reality of the world for the first time in his dreamy life. I feel your pain, comrade. Just a few notes to ease it a little bit: 1. Cradle-to-grave guaranteed prosperity has nothing to do with middle class living (which is by its very basic nature is deeply rooted in the brutal free market society) it is called socialism and it simply does not work beyond its typical lifespan of 20-30 years whatever scale was tried: it does not work for a company, industry, country and it will fail in global scale too. 2. While Nordic models have many efficiencies that should be copied over, they are not sustainable too.
- Alex
December 22, 2008 at 8:16am
Certain points come to mind: 1) Cohn seems to assume that union membership levels both correlate and are causal with wage. However, real hourly wage peaked in 1974, while union membership peaked in 1955. No correlation. Hourly wage got flattened by stagflation, not a lack of representation. 2) Sweden and Norway have very small populations. Even if one accepts the premise that they have created a worker's paradise (there are more negatives to the Scandinavian model than Cohn represents -- it's not a panacea by any means, and is often revised to pull back on benefits that are not sustainable) it is extremely risky to assume that a system that works in a small population country will scale to a large population country.
- MichaelC
December 22, 2008 at 8:39am
somewhat true, but misses point. two basic problems. one is us automakers are making something folks have declining interest in buying. like newspapers. when gm and toyota build same car in same plant, buyers pay a premium for the toyota iteration. second is unfunded promises. health insurance costs for workers aren't out of line, those for retirees are because they didn't prefund them. was easy to negotiate contracts decades ago promising health insurance that couldn't be priced and then not save for it. had they prefunded care, workers then would have gotten less and system now wouldn't be dependent on continued high employment levels. for years management has acted in a foolish and irresponsible fashion. UAW made deals casting itself as enabler. that's why some of us are wary at folks who created this conditions with these bad decisions being asked to fix things now.
- jimjaf
December 22, 2008 at 8:55am
Thanks Jon. I wish you had written this 5 or 10 years ago when America was so busy tearing down these social safety nets. I could expand on this 10 fold, but will spare the Talkbackers that denseness. To summarize, it's not just the UAW, there are a lot of bad actors. I'm just glad someone is starting to figure out the problem. That's the first step.
- CRS9TNR
December 22, 2008 at 9:29am
Exactly. To some extent American car companies can't compete because management hasn't kept up on the design and reliability front (and NO, American cars aren't there yet, check your Consumer Reports -- initial quality is not the same thing as reliability). But more important is the point that Jonathan makes here -- companies that are paying their workers a decent wage with benefits that are only reasonable in a rich society can't match low-wage/no benefit competitors. It's depressing that so many think the answer is to bring Detroit down rather than raise the rest of the country up.
- grey paladin
December 22, 2008 at 9:48am
I agree completely. For all the mistakes made by the domestic auto industry, their biggest handicap is that they treated their workers better than just about any industry in the country. I suspect that a lot of the nationwide opposition to a bailout comes not just from doctrinaire free marketers, but from middle and working class people who don't feel that they'll ever enjoy the kinds of benefits the Big 3 negotiated. I wish the reaction were -- "let's figure out a way to make these benefits universal" -- rather than "let's bring everyone down to the same level."
- PeteM
December 22, 2008 at 10:11am
Sorry, grey p. If like working for Toyota or KIA is so awful, how come unions have lost all 3 elections (so far) held in the South. The fact that these non-US companies pay more than the going wage with full benefits. No jobs bank, though, I'll give you that. Pete, nothing is forever, not even the lifestyles provided by Big 3 employment. tep, great to see you again on these boards. Welcome back!
- butchie b
December 22, 2008 at 11:11am
Fifty years ago, it was thought that moving semi-skilled blue collar workers into the middle class was the historic achievement of the New Deal, the end of class conflict in the United States, and a permanent refutation of Marxism. It turns out to have been the product of a historical accident -- the de facto protected market that US manufacturers enjoyed in the 25 years after the end of World War II, while Europe and Japan were rebuilding and the rest of Asia was still undeveloped. Since about 1975, global competition has been doing what Economics 101 says it does, and the American blue collar worker has been slowly but steadily falling out of the middle class. There is no intrinsic reason why a guy pulling the handle on a drill press in Cleveland should be worth more than some other guy pulling the same handle in Georgia, Guangzhou or Guadalajara.
- Jack Cerf
December 22, 2008 at 11:25am
Oh, please! What no one wants to admit is that, with the government's approval, "Detroit" was granted an oligopoly after World War II, with smaller domestic companies absorbed by the Big 3 with no antitrust questions asked. The price the government extracted for this was that the companies "share the wealth" with the workers, which they did. By the late 1960s, the oligopoly began to crack under foreign pressure greatly aided by product lines that competed directly with Detroit (big cars, SUVs, mini-vans). So, now the game is up, and the US taxpayer is asked to pay the bill. Here's the con: There is no "insurance" in life. Anyone who says otherwise is conning you. There is only preparation -- that's the real insurance.
- Bruce Beckner
December 22, 2008 at 11:42am
So what do I tell my children now about family values when they are old enough to question me and their mother about bail outs? Bank executives get bonuses for failing their nation with no strings attached? Auto industry employees and families loose their incomes and get more conditions for their bail outs? Those of us who work hard and have families need some help here, help us explain to our kids what Congress did with OUR money?
- Robert Case
December 22, 2008 at 11:52am
It is interesting that sUb rails against Cohen's point that the auto industry did something right by ensuring a middle class life style, and takes the typical position that "there are no guarantees in life. I guess the irony of the conclusion of his/her comment is lost on him/her. Can't sUb (and others of the same POV) see that if Detroit's problem is that it makes lower quality cars than it's Euro and Asian competitors, it may be in large part because the Euro and Asian gov'ts have "ensured" their industries' workers by providing health insurance and pension benefits at the taxpayers's (society's) expense?
- tJc
December 22, 2008 at 11:57am
On the whole, I agree with the basic point about UAW behavior, if not about all of the cause and effect. It is, for example, certainly open to question whether the generous UAW contracts were a benefit to the rest of the workforce. However, both at the level of labor and management, participants in the auto industry have been responding sensibly to the regulatory and market environment created for them by the US government. But it all depended on monopoly pricing power, and that state of affairs could not survive foreign competition. It is past due for the US to reconsider broadly the structure by which it regulates labor and management -- and allows them to do battle. If we want a different outcome, we need a different structure. It means nothing to berate auto labor and management for doing pretty much what anyone would have done under the same circumstances given their opportunities and liabilities. The point missing from Cohn's discussion is about who paid for the UAW benefits. There is a good argument that it was not capital, but everyone else in America who had to pay a higher price for autos. It was "industry-wide" labor-pricing that turned an oligopoly effectively into a monopoly (in terms of pricing power) without need of any collusive behavior by the autos. When foreign competition began to erode that power, the American manufacturers, saddled with an inflexible labor structure, responded by trying to maintain margins -- hollowing out the product, emphasizing high-margin products such as SUVs. Despite the disdain with which this is now met, it was a rational response to the competitive situation, at least in the short to medium-term, albeit one that left the industry's position increasingly precarious. Reuther's emphasis on spreading the benefits was no doubt due to his awareness that it was the rest of American labor that was paying UAW workers and that, sooner or later, that, not just envy, would cause problems for autoworkers. And now it has. I think the hostility toward the autos is at least in part due to the awareness that it was everyone who has been paying for the incomes of autoworkers. There is no obvious reasons why other workers, many of whom are not as well off as autoworkers, should be paying to maintain the income and benefits of autoworkers. Thus, there is the strong desire that that situation, previously implicit in the price structure, not simply be perpetuated via government subsidies to the auto industry. If we are truth-telling, we need to tell the whole truth, some of which is discomforting. As far as "figuring out a way to make these benefits universal," the single biggest step in the right direction would be to solve the health insurance problem, eliminating this burden for industry. We should also consider a prohibition of unfunded worker benefits, insisting upon defined contributions. And we should consider limiting the extent to which labor can negotiate either "job security" or work structures that have the same effect (other than payments from a defined-contribution unemployment fund). These structures hobble the ability of industry to compete and inhibit the growth of productivity which is the only means by which real worker income can increase broadly. The role of labor should be limited to negotiating for the best current, fully-funded compensation package, protecting workers from unfair discrimination or management abuse, and protecting worker safety. As to the rest, management should be free to adopt the methods that drive down its costs, reduce labor input, raising productivity, and thereby distributing the benefits of rising total output broadly. The US labor model was a success because of our wealth and power. It is not a formula for success in a competitive world.
- roidubouloi
December 22, 2008 at 11:57am
MichaelC, I can't speak for union membership as a whole, but UAW membership peaked in the mid 1970s. Most manufacturing in the Upper Midwest was unionized, and now most of it is gone. Those jobs didn't pay UAW wages, but they probably did pay above-market. What we've seen over the last 30 years has been the decline of aggregate middle class purchasing power. Eventually you reach a point where it truly, irreparably damages demand everywhere (since we were the consumers of last resort). For the companies, that's fine if they are paying high enough wages to stimulate demand elsewhere. They are not. It turns out that a middle class is the ultimate economic inefficiency. The ecomomic reforms of the last 30 years are remedying that. Further, precious perfect Toyota with its perfectly designed cars and blissfully rule-free shop floors just reported its first-ever annual loss. So let's not pretend this isn't an economic issue. No one can afford to buy anything, and no one can get the credit to pretend to afford to buy them. And that's not an accident. That's economic policy.
- MikeM
December 22, 2008 at 12:22pm
Picking up a few points in the comments section here. Mick-Generally speaking the Libertarians don't have a dog in this fight, but they do fight the unions over the 'Closed Shop' part of the contract and disagree with the egalitarian beliefs that all hourly workers get paid the same. Libertarians prefer Right-to-Work allowing workers to chose to belong to the union or not in a union shop. They do not beleive paying janitors $ 24 an hour is smart or fair. They would prefer sliding scales depending on how productive you are and what the market rate is. teplukhin2you - I always appredciate your well thought out comments, and want to point out the Detroit position. Detroit got caught by American when they moved left, and the rest of America moved right. Employer paid helath benefits were supposed to be universal, not just on the backs of the manufacturers. All the service industries backed out of these commitments to their employees and left Detroit (and Local, State and Federal Governemetns) holding the bag. The cost of health insurance for Big 3 Automakers would be a lot less if every company in America offered health care to their employees. The real irony is that the Governments followed (or lead) the automakers in their benefits and now we are taxed to pay for these benefits for people who don't work in the free market and have very little risk of losing their job to a foreign competitor. And Detroit is moving to the other auto industry model that teplukhin2you mentions. Let me explain, new workers do not get Defined Benfit Pensions, they are now getting the Defined Contribution ones the Aisian Automakers offer. Ditto for Retiree Heathcare, new hires get a Medical Savings Account. In addition to lower direct pay and increasing co-pays and deductibles. Jon's point here in his article is we are looking at a huge change in the social contact with employers in America. Are we really going to give these benefits that we just asked the largest companies to drop to government employees? Will McDonald's and Walmart step into the gap and start providing for their workforces? The next bailout will be personal and will need to address people that have smaller pensions, limited heathcare and less options for help. Think Universal Heath Care (Which I oppose) and means-tested Social Security (Which I also oppose). But not many folks think 2 or 3 steps ahead. I think Jonathon is looking forward here and pointing out where we're headed with this discussion.
- CRS9TNR
December 22, 2008 at 12:25pm
The article makes excellent points but ignores important factors. When the unions demanded and management agreed to generous retirement and healthcare benefits, the actual costs of these benefits were either miscalculated or ignored. When a worker is able to retire at age 50-something, it is unreasonable to expect the employer to pay and for the retiree to receive a high income for life. Life expectancies have risen over the years, but the retirement eligibility ages have not. The situation is even worse with the healthcare costs. Healthcare costs in the U.S. have been and are continuing to rise far beyond those in other industrialized countries, due to our inefficient healthcare system that is unresponsive to the usual price/supply/demand economic factors of the remainder of the economy. If the indsutry is to survive, the unreasonable pension and healthcare costs will have to be lowered. It is hardly reasonable to expect taxpaying workers and retirees from other sectors to pay for the overly-generous benefits in the automotive sector. To give an example, I am a 60 year old retiree who pays $10,000 per year for medical insurance, in addition to $6,000 deductible per year. By the way, this is paid with after-tax money. Do you really expect me (as a taxpayer) to subsidize the autoworker retiree's medical insurance that is tax-free and has very low deductibles? While the dysfunctional healthcare sector in the U.S. and the plight of the automobile industry seem to be unrelated, the reality is that they are closely related. When saving and investing for our own retirements, we all incur risks, including the risk that certain costs will be higher than expected. The UAW must accept that its demands have been excessive and past agreements must be modified, effective immediately. One section in the article discusses the Detroit autoworkers' wages compared to those of the "transplant" autoworkers. The comparison ignored the non-wage benefits. When comparing labor costs, it is important to compare total compensation costs, including benefits. Similarly, the recent stagnation in wages is a direct result of rising costs of benefits, including retirement and healtcare costs.
- RandyS
December 22, 2008 at 12:28pm
The benefits enjoyed by UAW workers have proven to be unsustainable. It is impossible for these benefits to be universal for all Americans, let alone all working people. We are in financial crisis now because, even at a much lower per capita income than UAW emplyees enjoy, we are living above our means. We have to reduce our standard of living, not increase it.
- r-ennis
December 22, 2008 at 12:38pm
Frankly, I see nothing noble in this soon-to-be failure. This isn't Wake Island. We're talking about businesses that made poor decisions - y'know, like paying semi-skilled labor extremely generous wages and benefits. It's a waste. My car dealer old man (aka selish29) used to tell me how this was all going to turn out back in the '70s. If he were alive he'd be damned sorry to see that he was right.
- selish70
December 22, 2008 at 12:42pm
If you think the UAW labor costs for the Big-3 is bad, wait until the bill for government worker pensions hits the American taxpayer. Talk about financial incompetence....
- tim stevens
December 22, 2008 at 12:43pm
The author of this article fell into the American habit of seaching for someone to blame. In the apparent view of the author society is responsible not choices made by the parties. If only the US was a more "enlightened" society, if only we would learn from Sweeden, the tragedy of the Big Three and the UAW could have been avoided. The author fails to note that the prime responsibility for this collapse rests with the parties involved. Management peddled shoddy, poorly designed products to the public, and the UAW was complict in the deception every step of the way. The UAW may not have designed the cars, but the union workers benefited from the sales. More impotantly, the author fails to examine the obvious: was the situation that existed in the auto industry from the end of WWII until the mid-1970's the result of unique historial and economic circumstances? Does reasons exist to believe that wages/benefits for unskilled assembly live workers could continue rising indefinately? Do UAW members have any rational reason to expect that they can continue to receive wages and benefits far in excess of those paid to other workers?
- Octavian
December 22, 2008 at 12:49pm
Grey Paladin, It seems to me that the reliability issue is perception. I never hear in the media that the Germans can't make decent cars, yet Mercedes recently rose to 2/3 average or above (GM is at 3/4 and Ford is higher). Audi, BMW and Volvo are similar to Mercedes. It didn't a mention of Volkswagen in the summary I read but they generally do terrible in CR. Although Toyota always seems to come out on top, Nissan has had its share of problems.
- PeteM
December 22, 2008 at 1:01pm
While the article makes many salient points, there is no discussion of product and quality of product. Many years ago American consumers began buying foreign inspired products (Civics, Accords, Camrays, Pathfinders, etc)because their repair and maintenance costs and programs were minimal and simple and because the products (now made in the US by US workers) last and last. How many stories we have all heard of the Honda, Toyota, Nissan, etc that lasted through high school and college and beyond - 100,000 - 200,000 miles and more. How often do we hear that story about a Chevrolet or even the then "savior" Taurus? The Detroit american auto industry still does not get it I fear!
- Phil Rivers
December 22, 2008 at 1:16pm
Excellent article. What needs to be added is the critical fact that the Japanese & Korean dumping operations (i.e. their US plants) are what's killing Detroit, not imports. The Camry equivalent in Japan costs $10~12k more in Japan than in the US. Stand on a street corner in Tokyo and you won't see one non-Japanese car in a hundred. Won't see a non-Korean car in Seoul all day. This allows the Asians to price much lower in the US open market. Fair competition? What a joke. Shelby & Corker should have to register as foreign lobbyists.
- EdwardC
December 22, 2008 at 1:27pm
The Japanese and European firms that produce in the United States use American workers under American labor law. Your implication their success comes from labor laws at home ignores the mass economic stagnation they incurred with domestic intervention (ala Lost Decade, Germany in the 1970's). $40 an hour is not slave labor, many who make less than 20 an hour may even call that middle class. I dunno what you writers think of 40 an hour, but it doesn't seam to me it would be an utter tragedy if the GM workers would have to swallow that.
- Mick
December 22, 2008 at 1:39pm
It's an interesting article, but some of the reasoning is sloppy. For instance,looking at wage growth rates while ignoring the fact that total compensation (wages plus fringe benefits) have grown much faster is just wrong. Slow wage growth might mean that management is getting more while labor is getting less, but not in this case: compensation is growing, but workers are getting more health care and less wages. If every industry were like Detroit then the benefits for wages shift likely would have been worse. Second, while unionization does raise total compensation (assuming the company doesn't go bankrupt, of course), it's not clear who is "paying" for it. That is, do higher wages for UAW workers come through lower profits for GM, or through lower wages/higher unemployment for non-union workers? I don't know the answer, but my guess is that states/countries with higher unionization rates will tend to have higher unemployment as well. And while Cohn cites Scandanavia as a model, I don't think the labor share of GDP is much higher there than it is in the U.S. So in substance I'm not really sure what this adds up to.
- Andrew Biggs
December 22, 2008 at 3:11pm
"In a more enlightened society, after all, government would have made those promises and extended them to all workers, thereby spreading the burden of financing them to all taxpayers." -- a more enlightened society? Try a dysfunctional society. Time to stop clinging to these defuct, discredited, communist dreams.
- Mike
December 22, 2008 at 3:40pm
The "audacity" of this article is insane. The author is trying to justify inefficient corporations solely because it "provides" an above-average lifestyle for its workers. Did you morons ever take an economics course for once in your life? Companies that sustain a higher than market cost of doing business (higher salaries, high costs of production, inefficiency) will inevitably fail. So you're saying that the US taxpayer should bail these people out just because of idiotic democratic/union policies that were designed to fail? Let's say you expand this idiocy to Walmart. To GE. To all the other companies out there who all become inefficient and pay exorbitant salaries above market. What happens? They ALL fail. They will ALL fail to foreign competition. Ah, but you say we're going to place massive tariffs on foreign goods, thus artificially inflating prices of domestic goods. Who suffers? All of us. How much are you going to buy when the price of cars is $60k for a Chevrolet? The same rationale is why the minimum wage should be set by the market, not by some arbitrary government guideline. All you're doing by raising the minimum wage is ensuring that the lucky ones who keep their jobs are paid more while the poor saps who lose their jobs as a result get nothing. Why don't you shut the hell up, unfortunately the idiocy that you spew actually influences those with weak minds.
- jwl2672
December 22, 2008 at 4:39pm
I am glad that the writer sees being able to buy a house, send your children to college and have a comfortable retirement as a positive. Are only white-collar workers supposed to enjoy the benefits of full-time work? Again, from all the numbers that are being thrown around, 10% of the cost of the auto is from the worker. These comments seem more from people who seem jealous that a union can protect a person from most management that just want to use you and then throw you away.
- Noreen Hild
December 22, 2008 at 5:09pm
"from middle and working class people who don't feel that they'll ever enjoy the kinds of benefits the Big 3 negotiated" Yes, lots and lots of envy in comments I've seen on this subject. In fact, many people are more anxious to make sure that others don't get a better deal than they do than they are willing to work to ensuring their own rights and benefits. Why? Because it's less risky. I do feel sorry for the Gen X workers who have never raised their voices or risked their necks for decent wages and benefits, and, more foolishly, have not only never caught on to but in fact have, like deluded sheep, embraced, the tax scam their Silent and Boomer generation elders (who, under a much more progressive tax system, were blessed with a minimal and/or non-existent tax burden in their own youthful, wealth creating years while their economic futures were at the same time being heavily subsidized -- through massive public investment in education and material, social, cultural and economic infra-structure, etc, etc. -- by the taxes of their more affluent elders) pulled off at their expense. How? By, in thier most affluent years, using their political clout to push the tax burden that was deferred in their youth off onto the generation coming up behind them (and neglecting public investment that could help provide economic opportunity for that younger generation). The truth is, economic justice and progress are only secured by ordinary people who are willing to take risks and stand up for themselves and others. In a capitalist economy, if you don't demand representation and push for your own economic interests, there will always be more powerful economic interests willing to push you around. But, under the excuse of so-called "libertarian" or conservative ideology most Americans actually harbor the attitude expressed by this fellow in a recent NYTimes article: “The concept of nonregulation means don’t mess with business and business will take care of us. But I was looking to retire, and now what do I retire on?” In other words, don't rock the boat, don't demand accountability, rights, participation, representation, justice, morality, don't question the perogatives of your "betters" -- "and business will take care of us." "Libertarian" isn't the right word for this, of course, better words are; "passivity" "fantasy" "delusion" and "cowardice." Of course, once business fails to "take care of them" (as it inevitably will) these people always start blaming "the government" for not having done so. The last thing they'll admit is that it has been their own cowardice -- political and otherwise -- that has put them in the situation they are in. My Dad was a union organizer in the 30s BECAUSE he understood that in a capitalist economy NO ONE could ever be assured of a job. He didn't expect the union to provide him with security -- and thought anyone who did have such expectations was a fool -- he expected it to provide him with representation. A voice. Too many Americans would rather not raise their voices. They want someone to magically take care of them simply because they are being "good" and not rocking the boat.
- esmense
December 22, 2008 at 5:17pm
This is all nonsense. Cohn obviously does not understand the basics of unionism. The costs of unionization (i.e. higher pay and benefits) are never paid for by the employer. The employer is always able to pass those costs on to the customers. If the employer cannot pass them on then either the union is broken or the employer goes bankrupt. In other words the benefits of unionization are a form of monopolistic rent. The UAW was able to extract those rents for as long as the Big 3 had an effective monopoly on the US car market. When the Japanese broke that monopoly there could no longer be any monopolistic rents. At that point the only question was whether the Big 3 would have the "b-lls" to break the union or whether the UAW would put the Big 3 into bankruptcy.
- David Kwavnick
December 22, 2008 at 5:23pm
Were it not for pattern bargaining and the lack of competition none of these early cost increases could have been passed onto car buyers. Detroit had little incentive to be tough at the bargaining table when all problems could be solved by raising prices. The Japanese ended that game and set Detroit up for its certain demise.
- logger
December 22, 2008 at 5:40pm
Interesting "Ivory Tower" take on reality. Several comments: 1. Management of the auto companies is totally inbred and self-referential. As someone above pointed out, they made promises to the UAW regarding long term care that were never funded - promises that were easy to make when the bill was years away. Bad and greedy management was a huge factor here (after all, funding the pension and health care plans would have resulted in lower current day profits, and bonuses). 2. The thread through this is replete with the idea of the noble worker. Baloney. There are way too many anecdotes about workers abusing the heck out of work rules, taking the 3-shots & a beer lunch breaks, having the "old guys" threaten to take the "new guy" out back and beat the crap out of him if he keeps working this hard, etc. 3. Inbred Auto Execs refusal to see reality in the 70's and 80's - i.e., that Americans wanted well-built, smaller, higher performance cars. Think back - the Pinto vs. the BMW 2002 at not much sticker price difference? Please. 4. Health Care. This article carries another thread through - continuing promulgation of the idea that Government provided health care is a panacea. I would urge anyone who thinks so to go hang out at a VA hospital for a couple of days. That experience will change your mind about the government being able to deliver health care in any way. As a conservative writer, i have a problem here - generally, i agree that no one gets a guarantee in life. That said, the Auto Companies agreed to a contract with the UAW regarding long-term benefits. Now that the bill has come due, GM et al want to renegotiate. The problem is that the worker cannot go back and be 25 years old again and make other arrangements. The auto companies will need to roll back executive salaries to pay up on their commitments. TFB.
- Mike Langlinais
December 22, 2008 at 3:20pm
This excellent article would have been even more useful with the inclusion of a few more historical points: 1. Before the UAW came along, the auto industry was already a leader in enlightened thinking as to the *economic* desirability of an enlarged middle class that included factory workers, i.e. a mass consuming class. Henry Ford, not a socialist by any means, was competing with many other companies that made cars for the upper middle class (professionals and businessmen) and the rich. He had the radical notion to make cars for the middle class...but the middle class was pretty small then. Realizing that automobile manufacturing has low variable unit costs but massive fixed tooling costs, and therefore total unit costs depend very strongly on how much volume can be done, he chose to enlarge his volume by means of a second radical notion: he paid his factory workers a much higher daily wage than the standard of the time, with a broad hint that now that they were making good money, they should buy one of the cars they were helping to build. Thus a significant part of Ford's payroll came right back to his company; Ford was able to spread its tooling costs over much more volume; and a key step toward the building of the American middle class was taken. 2. Other comments have repeated the false "fact" that the Detroit 3's vehicles have inferior quality. That was true in the past. It's not now. The respected, independent JD Power survey of buyer experiences shows that the Detroit 3 and the Transplants have equal numbers of models at the top quality level. 3. Other comments have repeated the false "fact" that the Detroit 3's factories have inferior productivity. This is 100% backwards. The independent Harbour survey of automobile-industry factory productivity (output units in a given class, divided by numbers of labor hours utilized) shows that *all* of the top ten best-productivity factories are Detroit 3 managed...though one is co-owned by GM and Toyota.
- John Schaefer, MI 48519
December 22, 2008 at 6:15pm
I think it's useful to separate out the different reasons for Detroit's lack of competitiveness. (1) Crappy cars (80s GM sedans, I'm looking at you), and the lingering effects of that reputation, (2) inefficiencies (too many brands, antiquated management practices, and yes, stifling union imposed work rules), (3) crushing legacy costs (retiree pensions and health care), (4) higher direct labor costs (including healthcare benefits) compared to the competition, and (5) overpaid executives (like all American executives). It's true that Detroit survived all of these because the big 3 basically did comprise an oligopoly for decades -- which was effectively extended by American blind nationalism (buy American!) even longer. There are enough reasons there that are Detroit's own fault (and its unions) for the Big 3 to die a well deserved death. However, that doesn't mean the UAW bears all the blame. Nationalized healthcare would help put us on par with the Germans and Japanese. Improved, nationalized retirement security would also help. And given the dramatic productivity increases in the last 40 years, it seems that workers should share in those gains, and yes, increased tariffs on imports from countries that don't provide a living wage are one way to ensure a level playing field. I certainly think Detroit should be forced to compete, but not in a race to the bottom to see who can screw their workers the most. And as for the claim that those Southerners love their non-unionized auto jobs, just look at the alternatives for semi-skilled labor. All those jobs have already gone to low-wage countries thanks to the misguided worship of "free trade". Yes, it helps Wal-Mart consumers in the short run, but the long run lack of decent paying jobs hurts more than a few pennies extra for underwear.
- grey paladin
December 22, 2008 at 7:03pm
Noble try Jonathan. We still do a lot of manufacturing in this country, most of it by American-based companies. Where have we been vulnerable? Where the work is low-skill, low value--e.g., textiles-- it has been lost to lower-cost developing countries. Where our industrial base has become outdated--e.g., steel--we have lost to foreign companies with more efficient plant (though leaner, more efficient successor American steel companies are hanging in). Where the industry is an ossified oligopoly--e.g., cars--we have suffered a lingering death. Thank heaven for hundreds of thousands of auto -building jobs, not all of them in the south, from import-brands. Where are we succeeding? Where our products are world-quality standard in design, and world-quality standard in execution. There, wages are not the issue. Next to wage growth. Back in the fifties, when I was growing up, most houses were smaller, had one TV (if any), and one car (kids like me bought a "junker" with their teen wages). The middle class wants more today, and the wage statistics don't reflect that. How many families now are willing to share one bathroom? That's part of the reason why we have a two-worker norm today. The current financial crisis? In significant part it is due to middle class people reaching for more than they can afford ( and, of course, pirates helping them to make that reach). Labor? They want card check and protectionism. We can hope that they don't get what they want. What Obama should deliver is an NLRB that polices undue management advantages in unionization contests. "Card check" is so obviously an invitation to goon violence it can never pass without a filibuster-free congress. Protectionism? You want a depression, you'll get it. The key to the future, as always in socially-mobile America, is education. For some, particularly in the blue collar contingent that liberal economists care about most, it's like castor oil. They don't really cotton to it. Their pals should be telling them ignore it at your peril. Robert Samuelson wrote a great piece for the Washington Post some time ago to the effect that some kids who aren't ready to accept "real" education in their teens manage to reach for it later. Whatever works!
- lsernoff
December 22, 2008 at 7:17pm
There are 40 automotive brands sold in the US. Of that 40, only 11 are produced by the Big 3. In 2007, those 11 brands made up about 65% of total US new car sales. (Toyota made up a little more than 10% -- the remaining 25% of sales was divided among all the other foreign car brands.) In addition, we have a huge and growing used car market. (In fact, the majority of cars sold in the US each year are used. The median age of cars on the road in the US is almost 10 years -- and that, in recent years, has been increasing steadily.) That's an extremely competitive environment. One made even more complicated by the fact that new car buyers tend to be more affluent, and much less influenced by factors like price and fuel efficiency (and much less sensitive to sticks like increased gas taxes, taxes designed to penalize less fuel inefficient vehicle purchases, etc.) than "average" car buyers -- who are buying used. The fact is, the majority of sales of new FOREIGN cars in the US are high end, less fuel efficient sedans and other luxury vehicles. Domestic car manufacturers aren't in trouble because they are producing cars no one wants -- they, like their foreign competition, are producing cars that a majority of people in the NEW car market want. The problem isn't that Detroit isn't providing new car buyers with the cars they want. The trouble is, that that market -- people affluent enough to buy new with some modest frequency -- is shrinking. Too many car manufacturers, too few new car customers. That's the problem. And it's a problem ALL car manufacturers -- foreign as well as domestic -- share. I'm not sure of the solution to this problem. But I'm pretty sure that working to undermine the buying power of US workers -- the majority of people in the consumer market the whole world depends on -- ISN'T a solution.
- esmense
December 22, 2008 at 7:33pm
To put most of the blame onto the backs of the past and present blue collar auto workers who actually built the cars is simply ridiculous and atypical of so many white collar workers of yesterday and today. Funny...it's those same white collar employees who made all of the decisions that ran the industry into the ground in the first place starting in the 1960's when they killed every semi economical domestic car around like the Falcon and Chevy 2.Cars that could have been downsized easily and equipped with four cylinder engines like the English Ford Cortina used at the time.Both were replaced by almost full size cars because that was what the public " supposedly " wanted.No one blames the consumers of the period who had to have a V8 with a four barrel or two ! Or bothers to understand that small cars generally are not as profitable to sell as fully loaded land yachts. It's always the workers fault. Now back to reality...it is 2008 and what vehicles do both the domestic automakers and the American public swear by ? SUV's of course...a more modern Olds Vista Cruiser with 4WD and dual zone climate control.Even Toyota jumped on the bandwagon with full size trucks and SUV's, along with Nissan.Who decides to build these vehicles ? Management and the consumers...not the workers.The management of the " Used to Be The Big 3 " should be the first ones to go out the door...along with all of their assistants.Than ask for concessions from the workers. As for whose to blame ? Well, there is more than enough blame to go around here... Mismanagement...The greedy HMO's...The people who still believe our oil supply is infinite...and the list goes on and on. Anyway...it's the " Used to be The Big 3 " now....
- Eugene Ionov
December 22, 2008 at 8:24pm
Maybe the auto companies should convert to bank holding companies - then they could apply for TARP money with a two page application instead of groveling and begging in front of a Congressional Committee. www.ustreas.gov/press/releases/reports/applicationguidelines.pdf :-)
- toritto
December 22, 2008 at 9:41pm
Detroit based companies cannot compete with Japanese based companies because they do not generate the same insights into what customers will pay for; they do not have factories that are sufficiently flexible to manufacture a wide variety of models on the same production line and change the production mix swiftly and inexpensively to respond to changes in consumer demand; and because they traded expensive, long term, benefit increases for lower short term wage increases, contract after contrat. These are all management failures of epic proportions. The UAW has, for the most part, taken advantage of these management failures of imagination and commitment, and taken everything they could get. Their thinking has been every bit as short-term as has managements'. The last chance these companies had to fix their problems was to unload their health care commitments as part of a Clinton health care reform plan. They are now screwed. The best we can hope for is that the government dribbles out enough money to let these dinosaurs shrink without causing a huge disruption to the economy. As they shrink, Toyota, Honda, and Nissan can grow their share and allow the supply chain to adapt and survive.
- john griffiths
December 22, 2008 at 10:12pm
Phil Rivers, You seriously never hear stories of Chevys or Fords that go over 100k? There was article online recently about Ford pickup at 1 million miles. Of the last few cars we've had, two were Accords. They were decent vehicles, but were undriveable in humid weather (they wouldn't defog). The dealer acknowledged that it was a defect that couldn't be corrected. My wife's Oldsmobile is at 160k with one repair (a brake job), and my Cadillac is at 130k with only a ignition coil issue at 105k.
- PeteM
December 22, 2008 at 10:45pm
I agree that senior managers of US car companies were arrogant and out of touch. Despite my father's 37 years of service (as a middle manager) at GM, when I bought my first new car, I voted for quality, reliability, and fuel economy...in short, I bought a Honda! My father still hasn't forgiven me. There is also another element to this situation: how many of the workers took responsibility for their own role in adding value? Most of my high school classmates aimed only to be employed by GM, assuming they would then have a comfortable life - not have to push themselves physically or mentally. When GM pulled the plug on the dead weight, these people cried foul and expected GM to fashion new career paths for them by providing training. Ironically, it was my father who always said life isn't always fair. He also used to tell us kids, "I won't be doing you any favors by letting you leave my house thinking the world owes you a living. you get out of life exactly what you put into it." I wonder what he is thinking now that his retirement benefits - he couldn't wait to retire at 56; he's now 78, and after he retired, he poured his energy into activities like volunteering for Boy Scouts (he has been a leader for about 45 years) and his church.
- Sheri
December 22, 2008 at 11:38pm
You have to love the economic right wing TNR readership ripping blue collar workers. There is little question that most of those who attack protectionism here, work in markets that don't foreign competition (i.e, lawyers {bar exam]. doctors [medical license]). A lot easier to praise free trade and open borders when your protected from the harmful side effects. For the average TNR reader being liberal is just about gay rights and abortion and has nothing to do with standing up for blue collar workers.
- sp6r=underrated
December 22, 2008 at 11:54pm
I have trouble with what some here call GM "promises" to autoworkers. In my view the UAW made ever-increasing contract "demands" (remember the Union motto: "NO GIVE-BACKS!")...in contract "negotiations" in which you either met the union demands for only increases (never decreases)...or the Union would strike...shutting down the employer with primary and sympathy strikes, costing billions and threatening the very existence of the company...until the company yielded to union demands.
- hardmanb
December 23, 2008 at 12:02am
Odd: I can agree with Chait. It was indeed foolish of the federal government to try to redistribute wealth by simply giving unions monopoly pricing powers. This strategy has ruined many American industries. Currently autos are failing. Boeing will be up the creek in another generation or two. Either abandon this foolish tool of the utopians, or institute the utopian ideals by other, broader means.
- Karl
December 23, 2008 at 12:06am
You completely miss one one point, a business, any business, exists first to serve it customers ( who also happen to be mostly workers in other parts of the economy ). Only way to improve worker's income over the long run is to raise productivity, not try to grab a greater share of the pie. Encouraging unproductive workplace practices for all parts of the economy will finally result in overal LOWER living standards for all, particularly lower paid workers who are more consumers ( as a percentage of their income ) then those more better off. Finally, if blue collar workers should be paid nearly equivalent to brainworkers having much higher skills/productivity, ( eg Hospital Orderly v/s Doctor ) what is the incentive for any person to spend years and a fortune to improve and upgrade his skills ? No surer disincentive to longterm economic growth than to discourage skill acqusition by the next generation. The way out is not to reward and encourage people who strive only for low productive jobs, but to encourage and facilitate skill upgradation for everyone, starting right at school level, and continuing with opportunites for lifelong learning. In short, fight for equality of opportunity rather than equality of outcomes.
- firo
December 23, 2008 at 1:16am
A fuse has been burning for a long time. When global cartels reason aside basic rights you will be next in line. Billions of dollars are wasted before you eyes and you say nothing because your standing on the damn bomb. Overall they cannot print money out of problem and have you factored many in Unions are college educated and understand the issues more clearly than you may ever consider. Some of us Union people do save as if you check savings of overall capital preserved in 401k which I feel feel envy may play a part but perchance we have measured the global avarice of government and the addage attitude starts at the top. The articles scope is broad so no context can define what we are subject to overall. Franklin was correct, hang togeather or seperate. Really, strip all benifits from Obama on down the food chain so we "base people" may observe your wisdom. I thought not..... Your predators plain and simple, or am I in remiss. God help those in power they need it so badly.
- Michigan Union Voter
December 23, 2008 at 7:13am
Maybe in 10 or 20 years they will see the light to die on your feet, and not on yours knees. There are so many fundamentals missed today I stress only that my children are taught that wage generates savings, and that is what generates income. I passed on my fathers warning to my children also. It is nice to see the rubber on the road attitude so to speak to facts in a true context. As we know the crocodile next is to cull is so called Governmental Employee benefits gone beserk. As to the comment on Veterans homes in another posted comment. I lost my Father in law a few weeks ago. The kind of man who threw out dead germans to signal that the building was clear for his friends behind him. The care was excellent for this union man who deserved these core benefits which he killed for to stop an evil regime with others, and payed taxes for his whole life as such. The staff was excellent in Michigan for the Man. How did this transpire? Well, the world is a nasty place if self centered people who think they know what you need. He warned me as we talked over the decades about how the DNR was after them, as we distributed game to the older people in the area we cared about and that they never needed the state when the Lord provided enough as we hunted and fished when I had time. His summers in retirement where spent teaching union master carpenter skill for habitat for humanity to inner city citizens to learn skills. What lessons did I learn from Union men we are losing is countless. I pity myopic people who have no clue to what they have done and condemn those who think we are a social burden overall. Of course education separates as does stupidity. Most union men have spent countless time in college as I have done to skill up and observe children of all ages complain about this, and that problem as we go back to work and watch these bright but shallow self centered people who think life owes them something. Socialism is a desease, but I will die for my friends, as they for me. We pressed process safety management decades ago as we buried 26 union brother members some decades back in our area alone. The point was it was easier to kill them than shut down. How do we know? We survived the idiots who over the telephone who says at all cost stay in production. We offered truth to federal officials, not lawyers opinion. We rebuilt bankrupt company's broken up from global players who gather capital from others people money to better business models we had to survive. Of course pesky union need to be eliminated we will build other consumers we can tap since any fool knows we need organic growth models elsewhere. We gathered our Union's to underground links to facts to build safer and better understanding of what we need to do. The only threat I see today is misinformation at both levels of union, and company since money breeds fathers we never have known. The only man I will now help is a man able to care about his brothers and sisters since we never seen that as a union issue. Go ahead crush the Unions, and see what happens to the Union called the States since your living it now. Im old now, I will work on my grandchildrens inheritance and try to convey to the dying breed what a Union is, and is not about. For god sakes pray for wisdom and our nation's understanding to focus inside first then outward to give in abundance. Impossible to convey all facets of globalist priciples. I just work in it and wonder about why so many complain when they really should learn more first and that is to listen more and speak less. Time has a way to show what you need and not what you want.
- Union
December 23, 2008 at 9:29am
It just amazes me that so many Americans are so willing to let their biggest industries fall in favor of foreigners in the name of ideology. It's no wonder foreigners with more responsible economic practices think we're idiots. We are.
- Jeff
December 23, 2008 at 10:56am
#49 For liberals who love to "help" the world and consider themselves global citizens, there's a helluva lot of support for protectionism and tariffs. What better way to help the world than to do it the right way, by giving them jobs via capitalism instead of sending them wheat and charity? How many poor people in China and India have we lifted out of poverty as a result of our insatiable demand for cheap plastic toys and consumer electronics? Why doesn't TNR write an article about that as opposed to writing about how much better the UAW worker is over the Toyota worker who's not as well to do? I guarandamntee that the Indian worker had his level of living elevated far more than what artificial wages are elevated by unions. It's obviously clear that free markets are the best way to go for the world as a whole. For a country, in the SHORT run, it's better to protect your industries. But that is unsustainable in the long run as you're penalizing your consumers with overpriced and shoddy merchandise made by inefficient domestic producers.
- jwl2672
December 23, 2008 at 12:52pm
What amazes me is that lost in all this sturm and drang is the fact that our standard of living has grown so dramatically these last 25 years, in specifically the growth in US GDP versus that of most other developed countries which have the very system the author promotes. Nothing against the Scandinavian model, and perhaps something like it would work fine here as well - it hasn't been tried. But, like it or not, some version of the relatively free-market system we have here leaves enough flexibility and enough room for both success and failure to allow for a rapidly rising, though uneven, tide. The US may have the worst economic model, except for all the rest.
- des11
December 23, 2008 at 4:00pm
Another fine piece about the auto industry. While some of your readers are in another world you have described the auto world. For example - 401K's For you so young in the 40's 50's 60's 70's there were NO 401K's, you need to understand this is all about taxes and how to make money on the backs of the workers!!!!!!!
- Keir
December 23, 2008 at 5:37pm
Cohn wrote a good article but he doesn't go far enough in debunking the conservative argument against the UAW and the BIg Three. They've made huge strides in productivity. From Car and Driver: Chrysler tied Toyota for productivity in car making as the best in North America, so say the results of the 2008 Harbour Report—the authority on automotive productivity—released June 5, 2008. Once all the numbers were crunched—including the number of hours it takes for stamping, building transmissions, engines, and assembling vehicles—the two automakers finished in a dead heat at 30.37 hours per vehicle each. In descending order, the rest of the pack are: Honda (31.33 hours), GM (32.29), Nissan (32.96), Ford (33.88), and Hyundai (35.10). This near-parity is a far cry from a few years ago when the Japanese could out-produce the Big Three 2:1. “But productivity doesn’t guarantee profitability,” Ron Harbour warns. The Japanese still make much more money on each car assembled and sold. The numbers are downright scary. Honda and Nissan make $1641 in pre-tax profit on every vehicle assembled, while the average profit on a Toyota is $922. Contrast that with $1467 lost by Ford per vehicle, a loss of $729 on average for GM, and $412 in the red on a Chrysler product. With those kind of numbers you can understand why all car manufacturers fought congress over CAFE standards (with full complicity from the Republican party and MI Democrats) to keep building large high profit margin vehicles. It was a matter of life and death for Detroit but given their druthers Toyota and Nissan would rather sell you a Tundra or a Titan than a Corolla or a Sentra too. Here's the lie of omission Republicans tell when they blather about $70+ an hour Big Three labor costs vs. about $49 an hour for transplants: they don't mention that American car companies are on the hook for their retirees' pensions and healthcare. Cohn doesn't hammer that point enough. GM alone supports over 400,000 retirees in the US because they've been building cars here for a century. Toyota which has operated plants in the US for a couple of decades? Only about 700. These legacy costs have been strangling all US manufacturing for years, not just car companies. But it's not these costs, or the need to cover that overhead by building profitable SUVs that sent them heading over the edge this fall. It's the credit crunch, the same thing that's killing the rest of the economy. Look at these charts: (all figures compare November 2008 US sales with November 2007) Chrysler -47% GM -41% Ford -31% Toyota -34% Nissan -42% Honda -32% Mazda -31% Hyundai/Kia -39% Volkswagen Group -22% BMW Group (including Mini) -27% Mercedes-Benz (including Smart) -30% Even more disturbing is the 11/08 drop off from 11/07 in fuel efficient models: Toyota Prius -48% (the gold standard stumbles) Toyota Corolla/Matrix -13% Toyota Yaris -17% Scion (all) -45% Honda Civic -30% Honda Fit -8% VW Rabbit -44% Nissan Versa -18% Nissan Sentra -39% Ford Focus -38% Chevrolet Aveo -36% Chevrolet Cobalt -54% Pontiac Vibe -14% Kia Spectra -33% Hyundai Accent -11% Everybody's business is in the toilet. American buyers are maxed out. With so many people in homes worth less than what they bought them for they can't get car loans even if they have secure jobs and make decent money. It's my understanding in California you have to have a 760 or better FICO score to finance a new car at an affordable rate and that effectively shuts 40% of buyers out of the market. Which leads me to these charts: 10 best-selling models in May 2008 1. Honda Civic 2. Toyota Corolla/Matrix 3. Toyota Camry 4. Honda Accord 5. Ford F-series 6. Chevrolet Silverado 7. Nissan Altima 8. Ford Focus 9. Chevrolet Cobalt 10. Chevrolet Impala 10 best-selling models in November 2008 1. Ford F-series 2. Chevrolet Silverado 3. Toyota Camry 4. Toyota Corolla/Matrix 5. Honda Civic 6. Honda Accord 7. Dodge Ram 8. Chevrolet Impala 9. Honda CR-V 10. Nissan Altima If the Big Three CEOs looked clueless at the congressional hearings a few weeks ago well maybe that's why. With gas prices whipsawing this year the US car market has been incredibly fickle. It does Ford and GM no good to build more Focuses and Cobalts if the only people buying vehicles next summer still want F-150s and Silverados. With Prius sales off 48% this year even Toyota's new plant to build them in MS is on hold. Clearly what American car companies need is leadership - not just cash - from Washington. We need tax incentives for Americans to buy smaller more fuel efficient and cleaner cars. And on the flip side serious gas guzzler taxes on larger vehicles. So on top of economic, environmental and nat'l. security reasons you can add survival of a huge chunk of the industrial base as an incentive to use the tax code to steer the market toward the 21srt century. Most importantly we need to relieve all American businesses of the burden of healthcare costs that are making us uncompetitive worldwide.
- Mark Garrity
December 23, 2008 at 8:02pm
The problem here with the anti-union folks is they do not see that they are cutting their own legs out from underneath. Work and business has one goal: To ensure prosperity for humanity. Not just prosperity for a few, the owners, the rent seekers, but for all. The denial of the sacred nature of work and ability to shovel labor off as another cheaply used up commodity is where these anti-union folks fail. Think about; why do you get out of bed every day? I am sure no one raises them selves up to work for subsistence only, and if you are, then you need a union. People say that the unions are not viable and are not needed. Then the fools who are worried about being too prosperous can go to work in a non-union shop and I will work for my own prosperity.
- Rob
December 23, 2008 at 10:24pm
Bravo, maybe in the next month we can be Europe or Japan, but judging by the picks who knows
- Tom
December 23, 2008 at 10:53pm
The UAW and the Big Three financed their welfare state by selling third-rate cars at monopoly prices. Mr. Cohn wants every American company to have labor costs of $73 per worker. What would Wal-Mart's prices be if they had to carry that kind of overhead? Or are we going to somehow impose monopoly prices on foreign countries? It's disappointing to see this sort of childish "why can't we be like Sweden?" article still appearing in TNR. Sorry, but it is time you guys took Econ 101.
- Alan Vanneman
December 24, 2008 at 12:02am
Wow. I never knew that TNR readers hated workers so much.
- tronDB
December 24, 2008 at 2:05am
While Cohn's article is informative and provides some insight into the history of labor unions and in particular, the UAW, his proposed solution to the problem: adopting the Scandinavian model is far off the mark. The Scandinavian countries are much more demographically, economically, socially, culturally and racially homogenous than the United States. The Scandinavian countries also have much smaller populations. Second, the tax burden for Scandinavians is the highest in the world and it would be a worthwhile analysis to determine whether these taxpayer dollars are being used by the governments to provide equal or better value for goods and services than the Scandinavians would get in the private sector. If the US Government is truly interested in improving the lifes of the average worker, then it needs to start taking a much closer look at the benefits that companies provide to their employees and enact legislation that would require all businesses operating in the United States (whether they are US-based or foreign companies) to provide a basic package of services that includes health care, sick leave, maternity and paternity leave, vacation time, retirement plans, workers' compensation, etc. Burdening individual tax payers even further so that the federal government can provide these services is a big mistake. The US Government does not have a good track record for executing and managing welfare programs. Companies should be responsible for their employees, not government. Labor unions would not have been necessary if corporations had recognized from the beginning, the fundamental rights of employees.
- Tasneem Malik
December 24, 2008 at 11:54am
The whole article dances around one question: if this were done nationally, what - short of heavy subsidies - would prevent the same across-the-board financial failure?
- Troy
December 25, 2008 at 3:20am
What many, or most, of you don't seem to understand is that these benefits actually are owed to these workers. Obviously you have never negotiated a contract. I have negotiated hundreds of them. Retirement and health care benefits are actually "deferred wages". By that, I mean that if the guarantees agreed to in the contracts were not to be honored, the workers would have negotiated for a much higher wage in order to put monies into 401K type plans and buy their own insurance. These benefits were agreed to and must be honored. Japanese and other foriegn automakers are subsidized by the state they choose to build in, by their nation of origin and by the fact that their top executives are only paid about forty times what the guy on the shop floor makes. If you want to start cutting to ease the bailout pains, cut the damn wages and bonuses and benefits of the fat-cats from Wall Street. This crying about the autoworkers is all a philosophical problem against UNIONS and Corker, Shelby, Demint, McConnell and Cornyn should be drawn and quartered for putting these companies ahead of their nation while holding a Senate seat.
- Omearo
December 25, 2008 at 11:02pm
Omearo: One wonders if you feel that same way about CEO's contracts and wages? Negotiated terms they may be but Unions have enforced their highly-inflated wages and benefits on these companies resulting in massive inefficiencies and costs. Who actually foots the bill for this? American consumers who buy lower quality, less efficiently made American cars. (where else do you think GM gets their money to pay them these inflated wages?) And now, apparently, the US taxpayer.
- jwl2672
December 29, 2008 at 3:37pm
#60 Funny that, you talking about "cutting the legs out from underneath. " I call it killing the goose that laid the golden egg. Every democratic politician wants to tax the hell out of the corporation/entrepreneur who risks losing massive investments to start a business and be successful, all the while EMPLOYING PEOPLE. When they turn out to be successful, everyone wants to vilify them, never mind that they kept thousands of people off the street and gave them self-respect and reliance. You talk about wealth for all. You penalize enough rich people and they'll just as easily move to London with their innovative business ideas and hire people there. And then what are you left with? Your useless union wage laws for when they come back to hire again??? Trust me, entrepreneurs and corporations are far more flexible about moving operations elsewhere outside of your state and even the US than you are of relocating your family to find work.
- jwl2672
December 29, 2008 at 3:45pm
"That factory was essential to the region, absolutely essential. I was perfectly justified in granting that loan. It provided employment for thousands of workers who had no other means of livelihood. ... It was men that interested me, not machines. I was concerned with the human side of industry, not the cash register side. ... I took a personal interest in all my investments. I went to inspect that factory very often. They were doing exceedingly well. They were accomplishing wonders. The workers' housing conditions were the best in the country. I saw lace curtains at every window and flowers on the window sills. Every home had a plot of ground for a garden. They had built a new schoolhouse for the children." Sound familiar?
- John Galt
December 31, 2008 at 11:59am
You mean Norway and its oil reserves. Sweden relies on, as Cohn avers, a very symbiotic relationship between labor, industry, and government. Let's all admit what were not admitting--the Swedish way of life is not germane to the credit lines American consumers enjoy. Our banks can spend 8 dollars for every dollar they have in reserve...do you suppose thats possible if americans are not borrowing 60k for college tuitions, are not borrowing to buy those appliances... Look at average lending rates for consumers in Europe. 12-15 percent. What do we want more: comfort for all or spending power for all? We ought to make that choice sooner or later.
- michael
January 6, 2009 at 8:05pm
Even before the oil shocks of the early seventies, when Detroit's carcompanies were exposed as innovation-challenged, the talk around Detroit was about what a bunch of dinosaurs were sitting in the offices of those car companies. The cronyism, the good-old-boy attitude, the self-satisfaction and complacency. It never changed, and it was never any secret in Michigan. We all knew it. Meanwhile, conservatives and propagandists of various stripes managed to divert attention to the unions and the wages and benefits. Even after management has been caught with its pants down time and again, failing at every turn to prepare for changes in demand, we're still subjected to the wage explanation. It would be better to ask why years of profit did not pay for years of reform. The auto companies seem unable to do something that is very important in order for a company to thrive: think. The problem is, and has always been, pitifully lousy management.
- jon
January 7, 2009 at 1:23am
The reason why Japanese made cars sell for less in the US than they do in Japan is because Japan has a value-added tax (VAT). VATs are like a sales tax on every step in the production process. Even the value added by automated processes is taxed. When the Toyota is sold outside of Japan, the VAT is refunded. Toyotas made in Japan enter the world market tax free. But, as Lee Iacocca pointed out, American cars enter the market "loaded with taxes" -- the property taxes paid on manufacturing plants, the FICA Social Security payroll taxes, etc. Over 100 countries use VATs, because VATs may be waived when goods are exported and because VATs may be levied against imports. Property taxes, income taxes, and payroll taxes may not be used in this manner according to the 1947 General Agreement on Trade and Tariffs. In 1947, USA was the G 1. GATT was made in the USA. What is it about US that we can't use the provisions of GATT to protect our industries the way over 100 other countries do? The FICA is a perfect candidate for replacement by a VAT. Nearly every study of Social Security concludes that it is unsustainable in its present form. Replacing FICA with a VAT would present some bookkeeping challenges, but the benefits would far outweigh the costs. God Bless America!
- Jim Bush
January 9, 2009 at 2:28pm
Just to pose an interesting question. What would a shutdown of the Big 3 mean for America as a country? I hear so much negativity surrounding the American auto industry, and I have my beefs as well. But do we completely abandon an industry and allow national competitors to dictate what we drive here in America? Let's, as a country, become responsible. Responsible for building products that are environmentally safe. Cars should be looked at as a form of transportation and focus on functionality, not a status symbol that we use to advertise our paychecks (or our willingness to spend beyond our means). That's where Detroit went wrong.
- ktblue67
January 10, 2009 at 7:04am