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Do UAW workers make $73 an hour? Does it matter?

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There has been much made of how well United Auto Workers (UAW) members are paid. One figure often used is $73 an hour. And it's also claimed that this pay level puts the U.S. auto manufacturers at a big competitive disadvantage. But that number is inflated and labor costs are not even that important a reason for the loss of U.S. auto market share. The real problem is that U.S. automobiles sell for a lower price but their quality is relatively poor, so consumers prefer the more expensive Japanese models.

The auto industry has used the $73 an hour figure in discussions about its UAW negotiations. But the New York Times points out that this number includes three things that don't all belong together -- wages, overtime, and vacation pay ($40/hour), health care and pension benefits ($15/hour), and retiree pension benefits ($15). That last thing does not belong because it's a fixed cost. If you compare the salary and benefits of a UAW worker to those of a Japanese one who gets less generous benefits, the numbers are much closer -- UAW ($55) vs. Japanese workers ($45).

The more important numbers are the ones that help explain why the U.S. auto manufacturers have lost so much market share and are now at death's door. Labor costs account for 10% of the cost to produce a U.S. vehicle so cutting UAW pay to $45 an hour would not make much of a difference. That's because U.S. labor costs are a mere $800 per vehicle higher than Japanese ones -- yet the typical U.S. vehicle sells for $2,500 less than the comparable Japanese model.

So the loss of U.S. market share must be due to consumers' perception that U.S. vehicles have much lower quality than Japanese ones. Even the lower prices for U.S. vehicles are not enough to convince U.S. consumers to switch from Japanese to U.S. models.

If U.S. auto company executives could design and build cars that consumers perceived as better than Japanese ones, then perhaps the U.S. companies could reverse their market share decline. Until then, squeezing labor costs won't make much of a difference.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008.

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Last updated: November 25, 2009: 07:06 PM

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