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.











Reader Comments (Page 1 of 2)
12-10-2008 @ 5:11PM
Matt said...
What about all the "legacy" costs everyone has been talking about? (retirement funds, pension funds, etc). . .. An additional $1200 per car that puts us out of the game?
12-10-2008 @ 5:19PM
greg said...
Yes, the $73 figure includes a lot so it is helpful to compare apples to apples. That comparison is availble. Toyota has 5 plants in the USA and their costs (including all the costs in the $73 figure) are about $48. Why? All the plants are in right to work states meaning the UAW union is not bleeding the compnay dry.
12-10-2008 @ 5:31PM
Duke said...
What Americans remember is that UAW represented workers make $28.00 to $33.00 an hour. Also the UAW worker will rub it in the face of his contacts away from work. The UAW worker brags about how much he makes for doing so little work. This travels like wild fire. Go to any bar, start a conversation about the UAW, and hear the same stories. True or not true, this is disconcerting to the consumer. There is no compassion for those workers. They are getting payback now. The UAW worker has improved quality, has given some minor concessions, has toned down their rhetoric a tad, and are now facing reality after the decades of making some of the best money for having no education. Even people with masters degrees got work at American auto plants because of the best wages and benefits around. Those days are gone like the steam locomotive, steel industry, textiles, rubber, electronics, airlines that have vanished as well as railroads that have vanished. The consumer is the decider of what is important. Not the big 3 and the unions. No pleasing the consumer and that equates to no more customers, and no more business. So it is not just the big 3 lack luster products, it is also the UAW worker and their nasty attitude along with their justification for doing $10.00 an hour work for $28.00 to $33.00.
12-10-2008 @ 5:58PM
marswind said...
I have heard that Toyota sold two million cars in Japan last year? And isn't it true that American car companies are not allowed to build factories there by Japanese law? And isn't it also true that to export cars to Japan one has to go through about six months of government red tape and inspections per car? And isn't it true that the legacy costs to Japanese manufacturers in Japan are as great or greater than in the U. S. because they have what is called lifetime employment? Is it not true that Toyota and GM have parity in total worldwide production numbers? And because Toyota was able to sell two million cars in it's own closed market, would not that imply that GM sells two million more vehicles everywhere else? Does anyone know what percentage of vehicles sold on Japanese soil are foreign made? Do Japanese automobile manufacturers enjoy monopoly power in Japan? Would it not be true that by giving those companies monopoly power the Japanese government is subsidizing those companies at the expense of the Japanese consumer? And since Japan is subsidizing their auto industry does that not put American domestic brands at a competitive disadvantage (since one half or more of all Japanese branded cars sold in the U.S.A. are made in Japan)? Is it worth it to us to forever cede our manufacturing base to Japan (and others) for a brief downturn, easily bridged, with a relatively small amount of capital? Is it not true that the American domestic brands pay as much as 147 billion in taxes per year? Would it not be unwise to give up these taxes forever in the future, for lack of financing now?
12-10-2008 @ 6:11PM
RICH said...
EVERYONE IS ON THE UAW WORKERS, BUT THEY ARE NOT THE DESIGNERS, ACCOUNTANTS, MANAGEMENT, OR RESEARCH PEOPLE. THEY DON'T SAY WHAT TO BUILD, HOW TO BUILD, HOW MUCH TO CHARGE ETC. THE BUYING PUBLIC SAYS IT WANTS PICKUPS, SUVS, PREFORMANCE CARS. NOT THE SMALL OFFERINGS OF THE FOREIGN MAKERS. THE BUYERS WANT TO BUY CHEAP AND NOT PAY US WAGES. SO, THE MONEY LEAVES THE US AND WE GET LOWER WAGES BECAUSE OF "RIGHT TO WORK" STATES. UNIONS GAVE WORKERS BETTER WAGES, INSURANCE, PENSIONS
AND SOME JOB SECURITY. NOW ALL THE TALKING HEADS IN THE MEDIA WANT TO HAVE COMPANYS FILE BANKRUPTCY, VOID WORK AGREEMENTS AND LOWER THE STANDARD OF LIVING IN THIS COUNTRY. OUR LIVING STANDARD DID NOT COME FROM WAGES PAID AT McDONALDS, K-MART, WAL-MART ETC. ITS MAKING A PRODUCT HERE IN THE USA BY US WORKERS THAT MAKES THIS COUNTRY STRONG, NOT BY GETTING THE LOWEST PRICE ON SOMETHING MADE OVERSEAS. WAKE UP AMERICA, WITHOUT A STRONG MANUFACTURING BASE THIS COUNTRY WILL NOT BE POWERFULL MUCH LONGER. AND IN PASSING ANYONE IN THE MEDIA, COME ON DOWN AND SPENT A DAY ON AN ASSEMBLY LINE, BET YOU DON'T MAKE IT TO BREAK, LET ALONE LUNCH.
12-10-2008 @ 7:14PM
joe said...
REMEMBER,THE OTHER CAR COMPANYS HAVE NOT BEEN HERE AS LONG,THEY PAY NO RETIREMENT YET.WAIT ,ABOUT 10 TEARS FROM NOW, THEY WILL ALSO BE LOOKING FOR A U.S HAND OUT.BUY A AMERICAN CAR TO AVOID THE NEXT HAND OUT.
12-10-2008 @ 7:31PM
AKshort said...
If is wasnt for the unions we all would be working for $4 a hour. The japs pay off the Motor trend and the rest of them to say they build better cars and it has worked.People are brain washed.
12-10-2008 @ 8:23PM
Richard Ott said...
UAW stands for United Autoworkers Union. It's many members and the salary workforce of GM and of the other domestics probably has the best trained workforce in the world for manufacturing. Employees I know have degrees in many technical fields. Many have served in the military and when they returned, the automakers hired them. The middle class that many families enjoy was created by many factors including the wages and benefits negotiated by the UAW and GM. The Auto transplants do not have union representation but their workers enjoy the benefits of the union because the manufacturers pay their workers equivalent to what the Big Three workers make an hour. Toyota workers the last two years have made more than the average GM worker. The 70 dollar per hour figure you mention would be nice but is wrong. The average wage for a GM worker is 28 dollars per worker while their health care and pension benefit will add about 15 to 20 dollars per hour which makes our hourly rate of 43 to 48 dollars an hour. The difference between the 70 and 48 figures is based on the pension and health care benefits of about 350000 GM retirees and their dependents. Since GM has been around for a few more years than Toyota or Nissan, it has more workers in the retirement pipeline. With our health care being handed to the UAW in a few years, the cost competitiveness between the Big Three and the foreign manufacturers will be erased and might even be lower making them the higher paid. So the Southern Senators take note, Uaw wages go down, the foreign manufacturers will follow that path to stay competitive.
My family and I have owned a multitude of vehicles the last 40 years or so and there is no difference in quality between the automakers. True the domestic automakers did make some bad products many years ago and their service was a tad off, but they have made great leaps to the point of equality with the transplants. The transplants made not to desirable vehicles once upon a time also.
Japan can send 700,000 vehicles to the United States but the USA can only send 6200 vehicles to Japan. That's fair isn't?
Alabama and the US can give 320 million to a foreign manufacturer to build a plant in their backyard but if GM builds one, maybe 70 million.
As UAW member, I spend hours in training and 8 hours on my feet like any other blue collar worker. I probably walk 1 to 2 miles a day going from job to job supporting our production. From sweeping floors to programming a Yagi Laser to braze the seams on a roof, we have varying duties that most industries don't encounter.
If you wish your standard of living to exist and increase for you and your children, the America needs a Manufacturing Base that pays well enough to produce and keep a Middle Class. If not travel to South America and see the disparity between the Rich and Poor. No Middle Class to speak of.
12-10-2008 @ 9:30PM
Mike said...
I will not buy a GM car because i don't want to pay twice for the car. Once for the bailout which will never end. Second for the profit they make when they sell you the car.
12-10-2008 @ 11:24PM
Big Dawg said...
All the talk is always about the UAW workers wages compared to a Toyota worker, I bet The Big Three white collar workers make alot more than the Toyota white collar workers but the media never mentions or talks about there discrepencies in wages,bonuses and healthcare.
12-11-2008 @ 11:44PM
JJ Johnson said...
All planed! Total Communism, fogged by a slight hint of the Democracy that has been forced fed to our original REPUBLIC!
WTFU people.
12-11-2008 @ 8:29AM
Finely tuned and polished said...
So we all hear proud to be union, Made in America. This is good.. no? SURE.. but its time for all to own up on these words and take a pay cut, and the first year no over-time for over 40. Come on.. where is your pride now. For years you have been milking this industry from one to another punching each other out, for the overtime in Mahwah NJ when the plant was there. The biggest concern anyone had was, when are you buying that home at the shore, and did you buy the boat yet to go along with it. Today the computers do all the major work. Just look at half of the workers, look as if they were out all night slept 3 hours and threw on some wrinkled clothing. AMERICA??
12-11-2008 @ 9:03AM
Robert said...
He** yes it matters !! Why do you think the Home mortgage industry went belly up ?? And why do you think you pay sooo much for a frickin car ??? UAW!plain and simple no ifs ands or buts about it ,they should never have bailed out the auto industry until they agreed to stop the UAW plain and simple !
12-11-2008 @ 10:32AM
CiCi said...
"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, because of the lower wages Japanese automakers are able pay and the higher price they are able to charge, they make $3300 more per car sold...minimum. Profit that is lost to US automakers, even before the large additional expenses of union mandated employee health and retirement benefits, are added in to lower the profit margin even further on each car sold by the Big Three. No wonder they are failing.
Business is all about margins (the difference between a product's price and the expense of making it), but he completely dismisses the higher wages, that reduce that margin, as a factor in the failure of the US Auto industry!
Certainly, the industry should try to improve their product and the public's perception of them, by making a leaner and more efficient product.....but it is pointless to do so before they have made their businesses into a leaner and meaner machine that will increase the profit margin, no matter what price the product sells for.
The worker wages are not the sole problem with the industry, but their part in this mess can not be dismissed, either.
12-12-2008 @ 2:36PM
markd said...
Its funny how so many americans know about how the UAW works? The bottom line is you dont work at a car or truck plant and you just read what the MEDIA tells you so keep your dumba** comments to yourselves!The facts are the JAPS pay 28.75 and hour and so does the BIG3, the autos cost the same so why are we in trouble? Maybe its all the handouts we give to our communities when there in need!We have lost at least 6% of our wages in the last year and also have had all our benefits cut so to who ever thinks they know what is going on with the AMERICAN AUTO WORKER AND THEY ARE NOT A UAW MEMBER I SA Y YOU DINT KNOW SHIT AND KEEP YOURE MOUTH SHUT. IF IT WASNT FOR US AMERICA WOULD ALREADY BE IN SHAMBLES!!!!!!!
12-12-2008 @ 9:12PM
Richard Ott said...
If you work for a company and they treat you reasonably and pay you a fair day's wage, a union or a collective unit is not needed. But if you are employed in a workplace that does neither, then having the workers join together for the betterment of themselves and the workplace is worthwhile. Unions try to ensure the workers are treated fairly and work safely.
By law the union must protect all employees no matter what their work practices are. Management must step up to ensure the employee does their job.
At my job, GM electrician at the Lansing Grand River Plant, I am basically responsible for a fourth of our Body Shop Framing Area. This includes programmable controllers, welders, robots, conveyors, laser braze operations, and associated support equipment. My duties have me sweeping, emptying trash, cleaning panels, keeping part inventories, ensuring documentation is updated, programming robots and etc. Production workers have similiar duties but their primary care is to ensure the quality of the vehicle.
Some statements have been made about the work and moral ethics of the employees of the Big Three. Please let me inform you otherwise. I work from 6:30pm to 3:00pm. My first break is at 9:00 to 9:23, Lunch 11:30 to 12:00 and 2nd break is 2:00 to 2:15 normally. I start work at 5:30 to do my checks in our Laser Cell and then I check other stations for operations. We start producing vehicles at 6:30 and any problems we can't fix permanently are put off until break or lunch. So handling 3 to 4 things at a time to ensure the vehicle continues to move to assembly is a skilled acquired over time. But the point is I don't ask for pay from 5:30 to 6:30 or lunch. We normally work thru our first break. Most of the workers pay for small parts out of their own pockets. We don't use time clocks to punch in or out and that it is assumed that the employee will start and leave on time. I put in another 2 hours or so at home to ensure documentation is updated or correct. I've worked for GM for 35 years and I've seen many changes. From making 3.75 a hour in 1972 to 31.00 in 2008. It has taken 36 years to get our hourly rate for skilled employees to this point. Strange thing is that when a foreign manufacturer opened their doors, their wage scale was darn close to the UAW's at that time. Pay a real low wage and you know, union organizing might take hold. So they pay a equitable wage. But take note, since the UAW has shrunk, the foreign transplants are now considering or have implemented wage reductions by regions. So let our wages fall and what will follow will create a opening for some collective unit.
Ford and GM each gave 10 million dollars to the Katrina effort and Toyota....0, Nissan....0.
GM and the UAW have negotiated a contract that will place GM on a road of equitable labor charges and their products are on pare with the rest of the industry. Buying the GM, Ford and Chrysler vehicle should be the first thought but not the only one because countries that build here do not exhibit the same hospitality that we do.
Some say do not support the our domestic industry that has supplied jobs for millions the last 100 years because of mismanagement and greedy workers. I guess if you have been around that long, mistakes do happen. Brush up on the history of our nation and you will see how important this industry and others have been to the growth of our nation's standard of living.
12-12-2008 @ 11:57PM
Alice said...
Everyone I know has known for years that the people working at the Ford plant in our area have been paid VERY well, and that they have been able to afford a much higher standard of living than most of the rest of us. Of course the foreign car makers have to try to pay close to the UAW scale, BUT if the UAW members would be willing to work at a pay scale similar to people working in other industries with similar responsibilities, it might help get a rescue plan in place. Why refuse to make a concession when you are way overpaid now? Isn't losing a little of your hourly pay better than being unemployed? Well, probably not because you get paid so much that YOUR unemployment benefits will be MUCH higher than the regular pay that lots of Americans earn now. Minimum was is about $7 -- how does it feel to make almost 5 times that?!? Must be nice.
12-13-2008 @ 10:07AM
keep the dollars at home said...
As an American I believe it is my patriotic duty to buy American products and try to keep my country strong.
I know some Toyota's and Honda's are built in America but the profits from their sales go straight overseas. To me that isn't nor ever will be an American made car.
If you compare the prices on a foreign car verses an American made car the prices are fairly close. I'd rather see the American worker make a little more money then Japan take a higher profit
Regardless if it's a car or a can opener, Americans now more then ever need to buy American made goods.
12-13-2008 @ 1:48PM
JB said...
It's real simple; if an employer's employees elect to have a union there is something very wrong with the employer. Modern employers are aware of this and that's why private sector union membership is now down to a, reported, 8%! And I guess that's why union thugs are pushing for legislation which will allow them to harass workers to increase lost membership. If such legislation passes, I will buy nothing from any source subsequently unionized.
12-14-2008 @ 5:27PM
Richard Ott said...
The bill you are talking about is called the Employee Freedom Choice Act and it passed the House last year. Present law requires a percentage of the workers to sign a card which set forth in motion the employer to setup a time for voting on certifying the union. The company will usually take it's time to setup this voting mechanism while pressuring or threatening the workers with dismissals or a plant closure. Meetings will be held over a period of time to influence the employees to not accept the union. When the company thinks it is ready, it can hold a vote. Now the proposed law dictates that after a majority of workers have signed a Check Card, the union can be recognized or the union and employer can hold a secret ballot vote without waiting if they agreed. Also any harassment by the employer results in a fine and any dismissal of a worker due to union activity results in back pay to be paid. Can the union harass a worker, possible but hopefully unlikely.
Hopefully you realize that most of the Pro Sports organizations, Teachers, Air Controllers, Federal Employees, State, City Employees and Retail employees are unionized. You better get a list made because I think your purchases will be limited and if you have a business, please place a sign on your business stating your objections to a worker's rights to have collective bargaining.