David Leonhardt on the U.S. Auto Industry
And the $73 an hour figure fraud:
Figure Skews Debate of a Bailout for Detroit: Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year). But... General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country.... And yet the main problem facing Detroit, overwhelmingly, is not the pay gap. That’s unfortunate because fixing the pay gap would be fairly straightforward. The real problem is that many people don’t want to buy the cars that Detroit makes. Fixing this problem won’t be nearly so easy. The success of any bailout is probably going to come down to Washington’s willingness to acknowledge as much.
Let’s start with the numbers. The $73-an-hour figure comes from the car companies themselves... wages, overtime and vacation pay, and comes to about $40 an hour... fringe benefits, like health insurance and pensions... $15 an hour or so. Add the two together, and you get the true hourly compensation of Detroit’s unionized work force.... Honda’s or Toyota’s (nonunionized) workers... make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.
The third category is the cost of benefits for retirees... companies add them into the mix... this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are....
[H]ere’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits... the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota. Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.... An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies....
Detroit’s defenders, from top executives on down, insist that they have finally learned their lesson.... But Congress and the Obama administration shouldn’t fool themselves into thinking that they can preserve the Big Three in anything like their current form. Very soon, they need to shrink to a size that reflects the American public’s collective judgment about the quality of their products.
It’s a sad story, in many ways. But it can’t really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.
