The CAW Posture

I heard an interesting interview of the Canadian Auto Worker's president, Buzz Hargrove, on the Paul W. Smith show on WJR this morning. Hargove was invited to explain his recent comments that the CAW had no intention of conceding benefits to the American automakers. Memorable quotes (approximate, from memory):

We could work for free, it would not save the auto companies.

The issue is market share. Taking money out of the pockets of working people will not save them.

Malcolm Bricklin is over in Shanghai, talking about bringing 200,000 cars into the U.S. He's just over the water from Japan.. why isn't he going to import cars into Japan? Because the Japanese won't let him. Why will the U.S. let him import cars, and destroy such an important industry?

Chrysler is doing well now, but it is not sustainable. They have a few hits, the 300, the Jeeps are doing well, the minivans. But they can't gain market share.

"We could work for free" was a great redirection, and about 1/4th true. The average car takes about 24 man-hours to build. The average unionized worker is paid something on the order of $25/hr. So the labor cost per vehicle is about $625. However, the "legacy cost" per vehicle is on the order of $2100--GM spends $1500 on healthcare and $600 on pensions, averaged over all of their production volume.

By comparison, the Japanese automakers probably do pay a few dollars less per hour, and use less hours to build each car, closer to 19. That would account for a disadvantage of, say, $30/car. The big ticket items are the pension and healthcare costs--Toyota, according to one article I read, only spends about $300/car on healthcare. and about $200/car for pensions, leaving GM with a cost disadvantage of $1600/car.

That $1600/car is the killer, because that is $1600 that was not used to improve quality, safety, fuel economy, or pay for incentives. Consider: the difference in (street) price between an aluminum block DOHC engine and an iron block OHV engine is about $900 (2005 Taurus example, from Edmund's).

So, Buzz is right--they could work for free, in terms of wages, and only save GM or Ford about $600, 1/4th of the competitive disadvantage with the Japanese. The Canadian Auto Workers probably don't have much to offer GM and Ford, compared to their much larger counterpart in the US--they are a much smaller union, with about 50,000 members working for OEMs vs UAW's 300,000. But if the UAW would agree to some concessions, that could really help the Big 2.5 gain competitiveness.

"The issue is market share..." I don't agree with this entirely. It is true that much of the increase in legacy costs per vehicle is simply due to selling fewer vehicles. Just like the Social Security problems--too many retirees compared to productive workers. But blaming market share is not much of an answer, because market share is virtually impossible to regain quickly, especially when the American companies are working with a large cost disadvantage.

"Malcom Bricklin..." is a very good observation. I am not a fan of trade wars, we need people to buy our stuff. But should it be easy for Bricklin to dump his cheap Chinese cars in the US market? Is the danger of massive economic destruction of a major domestic industry worth a few inexpensive cars, to the average consumer? Ronald Reagan's import tariffs on Japanese motorcycles are credited with saving Harley Davidson.

"Chrysler is doing well now..." I have written before, in my opinion, Chrysler is always one hit away from disaster, but somehow, they manage to come up with the right products at the last moment. Hopefully they will be more of an influence on Mercedes than Mercedes on them.

Hargove's bluster is natural--his job is to represent his workers, not sell them out in public. However, conceding some goodies would definetely help the auto companies. It would free up money that could be put back into the product, to try to increase prices and profitability. The CAW and UAW need to be carefull, and balance their members individual needs against the survival of the industry.