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Strangling Detroit

Mickey Kaus breaks it down:

When Kuttner says “Japanese total labor costs are comparable, even with Detroit’s higher health insurance costs,” he is–as is so often the case–talking through his hat. Look at this chart. GM pays $31.35 an hour. Toyota pays $27 an hour. Not such a big difference. But–thanks in part to union work rules that prevent the thousands of little changes that boost productivity–it takes GM, on average, 34.3 hours to build a car, while it takes Toyota only 27.9 hours. ** Multiply those two numbers together and it comes out that GM spends 43% more on labor per car. And that’s before health care costs (where GM has a $1,300/vehicle disadvantage.

Of course, nothing convinces like an apples-to-apples comparison. And on that front, we find:

Is it really an accident that all the UAW-organized auto companies are in deep trouble while all the non-union Japanese “transplants” building cars in America are doing fine? Detroit’s designs are inferior for a reason, even when they’re well built. And that reason probably as more to do with the impediments to productivity imposed by the UAW–or, rather, by legalistic, Wagner-Act unionism–than with slick and unhip Detroit corporate “culture.”

(emphasis supplied)

In theory, I got no problem with unions – they could be nothing more than a free association engaged in bargaining with willing buyer for their services. The problem is, there are no unions that represent this ideal. Unions in the US are an artificial creation of the state, a relic of an earlier day when socialism was The Answer to society’s problems, and unions were seen and used as a vehicle for rolling back, reforming, and ultimately displacing free market capitalism.

It is no accident that, in the US at least, unions have been steadily losing ground for decades in industries that actually have to compete to survive. The only areas where unions are strong at all is in the government sector and, sadly, in the quasi-government sectors (such as healthcare).

While there is zero chance of any reform of the state apparatus supporting unions (which is probably a shame; there may well be a legitimate and beneficial role for non-corrupt, non-state-supported unions in some sectors, but we will never know), but I for one am glad to know that they are in broad decline, and that globalized markets mean there is little to no chance they will ever stage a resurgence in their current form. The fate of unions seem to be a rare example of civil society grinding down the state.

16 comments to Strangling Detroit

  • RKV

    Union work rules are indeed a major issue. I worked for GM several years ago. I visited another facility (my home shop was non-union) and needed to move a computer from one office into another where I was going to work for several days. I wasn’t allowed to do the job myself, even though the move was only one floor down, and would have taken no more than 20 minutes tops. I waited for 6 hours for the move to take place, rather than risk a union grievance by doing the work myself. The combined effect of the many union work rules is to destroy productivity.

  • veryretired

    GM is afflicted with a combination of all the problems that develop in large organizations, as is the UAW, and their entanglement with the political structures at all levels only compounds and magnifies the negative effects of any one factor.

    GM is a huge, byzantine buearocratic entity with endless strata of mangerial and administrative paper passers. The poverty of their designs and technical development is symptomatic of an organization in which every little decision must pass through an endless approval process, with each desk-rider wanting to add his or her little bit of input, until everything ends up as a muddle, as bland as tapioca.

    The UAW long ago lost any connection to its original goal of improving the lives of its members, and has become a huge, inbred structure of self-aggrandizement and political pull. It is, in fact, an adjunct of the Democratic party, and one of the party’s main sources of funds and manpower, even when, as in the Reagen years, many of its members’ votes were going to the other party.

    Government, at all levels, views the corporation as a giant dairy cow, there to be milked, and alternately cared for or kicked, depending on the prevailing political breezes.

    A few years ago, the “progressive” view was that GM was a coercive behemoth, impervious to the market or the needs of the public, and required stringent state controls and constant vigilence, lest it take over the world and rename the earth “Chevrolana”.

    Now, it’s a struggling, but still dangerous, giant, sick and weak, and needs to be “saved”. Oddly enough, this also requires further intrusive state action. Funny how that works out.

    Someday, assuming the hallowed halls of academia eventually re-discover the concept of independent intellectual enquiry, GM, the UAW, and their long, suicidal tango with the state will be the subject of some fascinating research.

    I’ll be long dead, of course, but my aging Oldsmobile will probably still be running. I may not be too high tech, but I can get the kids to school, and get home again to waste time typing foolishness and old man’s meanderings into my laptop.

    I used to dream of Jaguars, but nowadays, they’re just Fords anyway. Oh well.

  • Sunfish

    What’s killing GM is that their high-profit-margin items, light trucks and SUVs, suck. I’ve owned Chevrolets for much of my life, and my mechanic thanked me for it. My last one, a 1995 K-1500, vibrated itself apart in about 70,000 miles.

    My Toyota, on the other hand, has required nothing more intensive than scheduled maintenance and replacing the wiper blades in winter.

    Now, if I could only get my department to look at the 4Runner or Pathfinder as a patrol vehicle…which is more American, the GM hecho en Mejico or the Toyota made in Kentucky?

  • Of course the EU appears to have decided to kill its motor industry by means of pollution regulation

  • Paul Marks

    A good posting. It shows that what is killing American auto makers is not, as the left claim, lack of government health care (indeed it is government regulations that make health care so expensive), but union power. Not “unions” as such, but their right to operate outside the principles of private property and voluntary interaction. For example, a person can not be fired for joining a union (such contracts have been voided by the government), and union activists are allowed to obstruct the entrances of enterprises (“picketing”).

    It is interesting that the people who support “anti trust” regulations (and the rest of the absurdities based on the effort to treat the perfect competition model of neoclassical economics as if it was or could be a picture of the real world) say nothing that one union (the U.A.W.) dominating all American auto enterprises. For some reason this “monopoly” is not a bad thing.

    In Japan (due to the success of the struggle in the post World War II period) auto makers do not face one big union. Each auto maker has its own union – so the loyality of the workers is not divided.

    “But workers should not have to be loyal to the company” – if a worker is not loyal to his employer he should go and work for someone else or become self employed.

    Certainly in a free market work is a matter of civil ineraction – i.e. if people do not like the pay and conditions they have they must be free to leave. But no enterprise can survive in the long term if the employees regard the company that pays their wages as an enemy to be plotted against (which is the whole basis of modern government supported unionism).

    American unions may say (and say very loudly) that they reject class war – but their whole existance is justified by trying to improve wages and conditions over the level that supply and demand (the market) would establish.

    In the end one can not “buck the market”, getting higher wages and better conditions of work than the market would provide in the short term (via what W.H. Hutt called the “strike threat system”), means unemployment in the longer term.

    Things like medical cover from an employer are nice things to have – but if they are achieved not by economic progress over time, but by the “short cut” of union power they drag an employer down.

    As for the maze of rules and regulations of work that unions demand, these (as pointed out above) are often not even a matter of “health and safety” – they are simply the perverse whims of activists.

    Of course the oldest unions are the “white collar” ones such as the American Medical Association and the various Bar Associations.

    The A.M.A. has been hit by its own success in that the it demanded government action to keep out competitors (via doctor licensing) and to close down many medical schools (in order to restrict the number of qualified medical people who might claim licenses) – but this has led to government being in a position to impose many other regulations (which do not benefit practicing doctors) and to distort tort law – so that doctors can be forced to pay absurd “damages” when they have not shown negligence.

    As for the Bar Association – just as it was possible for people to hire anyone they wished to for medical services so it was possible (in many States) to hire anyone one wished to represent one in court.

    Of course people with various medical or legal qualifications were able to point this out (as a reason to hire them) but the final choice remained with the customer.

    These days only in (I believe) Arizonia is still even technically possible to hire an independent person to represent one in court.

    The lawyers union rules.

    Such “professional associations” (IF they have government power behind them) do at least as much damage as the U.A.W.

  • Jim

    What’s killing GM is that their high-profit-margin items, light trucks and SUVs, suck.

    – to which, some background (gathered from ballads, songs ‘n snatches over the decades, and therefore of “local-colour” veracity). GM has often debated stopping manufacturing cars entirely, and is apparently, after closing Oldsmobile (then the oldest “car company” extant) looking to close Pontiac or Buick; both for the same basic problem – they effectively, only make cars.

    The problem with making cars is, everybody else makes cars too; consequently the competition is cutthroat, and GM, who I’m told, devote ~3% profit to consumer R&D vice Toyota’s ~16%, offer a bland succession of unreliable sardine tins as a result.

    Mini-vans are in the same boat; everybody makes them, competition is fierce (especially from outsiders trying to break-into the North American market), and the temptation, which GM apparently all-too-readily succumbs to, is to accord them the development funds due their profit margin, vice that due their market share. Chrysler has faced bankruptcy twice in living memory, and their mini-van sales continue to make a mockery of GM; I’ve even seen a number of Dodge Caravans wandering the lanes of northern Europe.

    So, Chrysler makes one or two thin dimes per minivan and compact car, and (with rebate) often sells them at or below cost. Whereas, if you want a Jeep, you’ll pay $10,000 extra – the companies have to profit, and they have to profit somewhere. SUV’s & macho duallie 4×4 trucks are where.

    They lovingly extend this to parts as well – I once bought a headlight switch for an obsolete AMC {American Motors Corporation, whom Chrysler bought-out to get control of the Jeep name} car, and after ordering and paying for it, discovered (with delight, as you can imagine) that mid-size Dodges all used the same switch, which the dealership sold at half the price.

    – And unions? An evil, but a necessary one, or we’d still have children working down mineshafts. The pendulum has swung far left at the moment, and unions (like liberal politicians) too often seem to exist for the sole purpose of prolonging the agony. But I take mild exception to the bromide that they’ve outlived their usefulness in the North American auto hierarchy – especially at GM. GM Canada recently declared their intention to double their production of one of their most popular engines, which they were going to do by the simple expedient of running the line for sixteen hours a day vice the present eight. So far, so good – but the change did not involve hiring any new staff: oh no, GM incur heavy pension and medical obligations for new staff. So the existing workers would be required to work 16-hour days for the duration (the overtime being presumably cheaper than the pension and medical thing). Any workers who demurred were invited to seek employment elsewhere – shades of Andrew Carnegie!

    I got a lively GM anecdote (I believe) from an interview with H. Ross Perot in Playboy (which I read for the articles, naturally ;)) some years ago, concerning the Chevy Vega and the California plant it was built in, which too clearly illustrates the adversarial relationship that bedevils North American labour relations to the virtual exclusion of doing-it-better. The Vega was a wonder car when it was introduced, incorporating just about every assembly-line-friendly advance GM had made in car development over several years previously.

    The first year’s production of Vega’s off the line were very well-made and quite reliable – and then GM management came-in one morning and wandered the line, firing every third worker to save money. Plant morale went down the sluice, closely followed by the quality of the finished product (which haunted GM for many years), and labour unrest became so intractable in the plant that GM closed it.

    Along comes Toyota looking for a plant to move production to the U.S., and here’s this nice, nearly-new auto plant in California sitting unused. Toyota bought it from GM: and then was met at the plant door by the local UAW, who informed them “You’ll hire-back every single GM worker who ever worked here, or we’ll picket you so close and raise such a stink that you’ll never turn-out one single car from this plant!”

    So Toyota did. And such was the difference between North American and Japanese management styles, that two years later the plant was so productive that GM leased it back from Toyota.

    ‘Tis said that the difference between the two is that North Americans view a wage as an expense, whereas the Japanese view it as an investment. I strongly suspect it’s factually misleading to generalise in such broad-brush terms, but that never stopped me (or anyone else) before!

  • Harry

    You are absolutely right that unions are a creation of he state but so are joint stock corporations. This is a classic example of “now look what you made me do!”
    A joint stock corporation has no place in a free market.

  • Jim

    …joint stock corporation…

    Another fun Canadian circumstance, involving Joint Stock Corporations. Our last “minority” government {a Liberal government defeated by the current Conservative “minority” government} got into trouble by leaking-out word to a few of their big-business pal’s that joint stock corporations were to be given hefty tax exemptions in the forthcoming budget.

    Well, the item was duly passed in the budget despite the furore building over the leaks; and several pre-advised top Canadian corporations plunged most of their operations (I’m being purposely vague, to avoid semanticisms; I don’t even know what a joint stock corporation is) into joint stock corporations, to avoid paying taxes.

    Well recently, all concerned including major big business interests and the former minority Liberal government, did their best to brew-up a major “you-LIED-to-us” scandal over the minority Conservatives deciding that yes, joint stock corporations WOULD be taxed after all. Fortunately Canadian media illustrated the massive general movement of Canadian corporations into joint stock corporations that was going-on – almost all of which had developed since passage of the budget in question, all of which was to avoid paying taxes.

    The libertarian stance on this is I suspect, that corporate entities are entitled to exploit any proffered loophole to avoid taxes (including the fashionable practise of relocating offshore). As a government employee with no method of avoiding personal income taxation even were I so inclined (and a soon-to-be-pensioner hoping there’ll be a wage-earner or two left in the country to pay mine), I fear that I lack sympathy for them – and the posterior-separating laughter from non-corporate witnesses, suggests that schadenfreude is alive and well among Canadian personal-income-taxpayers!

  • Jim

    Sorry – that was income trusts – my bad…

  • Sunfish

    – to which, some background (gathered from ballads, songs ‘n snatches over the decades, and therefore of “local-colour” veracity). GM has often debated stopping manufacturing cars entirely,

    That wouldn’t surprise me. GM had a great deal of loyalty from a market that could probably sustain close to 100,000 units/year in the US, for the Chevrolet Caprice with the Vette engine, but Blazers had a better profit margin. A shame. Now, we’re stuck with the Ford CV Interceptor, which has even worse downtime and brakes that fade if you look at them funny.

    GM did whatever it does. As a result, Toyota and Nissan have products of similar performance, massively more reliable in terms of repair downtime, cheaper, even when both produce in the US labor and regulatory markets. If GM goes tits up, they’ll have earned it.

    And unions? An evil, but a necessary one, or we’d still have children working down mineshafts

    In principle, I actually agree. In practice, the only union I’ve ever joined, I un-joined very quickly. (FOP: Calling them a Democrat puppet insults Jim Henson’s creation. Even more useless for both their own members and the general public than the NEA)

  • Jim

    GM had a great deal of loyalty from a market that could probably sustain close to 100,000 units/year in the US, for the Chevrolet Caprice with the Vette engine, but Blazers had a better profit margin.

    Yup! I always loved that car – do you know why GM took it out of production? The Caprice / Roadmaster were built in the truck plant in Texas – and trucks were selling so fast GM needed more manufacturing space for them, so they booted the line out.

    Refusal to take real market conditions into account – sorta like Dodge stopping making the Omni – can be a very bad thing. GM in its dogmatic offering of cr@p cars fails to consider the old adage: “It’s cheaper to keep a customer than make a new one”.

    Consider the new grad; making intern wages, starting-out with office set-up costs and massive student loans, he can afford only “cheap”. So he buys some little putt-putt with electric-blue paint to catch the girls’ eyes, and good gas mileage to impress them with his frugality.

    Fifteen years later it’s all paid-off and he’s at the top of his game, and paid accordingly. Now he wants a fullsize all-the-bells-and-whistles pickup truck to pull his power boat. If he was happy with that little putt-putt, likely the first new car he ever bought, he remembers it fondly and he’s going back to that self-same dealership for his truck; if not, the Honda V8 pick-up’s will look exotic in his private parking spot.

    Another suspect generalism springs to mind: ’tis said that the difference between North American and Japanese dealerships, is that when you buy a new North American car, the relationship with the dealer ends when you drive it off the lot – when you drive a new Japanese car, your relationship with the dealer starts then…

    One day I hope to afford a new car and find out the hard way… =((………

  • Paul Marks

    Unions are not the “creation of the state”, union powers (i.e. the power to operate outside the principles of private property and civil interaction) are.

    If people want to join a union fine (for example they may wish to organize mutual aid for old age and sickness – on the “friendly society” or fraternity principle). And if an employer says “if you want to work for me you may not join a union” that is also fine – if someone does not like it they should work for someone else or work for themselves (not get the government to forbid “yellow dog” contracts).

    Nor is limited liability a creation of the state.

    This “anti corporation” stuff is based on a the false assumption that the various limited liabilty acts of the 19th century “created” limited liabilty – this is not true.

    Corporate bodies (whether non profit like relgious organizations or colleges, or trading groups) have operated various forms of limited liabilty for as far back as one cares to look.

    There is nothing antilibertarian in this (although some libertarians, in the latest misguided effort to “join hands with the left, claim that there is) – as long as people who trade with these organizations know they are limited liability in advance.

    If a group of people get togther and set up an organization with a pool of money and this organization goes bankrupt (through the chances of life, say a ship sinks in a storm, rather than via fraud) then the creditors can only go after the money and property belonging to the organization – not the private resources of the people who own shares (again AS LONG AS THE CREDITORS KNEW THIS IN ADVANCE).

    In the modern world this is done by putting such terms as “Limited” (in the United Kingdom) and “Incorporated” (in the United States) – but it does not matter what the exact word is (or whether there is a special statute covering it) AS LONG AS PEOPLE KNOW THE SITUATION.

    It is even true of individuals – if you sign a contract with me which say “Paul Marks will not sell X piece of property to cover a debt” then X piece of property remains mine (even if that means I do not pay you).

    And if I join an organization and put in X pounds to get a percentage (a SHARE) of the profits then you only get the money belonging to the organization (not private money of mine). Yes I know there is a difference between a “partnership” and a “corporation” – but both still come under the voluntary principle.

    In short if you object to (say) shareholders driving away in big cars to big houses after a company goes bust (goes bust – can not pay you) then DO NOT DO BUSINESS WITH THE ENTERPRISE.

    Do not say “corporations are the creation of the state, they should not exist………” as this is just leftist bullshit.

    Sorry we can not “join hands with” the left on this, indeed even Karl Hess and Murry Rothbard (the two people who thought up this whole game back in the 1960’s) admitted afterwards that the whole effort to join hands with the left (on various matters) had been a farce and had done great damage to libertarianism.

    “But your understanding of libertarianism puts us on the same side as Walmart and other wicked things”.

    Yes it sure does (apart from Walmart demands new government roads and other such hidden subsidies). If you want want “radical chic” and a comfortable time among academics, media folk (and so on) then it is best not to be a libertarian.

    Big business is bad in many ways (for example there are government subsidies – although all of them together make up a tiny fraction of the government budget), but the “anti big business” crowd are a lot worse.

  • R C Dean

    You are absolutely right that unions are a creation of the state but so are joint stock corporations.

    Joint stock corporations are entirely voluntary with respect to both (a) joining and (b) doing business with. Unions are neither, due to state mandates that in certain circumstances force companies and employees to do just that.

    You can easily imagine a joint stock corporation as a pure contract, with no underlying state statute at all. Where the statutory bits come in are to (a) give the state a piece of the action through fees (b) standardize the contract and (c) establish the liability regime for the company. Of these, perhaps only the last is essential to the existence of the joint stock company. By contrast, unions would cease to exist in their current form in the absence of state support.

    What’s killing GM is that their high-profit-margin items, light trucks and SUVs, suck. I’ve owned Chevrolets for much of my life, and my mechanic thanked me for it. My last one, a 1995 K-1500, vibrated itself apart in about 70,000 miles.

    This is, of course, completely consistent with the posting. Saddled with high labor costs, the only way Detroit can stay competitive is by cutting costs elsewhere.

  • Detroit’s 2.5 are state creations, too. Who saved Chrysler from bankruptcy and fire sale? The federal government. Who subsidizes transportation costs by building expressways and interstates? The federal government. Who separates work, home, play, and shopping, making cars essential instead of optional? Local governments.

    Take away the transportation subsidies, and the Big Two-and-One-Half fall.

    – Josh

  • harry

    Mr. Dean and Mr. Marks are correct that you can freely choose to join or do business with a corporation.
    If I am defrauded by a corporation, shame on me, but if a corporation drops a brick (or airplane) on my head, I cannot hold the owners of the corporation liable for their actions or negligence beyond their investment.
    I’m sorry to disagree with Mr. Marks, but holding owners of an enterprise responsible for the actions of the enterprise is not “left wing bullshit”, it is libertarian self responsibilty

  • I’m sorry to disagree with Mr. Marks, but holding owners of an enterprise responsible for the actions of the enterprise is not “left wing bullshit”, it is libertarian self responsibility.

    First, of course, the owners of a limited liability company are exposed to the extent of their investment.

    Second, they are also fully and personally exposed to the extent that they participate actively in whatever caused the liability event.

    It is the purely passive investor who enjoys the shield of limited liability, an outcome that I think is consistent with a fairly robust view of personal responsibility.