Don’t hold your breath waiting for U.S. automakers to thrive

Oct. 25, 2007
By coincidence, the recent strike of the United Auto Workers against General Motors happened just as National Manufacturing Week, a major engineering trade show, was getting underway in Chicago.

Leland Teschler

A lot of exhibitors at NMW have connections with the auto industry, and many are Tier 2 and 3 suppliers. So it was interesting to hear their take on the walkout in Detroit.

It’s no secret that much of the American public holds a low opinion of U.S. automakers. If NMW exhibitors are any indication, that attitude is no different even among firms in Detroit’s supply chain. But those I talked to reserved their greatest scorn for autoworkers on strike.

“I’ve seen too many people sleeping in too many auto plants to have any sympathy for autoworkers,” snorted one.

“That strike is over job security and benefits. But suppliers to the auto industry haven’t had any real job security for the past 20 years,” another told me.

The resentment I heard in Chicago comes from the view that American autoworkers have led privileged lives despite the woes of the industry. Blue-collar workers in auto plants have been called an industrial aristocracy, earning wages and benefits that can total about $70/hr.

Autoworkers also get hit with the same accusation lobbed at the top management of the Big Three: The refuse to confront competitive cost issues. In 1980, then UAW president Douglas Fraser claimed the reason Japanese cars sold well in the U.S. was a screwy relationship between U.S. currency and the Japanese yen. At the time, the rate was about 250 yen to the dollar. Fraser further insisted that a 200 yento- the-dollar rate would make U.S. cars an irresistible deal.

Fraser got his wish, and more. The dollar sunk to well below this level and currently buys only about 120 yen. Meanwhile, Toyota now earns about 75% of its profits in the U.S. (You can still find some parties claiming that Japan weakens its currency just to frustrate U.S. automakers. The most vocal promoters of this view seem to be Michigan politicians.)

But the ill will toward Big Three autoworkers may now be at its worst just as the economic tide is turning against them with a vengeance. The UAW agreement lets GM get rid of some highly paid employees and replace them with much lower-wage earners. GM has also shifted worker health-care costs to a separate trust fund run by the UAW. This part of the deal resembles a similar scheme devised by Caterpillar and the UAW which ran out of money seven years after it began and spawned crisscrossing lawsuits.

Of course, few people would care about the bad habits of autoworkers if the industry was doing well and the rest of the country shared in its good fortune. It’s fair to ask when that might happen. My own guess is that the car market acts a lot like the stock market: Values tend to go to extremes before there’s a realization that something is out of whack. So don’t expect the Big Three to make much headway until their vehicles are stupendous bargains compared to those from Japan.

We are nowhere near that point yet, and the reasons have nothing to do with the relative value of the U.S. dollar.

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