US Auto Industry: Effects of Labor Unions

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US Auto IndustryEffects of Labor Unions

• Dr. Gomis-Porqueras
• ECO 680

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Industry Overview

• Over the past decade, Big three has lost 10 of
  market to foreign rivals
• Labor unions have caused US auto industry to
  become less competitive
• Companies with unionized workers are losing
  market share to those without
• Labor issue is an example of Principal-Agent
  problem
• Net Income

Toyota 2005 11.7 billion, 2004 10.9 billion GM
2005 (10.6 billion), 2004 2.8 billion
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US vs. Foreign Brands
UAW represents both Lincoln and Cadillac workers.
The UAW does not represent any BMW, Lexus, or
Mercedes workers
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Sales of US brands vs. Foreign Brands

• 1999 GM Ford sold 16M autos
• Toyota sold 5.2M.
• 2005 GM Ford sold 14.5M autos
• Toyota sold 8.1 M
• Cost of Revenue is 20 higher for GM than Toyota

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Unions Demand High Wages

• Delphi paid 76/hour to factory workers
• GM must pay 95 of wages to laid off workers
• GM pays full health benefits to 340,000 retired
  workers
• Of every car DCX sells, 2,000 goes to union
  benefits
• After Delphi filed for bankruptcy, they offered
  UAW wages of 12.50, down 60 from 27offer
  rejected
• Ford factory in Toledo, Ohio 680 people earn 25
  to 30 an hour making bumpers.
• Nissan plant in Tennessee (non-union) pays
  12/hour to line workers

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Workers get Laid-Off2006 Headlines

• Ford to cut 30,000 jobs and offer all 75,000
  union workers buyouts
• Ford to close 16 plants in the next two years
• GM announces it's wiping out 30,000 jobs by 2008
  - 27 of its hourly workforce
• DaimlerChrysler to cut production and vehicle
  shipments by 16 , or 135,000 vehicles, for the
  second half of 2006

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Food for thought

• Weve got to stop pretending that the global
  economy operates on some Economics 101 textbook
  model of pure competition and open markets and
  that the hollowing-out of Americas manufacturing
  base, lower living standards for Americas
  working families and widening economic disparity
  in the United States are simply the consequences
  of the impersonal forces of globalization. - UAW
  President Ron Gettelfinger
• Starbucks for some time now has spent more money
  on health care than it does on coffee just as
  GM has for some time spent more on health care
  than it does on steel. - UAW President Ron
  Gettelfinger
• One of the primary requirements listed by
  foreign automakers when choosing a US factory is
  the absence of union influence Claude Canup,
  President of Canup Associates (automotive
  consulting firm)