By BoLOBOOLNE payday loans

UAW vs. Chrysler: friends at last!

I’d like to share a couple thoughts on Detroit — a couple ideas that
I’m not hearing in the popular or business press, but are important to

Chrysler goes bankrupt

First some background.  Chrysler is being restructured under
bankruptcy.  This doesn’t mean they’re going out of business.  It means
that they owe more money than they have or will be able to pay.  So
with the help of a judge, they’re sitting down with everybody they owe
money to and telling them frankly “you’re not getting everything we owe
you.  Sorry, but there just isn’t enough to go around.”  So everybody
has to compromise.  The idea is that by striking some bargains to
reduce debt the company can get back in the game and become profitable

UAW owns Chrysler

One of the biggest debts Chrysler has is to the UAW, the United Auto
Workers.  This is the labor union which represents all the
“blue-collar” workers who actually make the cars.  Chrysler owes them
benefits like pensions and health benefits.  Part of the settlement is
that the UAW will own 55% of Chrysler stock.  That’s a majority.  So
the workers will own the company.  Personally I think this is great and
makes a ton of sense, and I’ll tell you why.  But not everybody does.

If you’re lucky enough to be blissfully unaware of labor relations in
Michigan, this is downright bizarre.  Chrylser corporation is
“management.”  UAW is “labor.”  These two groups traditionally have not
gotten along.  I don’t think the word “hate” is out of place.  People
say the UAW will try to unwind this position as fast as they can.  I
heard one “expert” say that the UAW is placed in a position of conflict
of interest representing both Chrysler stockholders and UAW workers.
Why?  Because their responsibility to stockholders is to increase the
value of the company, but their responsibility to the union is to save
jobs, and these two goals are diametrically opposed.

Cooperation is the only way

Hold on.  The goals of the workers and the goals of the company are
diametrically opposed?
This kind of adversarial thinking underlies how
Detroit got into trouble in the first place.  In truth the UAW’s goals
and Chrysler “management” goals are very strongly aligned.  This
painful truth of this fact is excrutiating today.  Chrysler and GM are
on the verge of ceasing to exist.  If and when this happens, the UAW
workers will lose their jobs.  What’s bad for management is bad for
labor.  But figuring out how to keep Chrysler building cars that can
compete with Japan and everybody else is a really hard problem.  Solve
it and both labor and management win.  If ever there was a time for
labor and management to come together and cooperate it’s now.  To be
extremely blunt for those still harboring grudges: if you two don’t
figure out how to play nicely together, you’re both doomed.

Historical tensions caused these problems and SUV’s too

Conventional wisdom cites two reasons for why Detroit is in this mess:

  • They only built big gas-guzzling cars as consumer preferences shifted towards smaller, more fuel-efficient vehicles
  • Union labor costs for things like pensions and health care are so
    high compared to foreign competition that the company just can’t compete

I believe both these are true.  But more interestingly (and something
I’ve never heard reported in the press) I believe there’s a causal link
here.  It is precisely because of these high labor costs that Detroit has focused on building gas-guzzlers. Smaller cars are cheaper and are subject to more intense price competition, meaning the margins are lower.  In business school
we learn about two basic types of product strategies: low cost and
high-end.  In the low-cost strategy you try to be more efficient than
your competitors.  You do things cheaper and still maintain a good
enough product.  This is what Japan did with cars.  But because UAW
kept labor costs high, Detroit couldn’t go this direction.  Their small
lower-end cars would just cost more because of the higher input costs.
So they had to go after a high-end strategy where they made bigger,
more expensive vehicles that came with higher profit margins.

Sophie’s Policy Choice

So UAW workers collectively bargained their way out of jobs.  That is,
they bargained up their salaries beyond what their labor is actually
worth in the modern economy.  So what should we do?  Let the market
correct itself so many of them lose their livelihoods?  Or sustain them
publicly somehow?

There is no easy answer to this question from a policy perspective.
China is facing this same question with hundreds of millions of
uneducated peasant farmers.  A relatively modest investment (on the
national scale) in farm machinery could replace a good fraction of
their output.  But the economically efficient choice comes with a high
human cost.  In this country we believe governments exist to serve the
people.  We’ll see how it does.

  1. Your argument posits high costs of labor as a causative factor in favoring the production of large, low-efficiency vehicles. But Japan has costs of labor, too. The cost of living is high there, but blue-collar workers serve as primary wage-earners for middle-class families. Yet they've been making small, efficient vehicles. Why?

    The UAW's 55% ownership is an unexpected twist on Marx's "bloodless revolution", no?

  1. There are no trackbacks for this post yet.