Thursday, October 11, 2007

For Chrysler Sake

The United Auto Workers’ strike against Chrysler ended before the paint on the posters could dry. More than 32-thousand Chrysler employees walked off the line at midday yesterday . Third shift workers were reporting back for duty last night.

One of the key components of the new agreement: moving $18-billion in future retiree health costs into a trust fund to be controlled by the Union.
Next target: Ford Auto Workers.

Here’s what I predict will be the end result.
The UAW is not going to want to manage all that money from the three major manufacturers. Sure they’d love to get their hands on it, but it’s all going to be in trust funds, so no cookie jars for union goons to grub through. Watch for one of the big Wall Street Money firms to either buy up the funds or leverage an arrangement to handle the money administration, for a fee, of course.

According to, "the union's workers at Chrysler make $28.75 an hour in straight wages, which works out to about $59,000 for a 52-week, 40-hour a week year. However, the total labor cost for Chrysler is far above figure when the cost of health care is calculated into the mix.

"Chrysler estimates it pays $75.86 an hour in total hourly labor costs. That's not only significantly more than the $46 an hour average at the U.S. plants of Asian automakers, but it's also higher than GM and Ford have been paying.

"GM's labor costs came to $73.26 an hour even before the latest cost-saving labor deal, while Ford was paying $70.51. The UAW granted GM and Ford cost savings on their retiree health care programs over the last two years, but it did not grant the same cost relief at Chrysler because until recently its parent company was still making money."

The domestic auto market is faced with a one-two punch that threatens to knock out the weakest, if not all of the manufacturers as we know them: The Unions will be the ruination of the domestic automobile market...committing the manufacturers to spending more per employee than the competitive market can bear.

It's interesting that as late as the middle of last year, Chrysler was still posting a profit, but GM and Ford's North American operations were losing money. The Union calculates labor costs at about $2,400 per vehicle, representing over 8% of the average price of a car.

The second punch is the unfair competitive advantage that Japanese auto makers have had as their government has in effect subsidized the manufacturers through currency and trade policies.

Here's the reality with which the US automakers and the Unions are going to have to reconcile: a bumper-to-bumper re-vamp of operations and how they use employees in building cars will be necessary for survival. The Union is placing domestic makers at a disadvantage when they insist on agreements that price American workers out of the global market place.

And while the Big Three and the UAW waller in denial, and fritter away the time in which meaningful changes could be made, companies that can build cars more inexpensively, like Toyota and Hyundai are gaining market share, honing their designs to fit American tastes, and paving the way for a stronger toe hold here.

No wonder my Producer, Buddy Cantu, is eyeing a Tata dealership.
The timing couldn't be better.

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