Something for nothing: GM and the unions

Something for nothing: Part II By Thomas Sowell Published March 3, 2006
Government is not the only institution that promises something for
nothing. The decline of General Motors is just one consequence of the idea labor unions can get their members something for nothing. Workers themselves increasingly recognize there is no free lunch through unionization and increasingly vote to be non-union. But the word has yet to reach many among the intelligentsia, who still think of labor unions as institutions that benefit the working class. You can always benefit particular segments of any society at the expense of some other segment. But unions do not benefit even the working class as a whole -- just current union members at the expense of other workers, current and future. One reason General Motors has lost market share for years -- going from selling about half the cars in the country to selling about one-quarter today -- is its union contracts put them at a disadvantage compared to Japanese competitors. Though Toyota has factories in the United States, the American employees in those factories vote to keep their jobs by staying nonunion. Toyota takes business away from unionized Detroit carmakers, who are forced to lay off thousands of workers while Toyota hires additional workers. There may not be any big difference in pay scales, but unions can raise production costs many other ways. Fringe benefits are just one, work rules another. In some industries, employers pay their workers as much as, or more than, unionized workers for the same jobs, just to be free of red tape restrictions on how they can organize their business or discipline employees who aren't doing their jobs right. Toyota, for example, takes fewer hours to produce cars with fewer defects than Detroit cars. While unions are declining in the private sector, they are expanding among government employees. Government agencies are usually monopolies, so competition is no threat to their jobs. Taxpayers get hit with the high cost of these monopolies. There is no such thing as something for nothing. Teachers' unions fight desperately and ruthlessly against vouchers. They must maintain a monopoly of schoolchildren under the compulsory attendance laws. Their members risk losing jobs if they must compete with private schools. Monopoly is the key to unionized teachers' job security -- at the expense of children's education and the taxpayers' money. Private-sector labor unions have long been in the forefront of those pushing for higher minimum wage laws. Union members usually make much more than minimum wages but need to safeguard their jobs from others who might work for less. People on the inside looking out benefit at the expense of people on the outside looking in. Losers include not only less-experienced and lower-skilled workers, whose output would not cover the cost of the minimum wage, but also future workers who may find fewer jobs in the unionized industries. Minimum wage laws are like protective tariffs insulating unionized workers from the competition of other workers. It is robbing a less affluent Peter to pay a more affluent Paul -- while using noble rhetoric that appeals to the uninformed and the unthinking, including many people with fancy degrees and even fancier illusions about their own greater compassion. Some people may believe unions benefit their members at the expense of employers -- and that big corporations should be paying a "living wage." That may be possible in the short run. But if unionized workers producing widgets get higher pay by reducing widget manufacturers' profit rates, do you think there will be as much invested in producing widgets when higher rates of return can be realized by investing elsewhere? The rate of return on widgets cannot remain permanently below rates of returns in other industries. Widget prices will have to rise -- and that means lower sales and lower employment. There is no free lunch, no way to get something for nothing. Thomas Sowell is a nationally syndicated columnist.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
$14.105 Toyota Corolla $9,890 Chevrolet Aveo
Mike, why do you post this drivel? OK, here we go:

no-nothing columnists do also.

Rubbish. Let's get some realism here. I'll start with some figures from here:
http://www.gm.com/company/investor_information/earnings /
GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in GM's history
Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004
GM) today reported a 2005 calendar-year loss, excluding special items, of $3.4 billion. This is ONE POINT SEVEN PERCENT of their total revenue.
it is equivalent to a private person who makes $20,000 a year after taxes, overspending their budget for the year by $340.00.
Last year, in 2004, GM made a profit of 3.6 billion, on that revenue of 193.5 billion.
That is equivalent to a private person who makes 20,000 a year after taxes, managing to save $360.00 for that year.
GM has about 20 billion in cash in the bank. This is equivalent to that private person who makes $20,000 a year after taxes, having a savings account totalling $2,000
With this cash GM could fund losses at the 2005 rate for about 5-6 years WITHOUT DOING A THING ABOUT IT.
The idea that GM is hemorraging red ink is not supported by the facts - in a word it is preposterous. In fact, GM is basically operating like any other NORMAL business - they make some money some years, and they lose some money some years. Last year in 2005 was a losing year.
Would you prefer GM to make profits on the order of the oil companies?

No evidence this is "increasing"

If you are working at a non-union company along with 10 other workers, and you one out of that 10 go out and take night classes and get yourself an MBA, then walk into your bosses office and demand and get a raise based on the idea that you are now a more valuable employee because you have the MBA, you are benefiting yourself at the expense of the other 9 workers.

Let's see.
2006 Toyota Corolla, per the website, starting price $14.105 2006 Chevrolet Aveo, per the website, starting price $9,890
How is this a disadvantage?

So do parents with kids in public schoos who do not want to see the quality of the schools go down the toilet. Here is the problem with vouchers. It starts with the really dedicated parents who use them to pull their kids out and stick them in private schools, generally with no justification. In short, the education isn't any better, it just perhaps happens to have religious overtones, treats evolution as debunked science, whatever. As a result the public schools lose money and get a little worse. So a few more parents see the decline and they pull their kids out. So the public schools get even worse. And so on until the public schools are so poor that your pretty much required to pull out your kids if you want them to get any education at all, and by then most of the parents pulling them out, would much rather not do it.

In a public school you are not guarenteed to get a fantastic teacher for every grade, and when your kid does get a bum teacher, there's not much you can do. Whereas in a private school you can pull your kid out and go to a different school. The problem is that this isn't how life works. Your not guarenteed in getting a good boss every time you find a job. Your not guarenteed in getting a good spouse every time you get married. Your not guarenteed in getting good employees every time you hire someone.
It is as valuable for a kid and their parents to learn how to deal with the occassional bum teacher as if they had all good teachers. More valuable in fact since the kid is being taught how to deal with it when that happens in college or later on in life.

If a business hires employees that have output that is lower in value than the cost to the business, the business is going to go bankrupt. Haven't you been paying attention to what is going on with many of the teams in the NBA these days? The union does not force a business to hire an employee that outputs lower than their cost. If the business is unionized, then they need to figure out how to restructure themselves so all of their employees jobs produce more than their cost.

So what? This is how a normal market operates. If too many auto companies out there are producing more cars than the market can absorb, then either costs of the cars drop until the market absorbs more of them, or some of the manufacturers disappear and car production drops.
What your missing however is that when manufacturers disappear and the car production drops, it frees those employees up to go work in industries that have a need of employees.
The problem here is that you need to look at the US market in the big picture. Right now we have too many cars produced and too many autoworkers. Yet at the same time health costs are skyrocketing - why? Because there's not enough competiton out there among health providers for the prices to drop. In short, there's a big shortage of nurses, doctors, pharmacists, etc. There's too few doctors offices and hospitals, that's why you have to wait 2 hours when you walk into a doctors office because there's just too many customers.
What the US market needs, then is obvious - it needs some of those autoworkers to stop being autoworkers and start being nurses and doctors. That will only happen if those people lose their autoworking jobs and simply cannot get replacement autoworking jobs, they will then have to retrain.
Let's say you dump all the unions and the costs for a typical autoworker drops. OK, so now we create a mecca for automakers the world over, they send all their work to us, and now we got lots and lots and lots of available autoworking jobs. The only problem is that all this does is allow Joe Blow autoworker to take a pay cut and keep working at what he already knows - which is autoworking - instead of being told he has no other choice than to retrain to be a doctor. So meanwhile, the need for more doctors and nurses is not met, and health care costs go even further out of control. How exactly does this help the economy?
Ted
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Ted Mittelstaedt wrote:

.......... not that I'm union, but rather I've was a part of the non-union end of the American "big 3" (1971 - 1989). The American auto industry let WAY too many electrical issues slide for WAY too many years. The truth is they relied very heavily on sub-contractors (who were almost exclusively non-union BTW). Way too many of these subassemblies were junk (made up of inferior electrical components and questionable assembly methods). Although I was involved in the electrical end, the mechanical side was much the same. The attitude in the industry was "oh well, we're no worse than anybody else"........... until the Japanese began getting a toe hold and everyone knows the rest of the story . Believe me, 30 years ago had a lot more to do with engineering, assembly methods, and using better quality components in subassemblies than the shortfalls of union labor.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Here's a really good book on how one corporation, the Penn Central who was the largest railroad of it's time went bankrupt.
...The Wreck of the Penn Central, which The New York Times called "a great book" offering the reader "a ringside seat" to this economic debacle, provides a close-up view of the events that brought the Big Train to bankruptcy court -- over-regulation, subsidized competition, big labor featherbedding, greed, corporate back stabbing, stunning incompetence, and yes, even a little sex.
http://www.beardbooks.com/the_wreck_of_the_penn_central.html
Ken
"Now Phoebe Snow direct can go from thirty-third to Buffalo. From Broadway bright the tubes run right Into the Road of Anthracite"

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

This is a load of crap. I am not a union member, nor have I ever been. The problems General Motors is experiencing come from only one place; the management. While General Motors was busy designing and building cars that most people do not want, companies such as Toyota and Honda are busy producing very desirable cars. For example, where's the GM version of the Honda Civic or Toyota Prius? While Honda and Toyota are busy building cars that they can't sell fast enough, the American automobile manufacturers are busy building more and more gas guzzling SUVs and pick up trucks.
There is no free lunch, but working on an assembly line and paying union dues for decades is hardly a free lunch. Why is it that Honda and Toyota can treat their current employees and retirees well, but GM can't? If GM wants to make more profits and live up to its obligations to its past and current employees, I have a radical idea ... make better products. Make products that are better than your competition: that's the secret to prosperity in any industry. If GM could figure out how to make a midsize car with decent reliability that averages 60MPG highway, they would outsell anything Toyota and Honda have today.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Shawn Hirn wrote: "This is a load of crap. I am not a union member, nor have I ever been. The problems General Motors is experiencing come from only one place; the management. While General Motors was busy designing and building cars that most people do not want, companies such as Toyota and Honda are busy producing very desirable cars. For example, where's the GM version of the Honda Civic or Toyota Prius? While Honda and Toyota are busy building cars that they can't sell fast enough, the American automobile manufacturers are busy building more and more gas guzzling SUVs and pick up trucks.
There is no free lunch, but working on an assembly line and paying union dues for decades is hardly a free lunch. Why is it that Honda and Toyota can treat their current employees and retirees well, but GM can't? If GM wants to make more profits and live up to its obligations to its past and current employees, I have a radical idea ... make better products. Make products that are better than your competition: that's the secret to prosperity in any industry. If GM could figure out how to make a midsize car with decent reliability that averages 60MPG highway, they would outsell anything Toyota and Honda have today.'
Shawn, I have to agree with you on why GM is failing in business. Upper management is using the union as a scapegoat. Upper management makes all financial decisions on what to invest in and what not to. If they make the right or wrong decision that are ultimately responsible either way. The UAW cannot decided what vehicles they will build and which ones will be designed and marketed.
However, I do respectful disagree with you on Toyota and Honda treating their retirees better. Both Toyota and Honda have no fixed pension plan only a company sponsored 401K. 401K pension type plans can be big successes are a financial failure. A good example is I work for a company that has a fixed pension. I know that if I retire today what my pension will be. However, my 401K which was close to 600 thousand 4 years ago has dropped by 250 thousand when the economy was doing bad. If I had to rely on my 401k to living on then I may be in financial trouble every time the economy does poor. The current president is pushing 401K type pensions for all workers. 401K pensions are to unstable for me to rely on. The UAW has negotiated with GM to maintain a fixed pension so retirees know what they have to live on and not a guess work. Yes, fixed pensions can fail also but they are less likely if the company does good some years and bad others as long as the business survives. It is also backed up by the government just like your bank account. 401K are not insured.
yes, I am a union member and proud to be one. I work for a large company and it is not in the automobile industry. I am a member of USW. USW, United Steel Workers represents members employed in the steel industry, chemical, paper, oil, healthcare and energy fields. Our membership is over 1 million strong and growing. Unity and Strength for Workers is our motto.
Sarge
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 5 Mar 2006, Licker wrote:

Actually, the UAW has a very strong influence on what cars are and aren't built and marketed in North America. They are the primary reason why GM and Ford don't import many of the excellent, up-to-date products they design and build in the Australian market, for instance. Want to build a car in North America, but UAW can't build to the precision and quality levels a particular design requires (such as some of the ones from Australia)? Common problem. You're screwed. Want to raise the level of quality and precision from the UAW by implementing special training and skill-building programs? Nope, UAW won't have it, 'cause that implies the average UAW is underskilled and undertrained, and we certainly wouldn't want anyone to think *that*. You remain screwed. Still want to market that particular design, so you look at importing them already built-up from your factories in another market? Bzzt! UAW won't allow it; they view it as taking away "their" work. You're still screwed. Want to market a homegrown design, the build of which impinges on upper or lower worker-hourage boundaries? Bzzt! There's the friendly and helpful UAW again to scotch the idea. You're screwed again.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Daniel J. Stern wrote: "Actually, the UAW has a very strong influence on what cars are and aren't built and marketed in North America. They are the primary reason why GM and Ford don't import many of the excellent, up-to-date products they design and build in the Australian market, for instance. Want to build a car in North America, but UAW can't build to the precision and quality levels a particular design requires (such as some of the ones from Australia)? Common problem. You're screwed. Want to raise the level of quality and precision from the UAW by implementing special training and skill-building programs? Nope, UAW won't have it, 'cause that implies the average UAW is underskilled and undertrained, and we certainly wouldn't want anyone to think *that*. You remain screwed. Still want to market that particular design, so you look at importing them already built-up from your factories in another market? Bzzt! UAW won't allow it; they view it as taking away "their" work. You're still screwed. Want to market a homegrown design, the build of which impinges on upper or lower worker-hourage boundaries? Bzzt! There's the friendly and helpful UAW again to scotch the idea. You're screwed again"
Names some cars that were not built in the US that was built according to you in Australia because the union would not let them. A company can mandate training on its employee it deems necessary to protect them, the company, the environment at any time it wants. I was just force to attend 16 hours of training on troubleshooting skills. This is skills I and many of my fellow operators at the plant already have but never had formal training on it. I sat in a room with 15 other operators and one supervisor. We had an average skill level of 19 years in the room and the supervisor had 12 total years. The least experience was 5 years to the most experience 29 years of service. This training was mandated because the company felt it was necessary to prevent environmental incidents and to protect them, the employee and the community it mandated. We recently added no equipment and automated controls. We required to attend training on how to use this equipment.
If GM or Ford wanted to retool a plant (which they do ever time a plant changes models), they could mandate training on new skills needed to build the new models. The bottom line is GM and Ford have not wanted to invest in older plants the money it needs to retool theses plants with new and more advanced equipment. The cost of retraining and shutting down the plant for installation of new equipment, and the cost of the new equipment does not make financial sense to them. It is cheaper to just built newer plants in other countries with cheaper labor (less benefits and retirement), less government restriction, cheaper corporation taxes and other known and unknown reasons. Our government allows them then to ship the finish product back to the US with little or no tariffs.
Although I never worked in the car manufacture business, I have worked in business that integrated into the global equation. Global economy a term we all learn to hate. I also live between to major ports and have seen the cars being off loaded at the docks. There is also a railroad yard near one of the docks that I have personally been to pickup vehicles that came off the ships and rails. I use to transport vehicles for dealerships when they could not wait to get them by truck. I personally drive vehicles assembled in North America. I cannot say the US since my vehicles (all 4 of them) were assembled either in the US or Canada. I try to buy strictly US made products and support theses companies.
So name your cars and show your proof where UAW workers are underskilled and under trained. I would bet the average OJT time at a UAW plant is probably 25 years or better of services. Many of theses companies refused to hire when short on workers to reduce the number of employees without laying off employees. As members retire they are not replaced. They will not hire until they are so short it becomes a safety issue. Then they hire and are forced to send the new employees through some type of training in order to fulfill OSHA requirements. Maybe you should look at OSHA standards. Theses companies are also forced to follow NFPA codes and NEC codes although they are not law. Both NEC and NFPA are standards and they have certain requirements for certain jobs. If they are not followed and someone gets hurt, then the company will be held at fault and liable.
Sarge
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Licker wrote:

<snip Licker's incoherent, rambling, babbling union grunt's "Prove it!">
I don't have to. You just did. Nevertheless, I must address this particular gem of yours:

Skill level is not measured in years, except to union types who view the terms "skill level" and "seniority" as interchangeable.
DS
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Daniel J. Stern wrote"<snip Licker's incoherent, rambling, babbling union grunt's "Prove it!"> I don't have to. You just did. Nevertheless, I must address this particular gem of yours:'
How did I prove it. You have not named one car that the union stop from being produced here and is produced overseas because the union will not allow it.

"Skill level is not measured in years, except to union types who view the terms "skill level" and "seniority" as interchangeable."
I will give it to you as far as seniority is concern it is a big deal in a union. However many union folks know seniority does not necessarily mean skill level. I would like you to explain how an American UAW worker is unskilled labor compared to one overseas. Many companies would love to have factories or plants in the US but that do not locate here due to cost of doing business which includes not only labor but taxes and other required government regulations. The US worker can compete with other countries but we don't have a level playing field when it comes to regulations, taxes and labor cost.
A good example of that is the company I work for built a brand new chemical plant in Mexico which it hired 10 workers to every one worker that a plant in the US making the same product. Once the plant was up and running they shutdown the US plant. The company financial report shows the cost for labor and benefits was reduced by over half. Theses workers have no health insurance or retirement benefits since they receive theses from the government. How can the US worker compete with this? The answer is support companies that produce products here in the US. Support tariffs to equal the playing field. Get rid of NAFTA and repeal China as a free trade nation.
Sarge
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Absolutely true. Ford, for instance has been running on the reputation of its pick up trucks for ages, it only seems to have 3 cars none of which can hold a candle to Japanese. GM still makes cars no one wants the only market related ones are from Daewoo in Korea, Chrysler have some decent cars but no small or fuel efficient ones. It seems no one Detroit has noticed the present price of gas and the popularity of frugal cars. The marketing of cars is still in the dark ages. A friend in a dealership told me that the best kept secret in the trade is the true cost price of a North American Car. They quote lease payments but no actual price. That couple d with the guessing game negotiations, the refer to manager deals, the multiplicity of options. Japanese and Korean have usually 3 models Entry, Upscale and De Luxe- thats it. GM quote a price but never sell at it. What is needed is value for money, less sleaze bags selling them and cars that are gas sippers and mechanically well engineered. We can build them, Honda and Toyota build superb cars in Canada, its the Marketing, Accountants and engineers that collectively turn out crap at Ford, GM and Chrysler . I will be replacing my Intrepid with a Sonata, I just cant stand North American Car Dealers.
wrote:

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 5 Mar 2006, Keith wrote:

Out of the frying pan, into the fire.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Daniel J. Stern wrote:

That's pretty funny ... and shows your ignorance of where Hyundai is today. This was true 10 years ago, maybe even 5, but no longer.
Matt
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Matt Whiting wrote:

I'm quite thoroughly familiar with where Hyundai is now. They're certainly zipping along the learning curve, but they haven't yet crested it. You, on the other hand, have shown yourself to be exactly as gullible as Hyundai's marketing department hopes.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Daniel J. Stern wrote:

Never said they have crested it, but they are above mid-pack and above Chrysler, er, excuse me Daimler-Chrysler. They aren't up with Toyota yet, but they will be.
My employer has a couple of plants in Korea and the Koreans want nothing more than to bury the Japanes at their own games. They are doing this rather will with steel, electronics, and other commodities and will do this with cars as well. They are relentless in their pursuit of quality and their desire to best the Japanese is palpable when you visit there.
Matt
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Actually I am for restricting trade with countries that don't have reasonable human rights policies, like China. Of course we would have to debate the issue of "reasonable" and that would take 10 years. Furthermore China would then stop holding US debt and out currency would collapse.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Art wrote:

I'd agree with that if we had all of our own human rights problems taken care of. We aren't even close so this just makes us very hypocritical.
Matt
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Site Timeline

Motorsforum.com is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here. All logos and trade names are the property of their respective owners.