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Labor cost isn't the Big 3's problem

Backing up a point I've made many times at my favorite car blog, we now have a link from Marginal Revolution to a Times story which says:

[H]ere’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits... the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota. Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.... An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies....

The problem isn't the $800. The problem is the $2500 (and I think that number is a bit low, actually). If GM was building Cobalts that were as good as Civics, they'd have a small case for some help - but they aren't; not even close; not even in the same ballpark.

This entry was posted in the following categories: Economics , I Told You So

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Comments

Every little bit counts, though, and $800/car is a lot, not a little. Also, I haven't seen anyone try to estimate the cost imposed by workplace rules, so the costs are probably much higher than that.

I agree that GM does have to fix its demand-side problems. A large chunk (most?) of GM's sedan sales are to car rental companies and employees/retirees. I'm sure that accounts for most of the $2,500 gap in sales price. But it also means demand for GM autos is weaker than its sales numbers suggest.

GM has to build more cars that people want to buy, eliminate dealerships, eliminate brands, streamline its notoriously sluggish bureaucracy, improve worker productivity, and . . . get control of labor, pension and health care costs. I don't know that it can do it, with or without a bail-out. But don't dismiss labor costs because they're merely a piece rather than the whole of the problem.

Some echo chamber!

I think $2500 is way too low - when you look at actual prices of Cobalts versus Civics, it seems more like $5000-$8000. In that environment, $800 is peanuts.

And I doubt very much whether work rules have much to do with it -- most of that is factored in to labor costs, remember (rules about what guys do what work for how long is already factored in to total labor cost, basically). Also, Toyota has one or more UAW plants in this country.

I think the $2500 difference is more for big cars, where GM doesn't suck anywhere near as much (like the Malibu).

I should also point out that it's fine to rebut this argument, but make sure to note that nearly everybody on the right-wing side of the fence is blaming labor costs for almost ALL of the problem (because talking about how they enabled GM to put off its day of reckoning by subsidizing their addiction to SUVs is just too inconvenient).

You stated "If GM was building Cobalts that were as good as Civics, they'd have a small case for some help - but they aren't; not even close; not even in the same ballpark".

Besides your own personal opinion, what is the basis for this statement? Do you have any facts to back it up?

According to the Independent JD Power Initial Quality Study Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac and Lincoln all scored as high or higher than Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagen and Volvo in overall quality. JD Power rated the Chevy Malibu the highest quality midsized sedan. Both the Malibu and Ford Fusion scored better than the Honda Accord and the Toyota Camry. So again, is this just an opinion or do you have verifiable facts to back up your statement?

JD Power is a joke. Try Consumer Reports. And the sales price TELLS you how good the thing is, in aggregate.

Seconding the "Consumer Reports >> JD Power".
For the record, I've driven brand new GM cars (Cobalt and Malibu) multiple times over the past few years. IMHO, they don't even come close to Honda, Toyota, or VW. I wouldn't even say they come close to Ford or Nissan's small cars. They're about on par with Kia.

I hear enough good things about the Malibu from enough non-JDPower sources to at least rate it as "maybe OK", although I have not yet driven it. Are you sure you really got one of the new ones? I ended up with an old one last year even after the new one had been introduced (fleet hadn't turned over).

I'm pretty sure it was a new one, some time this summer. I guess *maybe* it is better than Kia, lower than Hyundai. The fit and finish is better than Chevy used to be (same goes for the Cobalt), but the ergonomics, handling, and blind spots still were unpleasant, IIRC.

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