If you want to read one of the most insightful posts about what's wrong with the auto industry in the United States, click right here.
I'm not going to rehash that great post over at Arohan's investing life, but I am prepared on adding a bit to his superb analysis -- unions are a large part of what's wrong with the auto industry. We've heard Barack Obama holler about change for quite some time now, but is he willing to do something about the stifling contracts negotiated between the auto industry and the United Auto Workers?
I'm going to go out on a limb and suggest that the Democrats aren't ready for that much change -- unions send a lot of money to Democrats and provide the party with a huge base of support. It's about time, however, for the government to quit protecting unions and let the free market control their fate.
We all know how that would work out, don't we?
The truth of the matter is this -- unions are obsolete. The abuses that gave rise to them have been largely legislated out of existence. Minimum wage laws, child labor laws, regulations that mandate safe working conditions, etc. all add up to one thing -- the unions have been extremely successful in representing workers. They've been so successful, in fact, that it's hard to find a good reason for them to wield the power that they do here in 2008.
We are well past the era in which powerful corporations were able to treat employees as poorly paid slave labor. That era is gone and the only purpose unions really serve is to demand more money for their members.
So, we're left with very expensive labor in the United States, which makes it a problem for American industries trying to compete with the rest of the world. We can send all the bailout money to the auto industry that we want, but it will always struggle so long as unions are around to artificially inflate labor costs.
The problem, of course, is that Democrats are afraid to limit the power of unions one bit as they would alienate a huge block of support. To be fair, the Republicans haven't shown they're willing to tackle the unions, either.
That's a rotten situation, indeed. Here in Saline County, Ark., we know exactly how it plays out when corporations have the choice of either doing what unions demand or closing up shop.
Yes, we had a thriving aluminum industry here in Saline County for a number of years. The Alcoa and Reynolds plants extracted and processed bauxite ore and provided some of the best jobs in the county.
At one point, however, that bauxite became harder to extract, leaving the plants with a problem -- they were losing money. Around 1980, it was common for people working at Alcoa and Reynolds to make $18 or $19 per hour (a lot of money back then) and it was apparent that the plants simply couldn't foot the labor costs and still stay in business.
Of course, the union wouldn't budge, so the plants pretty much pulled out of Saline County in 1981 and set up in Jamaica. The great jobs that were available were lost and most of us in Saline County work in Little Rock these days as we've never recovered those jobs.
It's seems apparent the American auto industry is about to suffer the same fate. Take a good, hard look at the American textile industry for evidence about what's about to happen to automobile manufacturers in the U.S.
Here's an eye opening statistic that just drives the point home. The average GM worker, according to February estimates, pulled in $78.21 per hour, including benefits. Your average employee at a Toyota plant in the U.S. pulled in $48 an hour, including benefits.
No wonder Toyota is the largest auto manufacturer in both the U.S. and the world. The company is stomping Chrysler, Ford and GM on American soil with American labor. The difference, of course, is that unions are strangling the Big 3, whereas Japanese companies like Honda, Subaru and Toyota are able to put up plants free of union labor, pay their employees well and turn out great products.
The conclusion to this tale seems pretty obvious. I wonder if anyone in Washington has the guts to stand up and address this issue.