Wednesday, November 19, 2008

UAW's Reckless Driving Causes Big 3 Pileup

I have stayed out of the auto industry bailout flap because I couldn't decide what was the best solution for the problem. After looking at both sides carefully and the potential collateral damage, I have decided that a bailout is unnecessary and allowing the Big 3 to restructure under Chapter 11 bankruptcy would be the best thing to do.

The unions are recklessly driving the U.S auto industry over a cliff. GM, Ford, and Daimler/Chrysler cannot compete with Toyota, Honda, and other foreign manufacturers due to the high cost of wages and benefits. The numbers vary but the result is always the same. U.S. auto workers make an average of $74 to $85 per hour when benefits are factored in. Toyota's hourly labor cost is around $45 per hour.

Just for the ease of calculation, let's say it takes 100 hours to build a car from start to finish. GM's labor cost would be as much as $8,500. Toyota's labor cost would be $4,500. That's a $4,000 difference!

It is time for the labor unions to face the facts. When the U.S. was the sole industrial superpower, American companies could set their own prices. Now that other countries like Japan and China have industrialized with lower overhead and labor costs, American companies are no longer competitive.

We have two options here. Watch the American companies fall one-by-one or allow them to cut their costs to be competitive. I vote for the latter.

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