In this short article (it can't be more than 50 sentences) Mr. Leonhardt manages to explain the difference in labor costs between the Big Three and Japanese automakers operating plants in the US. As you would expect, workers at the Japanese plants earn less in wages and benefits than their counterparts from Detroit. But he goes beyond this simple finding and then the real fun begins. In his simple piece he manages to capture the truly schizophrenic nature of the situation. Reading this, it appears to me that the debate over the automaker bailout is really just the debate about the response to the overall economic crisis in microcosm.
As noted, wages & benefits for workers of US automakers are higher than workers at Japanese firms, but the real difference is in the cost of pension and health care for retirees. With no discernible sense of irony, Mr. Leonhardt notes that:
The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.
Couldn't the heads of the Big Three make a plausible case that alleviating these legacy costs would go a long way to keeping them solvent? Call it universal coverage with European style pension plans (or godless socialism, depending on your point of view) through the back door, or I guess in this case, the hatchback.
Then the article takes something of a U-turn.
The author goes on to point out that even if the government offered to take over the retiree commitments, the cost of producing a car would only go down a few hundred dollars. Labor costs, Mr. Leonhardt reveals, "make up only about 10 percent of the cost of making a vehicle."
The real reason that Detroit is in trouble according to the article is that no one wants to buy its cars.
No one wanted Fannie's or Freddie's mortgage backed securities, so we bailed them out. No one wanted AIG's credit default swaps, so we bailed them out. Bear Sterns, same thing. All of these were done regardless of the level of compensation of the employees, or, despite all of the talk, the compensation of the executives.
The lesson any reasonable person could take away from these bailouts is that if you are a producer of worthless pieces of paper, your check is in the mail. But if you make cars & trucks (you know, tangible goods with some value even in this extremely depressed market) sorry, there's nothing here for you. Is it possible that refusal to bail out the automakers is really just an expression of regret over the initial financial bailout?
And so the debate continues. If in your discussions you happen to run across someone that make sense out of these seeming contradictory positions be sure to take heed - and try to find out what make of car they drive too.