I am ashamed
I only got 20/33 on the “How Web 2.0 are you?” quiz 
.
The Union Complex
A lot of the debate around the proposed bailout of Detroit auto manufacturers has centered around what caused GM, Ford, and Chrysler to do so poorly (random fact of the day: the market capitalization of GM is now less than 30% of that of Bed, Bath, and Beyond). More specifically, these debates have centered around the question of whether or not higher UAW wages have led to the downfall of the Detroit Three? While many commentators have chimed in, I personally think most of this debate is a meaningless distraction, for three reasons:
First, as I pointed out in a previous post, it’s counterproductive to try to blame one party for something as complex and massive as the failure of Detroit’s auto manufacturers, not only because multiple parties are “to blame”, but also because all the involved sides need to get together to come up with a credible solution.
Secondly, while I think its well-established that the oft-quoted $70/hour difference between UAW wages and non-unionized wages is not representative of actual worker salaries (UAW workers are not paid $70 more per hour than their non-unionized counterparts – that reflects the cost of paying off pensions), I think this point is irrelevant, because at the end of the day, who cares where the “$70/hour” labor cost differential comes from? It could be wages or pension costs or even college tuition subsidies for children of union members – it doesn’t matter. We’re still talking about a $2000/car cost disadvantage due to a union labor agreement (according to Mitt Romney’s column in the NYTimes). In business, you don’t have the luxury of explaining away a “$2000 price difference” or “$2000 less features/quality” by arguing its a technicality.
Lastly, the true cost of the UAW is not the $2000/car figure (which represents only a ~7% of the average selling price of $28000), but the cost of increased complexity that comes from the union contracts. Take a look at the 22 pound, 2215-page “epic poem” which is the Ford-UAW contract:
Now, I’ll admit that I haven’t read all 2215 pages, so its entirely possible I missed the magical section which talks about how the UAW enhances Ford’s productivity and causes rainbows and unicorns to appear, but for the most part the pages that I’ve looked over fit three categories:
- Relatively “meaningless” paper (e.g. title page, contents, signed pages, etc.)
- Rules/procedures that Ford must follow
- Benefits that Ford must provide
Imagine running a company with very complicated manufacturing facilities around the world, a very complex supply chain, and innovative and cutting-edge competitors who have captured the eyes of your customers. Now, imagine on top of all of that, you need to deal with several hundred pages of rules that your competitors don’t, stipulating which employees can work on which parts of the assembly line, what you need to do when employees have conflicts or confusion, how senior employees need to be in order to get certain responsibilities, etc etc.
You would need to institute all sorts of additional processes to deal with these new rules and regulations. You would need to hire new people to help administer these processes. You wouldn’t be able to quickly change your operating procedures and strategies because you need to wait to get the proper sign-off from the proper union members (that is if the union allows it). You would lose out on time and efficiency and productivity as you keep unproductive workers longer and are required to factor in union rules when doing anything. You would chase away more productive, younger workers who don’t get greater responsibility and pay due to union protocol on seniority. You would ignore more product flaws as the cost of fixing them would be too high.
The true cost of the UAW is not the (fairly marginal) labor cost differential, but the cost of complexity. This is not to say Detroit doesn’t have other complexity issues (e.g. Japanese car companies define their product families and product options a lot more rationally than Detroit’s, which makes them harder to manufacture and customize and sell), but my argument from the beginning is that the labor cost differential, while something to address, is only the tip of the iceberg of inefficiencies which have hit Detroit. To focus so much attention on labor costs ignores the massive productivity, quality, and time-to-market costs which have really hurt Detroit – and that’s something lawmakers, management, and the UAW need to sort out to dig themselves out of the hole they’re in.
