Thursday, November 13, 2008

What Killed the Auto Industry? Unions!

UNIONS. It is as simple as a single word. Unions, in an effort to extort from a private company to the benefit of themselves and then their members, destroyed their own meal ticket. Does the economy and oil prices affect the auto industry. Sure they do, but only to the degree that a business should be affected by the normal business cycle. A company with at-will employment and market wages can adjust to the changing economic factors better than a company whose workforce is unionized.

Unionized workers have created these fanciful pension and health benefit plans that are micro examples of social security and medicare in that the ability of these companies to pay the plan has now eroded so much into their operating budgets that it affects the price of cars and the company's ability to compete globally. Additionally, because unions remove the incentive to perform, an environment for unproductivity is fostered. Aside from pride, why would an assembler want to work harder than anyone else if their compensation has nothing to do with performance, but instead is based merely on union negotiations. The union effectively flips on its head how employment decisions are made.

Labor is usually either the highest or one of the highest cost portions of a business. What sense does it make for labor to get to decide how this cost component of a business works. I think we have seen a parallel in the 2008 election when 40 million non-taxpayers got to decide how the tax money they don't pay gets to be spent when they elected Barrak Obama. And as with unions, they opt for it to go to them, despite the damage it does to our nations longevity. In a nut shell, unions force Marxism into a private business. Marxism has never worked. If we want to keep the auto-industry, we need to get rid of unions. Sure pay and benefits will be cut, but they should be. A car company's job is to sell cars at a profit. Every time I see a striking worker on TV I think, does he realize that he is slitting his own throat and eliminating any possibility for his kids to work for the same company all for an extra 8 hours of vacation and a 1% increase in pay for all workers despite performance.


Kansas Bob said...

I generally agree with you Scott but I also lay blame with executive leadership that could have initiated bold steps years ago to revitalize any of the big 3 auto makers. Instead they brokered deals and tried to maximize their own stock options.

It is an issue of greed with both unions and with executives.

jrchaard said...

If you replace every executive, you are still stuck with the Union. Good executive leadership will only prolong the inevitible.

Mike S said...

Just a minor note. We must remember that GM is not technically a private company, it is a public company. If the ownership was closely held, these sort of union contracts would never have been made because it is the owner's money that is on the line. When the ownership is widely held, managers are not nearly as concerned nor nearly as accountable. All they have to do is get by the board, which they buy off or stack in their favor. Instead, they are mostly concerned about their own short term profit potential. It is the same phenomenon that brought down Merrell Lynch, Fannie Mae, Lehman Brothers, etc. but enriched the CEO's in the short term.