Something for nothing: GM and the unions

Something for nothing: Part II
By Thomas Sowell
Published March 3, 2006

Government is not the only institution that promises something for
nothing. The decline of General Motors is just one consequence of the
idea labor unions can get their members something for nothing.
Workers themselves increasingly recognize there is no free lunch
through unionization and increasingly vote to be non-union. But the
word has yet to reach many among the intelligentsia, who still think of
labor unions as institutions that benefit the working class.
You can always benefit particular segments of any society at the
expense of some other segment. But unions do not benefit even the
working class as a whole -- just current union members at the expense
of other workers, current and future.
One reason General Motors has lost market share for years -- going
from selling about half the cars in the country to selling about
one-quarter today -- is its union contracts put them at a disadvantage
compared to Japanese competitors.
Though Toyota has factories in the United States, the American
employees in those factories vote to keep their jobs by staying
nonunion. Toyota takes business away from unionized Detroit carmakers,
who are forced to lay off thousands of workers while Toyota hires
additional workers.
There may not be any big difference in pay scales, but unions can
raise production costs many other ways. Fringe benefits are just one,
work rules another.
In some industries, employers pay their workers as much as, or more
than, unionized workers for the same jobs, just to be free of red tape
restrictions on how they can organize their business or discipline
employees who aren't doing their jobs right.
Toyota, for example, takes fewer hours to produce cars with fewer
defects than Detroit cars.
While unions are declining in the private sector, they are
expanding among government employees. Government agencies are usually
monopolies, so competition is no threat to their jobs. Taxpayers get
hit with the high cost of these monopolies. There is no such thing as
something for nothing.
Teachers' unions fight desperately and ruthlessly against vouchers.
They must maintain a monopoly of schoolchildren under the compulsory
attendance laws. Their members risk losing jobs if they must compete
with private schools.
Monopoly is the key to unionized teachers' job security -- at the
expense of children's education and the taxpayers' money.
Private-sector labor unions have long been in the forefront of
those pushing for higher minimum wage laws. Union members usually make
much more than minimum wages but need to safeguard their jobs from
others who might work for less.
People on the inside looking out benefit at the expense of people
on the outside looking in. Losers include not only less-experienced and
lower-skilled workers, whose output would not cover the cost of the
minimum wage, but also future workers who may find fewer jobs in the
unionized industries.
Minimum wage laws are like protective tariffs insulating unionized
workers from the competition of other workers. It is robbing a less
affluent Peter to pay a more affluent Paul -- while using noble
rhetoric that appeals to the uninformed and the unthinking, including
many people with fancy degrees and even fancier illusions about their
own greater compassion.
Some people may believe unions benefit their members at the expense
of employers -- and that big corporations should be paying a "living
wage." That may be possible in the short run.
But if unionized workers producing widgets get higher pay by
reducing widget manufacturers' profit rates, do you think there will be
as much invested in producing widgets when higher rates of return can
be realized by investing elsewhere?
The rate of return on widgets cannot remain permanently below rates
of returns in other industries. Widget prices will have to rise -- and
that means lower sales and lower employment. There is no free lunch, no
way to get something for nothing.

Thomas Sowell is a nationally syndicated columnist.

 

$14.105 Toyota Corolla
$9,890 Chevrolet Aveo



Mike, why do you post this drivel? OK, here we go:

no-nothing columnists do also.

Rubbish. Let's get some realism here. I'll start with some figures from
here:

http://www.gm.com/company/investor_information/earnings/

GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in
GM's history

Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004

GM) today reported a 2005 calendar-year loss, excluding special items, of
$3.4 billion.
This is ONE POINT SEVEN PERCENT of their total revenue.

it is equivalent to a private person who makes $20,000 a year after taxes,
overspending their
budget for the year by $340.00.

Last year, in 2004, GM made a profit of 3.6 billion, on that revenue of
193.5 billion.

That is equivalent to a private person who makes 20,000 a year after taxes,
managing
to save $360.00 for that year.

GM has about 20 billion in cash in the bank. This is equivalent to that
private
person who makes $20,000 a year after taxes, having a savings account
totalling
$2,000

With this cash GM could fund losses at the 2005 rate for about 5-6 years
WITHOUT
DOING A THING ABOUT IT.

The idea that GM is hemorraging red ink is not supported by the facts - in a
word
it is preposterous. In fact, GM is basically operating like any other
NORMAL
business - they make some money some years, and they lose some money some
years. Last year in 2005 was a losing year.

Would you prefer GM to make profits on the order of the oil companies?

No evidence this is "increasing"

If you are working at a non-union company along with 10 other workers,
and you one out of that 10 go out and take night classes and get yourself
an MBA, then walk into your bosses office and demand and get a raise
based on the idea that you are now a more valuable employee because you
have the MBA, you are benefiting yourself at the expense of the other 9
workers.

Let's see.

2006 Toyota Corolla, per the website, starting price $14.105
2006 Chevrolet Aveo, per the website, starting price $9,890

How is this a disadvantage?

So do parents with kids in public schoos who do not want to see
the quality of the schools go down the toilet. Here is the problem with
vouchers. It starts with the really dedicated parents who use them to
pull their kids out and stick them in private schools, generally with
no justification. In short, the education isn't any better, it just perhaps
happens to have religious overtones, treats evolution as debunked
science, whatever. As a result the public schools lose money and
get a little worse. So a few more parents see the decline and they
pull their kids out. So the public schools get even worse. And so
on until the public schools are so poor that your pretty much required
to pull out your kids if you want them to get any education at all,
and by then most of the parents pulling them out, would much rather
not do it.

In a public school you are not guarenteed to get a fantastic teacher
for every grade, and when your kid does get a bum teacher, there's
not much you can do. Whereas in a private school you can pull your
kid out and go to a different school. The problem is that this isn't
how life works. Your not guarenteed in getting a good boss every time
you find a job. Your not guarenteed in getting a good spouse every
time you get married. Your not guarenteed in getting good employees
every time you hire someone.

It is as valuable for a kid and their parents to learn how to deal with
the occassional bum teacher as if they had all good teachers. More
valuable in fact since the kid is being taught how to deal with it
when that happens in college or later on in life.

If a business hires employees that have output that is lower in value
than the cost to the business, the business is going to go bankrupt.
Haven't you been paying attention to what is going on with many of
the teams in the NBA these days? The union does not force a business
to hire an employee that outputs lower than their cost. If the business
is unionized, then they need to figure out how to restructure themselves
so all of their employees jobs produce more than their cost.

So what? This is how a normal market operates. If too many auto companies
out there are producing more cars than the market can absorb, then either
costs of the cars drop until the market absorbs more of them, or some of
the manufacturers disappear and car production drops.

What your missing however is that when manufacturers disappear and the
car production drops, it frees those employees up to go work in industries
that have a need of employees.

The problem here is that you need to look at the US market in the big
picture. Right now we have too many cars produced and too many autoworkers.
Yet at the same time health costs are skyrocketing - why? Because there's
not enough competiton out there among health providers for the prices
to drop. In short, there's a big shortage of nurses, doctors, pharmacists,
etc. There's too few doctors offices and hospitals, that's why you have to
wait 2 hours when you walk into a doctors office because there's just
too many customers.

What the US market needs, then is obvious - it needs some of those
autoworkers
to stop being autoworkers and start being nurses and doctors. That will
only
happen if those people lose their autoworking jobs and simply cannot get
replacement autoworking jobs, they will then have to retrain.

Let's say you dump all the unions and the costs for a typical autoworker
drops.
OK, so now we create a mecca for automakers the world over, they send
all their work to us, and now we got lots and lots and lots of available
autoworking jobs. The only problem is that all this does is allow Joe
Blow autoworker to take a pay cut and keep working at what he already
knows - which is autoworking - instead of being told he has no other choice
than to retrain to be a doctor. So meanwhile, the need for more doctors
and nurses is not met, and health care costs go even further out of control.
How exactly does this help the economy?

Ted

 

........... not that I'm union, but rather I've was a part of the
non-union end of the American "big 3" (1971 - 1989). The American auto
industry let WAY too many electrical issues slide for WAY too many
years. The truth is they relied very heavily on sub-contractors (who
were almost exclusively non-union BTW). Way too many of these
subassemblies were junk (made up of inferior electrical components and
questionable assembly methods). Although I was involved in the
electrical end, the mechanical side was much the same. The attitude in
the industry was "oh well, we're no worse than anybody else"...........
until the Japanese began getting a toe hold and everyone knows the rest
of the story . Believe me, 30 years ago had a lot more to do with
engineering, assembly methods, and using better quality components in
subassemblies than the shortfalls of union labor.

 

Here's a really good book on how one corporation, the Penn Central who was
the largest railroad of it's time went bankrupt.

....The Wreck of the Penn Central, which The New York Times called "a great
book" offering the reader "a ringside seat" to this economic debacle,
provides a close-up view of the events that brought the Big Train to
bankruptcy court -- over-regulation, subsidized competition, big labor
featherbedding, greed, corporate back stabbing, stunning incompetence, and
yes, even a little sex.


http://www.beardbooks.com/the_wreck_of_the_penn_central.html


Ken

"Now Phoebe Snow direct can go
from thirty-third to Buffalo.
From Broadway bright the tubes run right
Into the Road of Anthracite"

 

This is a load of crap. I am not a union member, nor have I ever been.
The problems General Motors is experiencing come from only one place;
the management. While General Motors was busy designing and building
cars that most people do not want, companies such as Toyota and Honda
are busy producing very desirable cars. For example, where's the GM
version of the Honda Civic or Toyota Prius? While Honda and Toyota are
busy building cars that they can't sell fast enough, the American
automobile manufacturers are busy building more and more gas guzzling
SUVs and pick up trucks.

There is no free lunch, but working on an assembly line and paying union
dues for decades is hardly a free lunch. Why is it that Honda and Toyota
can treat their current employees and retirees well, but GM can't? If GM
wants to make more profits and live up to its obligations to its past
and current employees, I have a radical idea ... make better products.
Make products that are better than your competition: that's the secret
to prosperity in any industry. If GM could figure out how to make a
midsize car with decent reliability that averages 60MPG highway, they
would outsell anything Toyota and Honda have today.

 

I was working for a 2nd tier supplier on the electrical side until 2000.
Much of what you describe hasn't changed - at least at that one
supplier. It was (still is) non-union, but the motto could have been,
as you said, "We're no worse than anybody else" - in fact I often used
those exact words myself to describe the attitude (hmmm - maybe that's
why I'm not still there).

The problem, which I've presented many times here before, was that the
customers (Ford, Delphi) would force price cuts on us with no basis in
reality, and on top of that, would dump no-value-added new
quality-documentation requirements (notice I make no reference to true
qualilty *improvement* requirements) on us. So we had less working
capital (neg. profits already) with which to hire people to fulfil the
new documentation requirements. As a result, the quality documentation
often got faked. The ultimate results of that is predictable (a la Ford
Explorer/Firestone). Delphi actually at one point blackballed our
company from any new business awards for 3 years because our plant
manager, out of desperation, grew a set of balls and on just a single
occasion told them we would not reduce our price on one product the next
year.

One of GM's (Delphi's) favorite tricks was to set up a team of their and
your people for a cost-cutting excercise (called PICOS) on an existing
product/process. The stated up-front premise was that any savings
discovered by the "team" would be shared 50/50 by Delphi and you, the
supplier. When the process was finished, they would then announce that,
oh by the way, sorry - they guess they forgot to tell you, but they were
absolutely required by their internal operating procedures manual to
subsequently put the new cost-shaved part and process design out for
competitive bids (called 'global sourcing' in the biz). Well guess what
- if you wanted to re-win the business with a competitive bid, you had
to give up the shared savings that you just spent tens of thousands of
dollars of your own money on in man-hours and travel to ferret out. We
were so stupid, we allowed ourselves to be raped in that fashion twice
before we told them 'hell no' on their third attempt at starting a PICOS
team on one of our products.

So the attitude of "We're no worse than anybody else", though
despicable, is somewhat understandable.

Another of the defensive measures of my previous employer was to,
without telling Ford, leave a Potemkin village line up (for when Ford
visited the plant) and move the real production to our Mexican facility.
(To make that facade complete, we'd have to ship from Mexico to the
plant in the states, and then ship from there to Ford.) If you were in
the business, you know that that (moving a production line to a new
location, much less out of the country, without their permissiona and
the full quality documentation for the establishment of a new line
location) was a real no-no. (My understanding is that they later moved
those lines back to the states due to even worse quaility problems in
Mexico.)

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

One more thing I forgot to throw in on the PICOS process: One of the
rules, due to previous crappy agreements that GM made with the unions
many years ago (agreements that still plagued them, agreements that Ford
and Chrysler did not make and were unencumbered by) was that any savings
that the PICOS team came up with that resulted in added
efficiencies/cost reductions in the GM/Delphi plant by the elimination
of a body on their assembly line, by definition had to be crossed off
the list - i.e., those savings could not be realized.

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Shawn Hirn wrote: "This is a load of crap. I am not a union member, nor
have I ever been. The problems General Motors is experiencing come from only
one place; the management. While General Motors was busy designing and
building cars that most people do not want, companies such as Toyota and
Honda
are busy producing very desirable cars. For example, where's the GM version
of the Honda Civic or Toyota Prius? While Honda and Toyota are
busy building cars that they can't sell fast enough, the American automobile
manufacturers are busy building more and more gas guzzling SUVs and pick up
trucks.

There is no free lunch, but working on an assembly line and paying union
dues for decades is hardly a free lunch. Why is it that Honda and Toyota can
treat their current employees and retirees well, but GM can't? If GM wants
to make more profits and live up to its obligations to its past and current
employees, I have a radical idea ... make better products. Make products
that are better than your competition: that's the secret to prosperity in
any industry. If GM could figure out how to make a midsize car with decent
reliability that averages 60MPG highway, they would outsell anything Toyota
and Honda have today.'

Shawn, I have to agree with you on why GM is failing in business. Upper
management is using the union as a scapegoat. Upper management makes all
financial decisions on what to invest in and what not to. If they make the
right or wrong decision that are ultimately responsible either way. The UAW
cannot decided what vehicles they will build and which ones will be designed
and marketed.

However, I do respectful disagree with you on Toyota and Honda treating
their retirees better. Both Toyota and Honda have no fixed pension plan
only a company sponsored 401K. 401K pension type plans can be big successes
are a financial failure. A good example is I work for a company that has a
fixed pension. I know that if I retire today what my pension will be.
However, my 401K which was close to 600 thousand 4 years ago has dropped by
250 thousand when the economy was doing bad. If I had to rely on my 401k to
living on then I may be in financial trouble every time the economy does
poor. The current president is pushing 401K type pensions for all workers.
401K pensions are to unstable for me to rely on. The UAW has negotiated
with GM to maintain a fixed pension so retirees know what they have to live
on and not a guess work. Yes, fixed pensions can fail also but they are
less likely if the company does good some years and bad others as long as
the business survives. It is also backed up by the government just like
your bank account. 401K are not insured.

yes, I am a union member and proud to be one. I work for a large company
and it is not in the automobile industry. I am a member of USW. USW, United
Steel Workers represents members employed in the steel industry, chemical,
paper, oil, healthcare and energy fields. Our membership is over 1 million
strong and growing. Unity and Strength for Workers is our motto.

Sarge

 

Absolutely true. Ford, for instance has been running on the reputation of
its pick up trucks for ages, it only seems to have 3 cars none of which can
hold a candle to Japanese. GM still makes cars no one wants the only market
related ones are from Daewoo in Korea, Chrysler have some decent cars but no
small or fuel efficient ones. It seems no one Detroit has noticed the
present price of gas and the popularity of frugal cars.
The marketing of cars is still in the dark ages. A friend in a dealership
told me that the best kept secret in the trade is the true cost price of a
North American Car. They quote lease payments but no actual price. That
couple d with the guessing game negotiations, the refer to manager deals,
the multiplicity of options. Japanese and Korean have usually 3 models
Entry, Upscale and De Luxe- thats it. GM quote a price but never sell at it.
What is needed is value for money, less sleaze bags selling them and cars
that are gas sippers and mechanically well engineered. We can build them,
Honda and Toyota build superb cars in Canada, its the Marketing, Accountants
and engineers that collectively turn out crap at Ford, GM and Chrysler .
I will be replacing my Intrepid with a Sonata, I just cant stand North
American Car Dealers.

 

Actually, the UAW has a very strong influence on what cars are and aren't
built and marketed in North America. They are the primary reason why GM
and Ford don't import many of the excellent, up-to-date products they
design and build in the Australian market, for instance. Want to build a
car in North America, but UAW can't build to the precision and quality
levels a particular design requires (such as some of the ones from
Australia)? Common problem. You're screwed. Want to raise the level of
quality and precision from the UAW by implementing special training and
skill-building programs? Nope, UAW won't have it, 'cause that implies the
average UAW is underskilled and undertrained, and we certainly wouldn't
want anyone to think *that*. You remain screwed. Still want to market that
particular design, so you look at importing them already built-up from
your factories in another market? Bzzt! UAW won't allow it; they view it
as taking away "their" work. You're still screwed. Want to market a
homegrown design, the build of which impinges on upper or lower
worker-hourage boundaries? Bzzt! There's the friendly and helpful UAW
again to scotch the idea. You're screwed again.

 

Out of the frying pan, into the fire.

 

That's pretty funny ... and shows your ignorance of where Hyundai is
today. This was true 10 years ago, maybe even 5, but no longer.

Matt

 

Daniel J. Stern wrote: "Actually, the UAW has a very strong influence on
what cars are and aren't built and marketed in North America. They are the
primary reason why GM and Ford don't import many of the excellent,
up-to-date products they design and build in the Australian market, for
instance. Want to build a
car in North America, but UAW can't build to the precision and quality
levels a particular design requires (such as some of the ones from
Australia)? Common problem. You're screwed. Want to raise the level of
quality and precision from the UAW by implementing special training and
skill-building programs? Nope, UAW won't have it, 'cause that implies the
average UAW is underskilled and undertrained, and we certainly wouldn't want
anyone to think *that*. You remain screwed. Still want to market that
particular design, so you look at importing them already built-up from your
factories in another market? Bzzt! UAW won't allow it; they view it as
taking away "their" work. You're still screwed. Want to market a homegrown
design, the build of which impinges on upper or lower
worker-hourage boundaries? Bzzt! There's the friendly and helpful UAW again
to scotch the idea. You're screwed again"

Names some cars that were not built in the US that was built according to
you in Australia because the union would not let them. A company can
mandate training on its employee it deems necessary to protect them, the
company, the environment at any time it wants. I was just force to attend
16 hours of training on troubleshooting skills. This is skills I and many
of my fellow operators at the plant already have but never had formal
training on it. I sat in a room with 15 other operators and one supervisor.
We had an average skill level of 19 years in the room and the supervisor had
12 total years. The least experience was 5 years to the most experience 29
years of service. This training was mandated because the company felt it
was necessary to prevent environmental incidents and to protect them, the
employee and the community it mandated. We recently added no equipment and
automated controls. We required to attend training on how to use this
equipment.

If GM or Ford wanted to retool a plant (which they do ever time a plant
changes models), they could mandate training on new skills needed to build
the new models. The bottom line is GM and Ford have not wanted to invest in
older plants the money it needs to retool theses plants with new and more
advanced equipment. The cost of retraining and shutting down the plant for
installation of new equipment, and the cost of the new equipment does not
make financial sense to them. It is cheaper to just built newer plants in
other countries with cheaper labor (less benefits and retirement), less
government restriction, cheaper corporation taxes and other known and
unknown reasons. Our government allows them then to ship the finish product
back to the US with little or no tariffs.

Although I never worked in the car manufacture business, I have worked in
business that integrated into the global equation. Global economy a term we
all learn to hate. I also live between to major ports and have seen the
cars being off loaded at the docks. There is also a railroad yard near one
of the docks that I have personally been to pickup vehicles that came off
the ships and rails. I use to transport vehicles for dealerships when they
could not wait to get them by truck. I personally drive vehicles assembled
in North America. I cannot say the US since my vehicles (all 4 of them)
were assembled either in the US or Canada. I try to buy strictly US made
products and support theses companies.

So name your cars and show your proof where UAW workers are underskilled and
under trained. I would bet the average OJT time at a UAW plant is probably
25 years or better of services. Many of theses companies refused to hire
when short on workers to reduce the number of employees without laying off
employees. As members retire they are not replaced. They will not hire
until they are so short it becomes a safety issue. Then they hire and are
forced to send the new employees through some type of training in order to
fulfill OSHA requirements. Maybe you should look at OSHA standards. Theses
companies are also forced to follow NFPA codes and NEC codes although they
are not law. Both NEC and NFPA are standards and they have certain
requirements for certain jobs. If they are not followed and someone gets
hurt, then the company will be held at fault and liable.

Sarge

 

I'm quite thoroughly familiar with where Hyundai is now. They're
certainly zipping along the learning curve, but they haven't yet
crested it. You, on the other hand, have shown yourself to be exactly
as gullible as Hyundai's marketing department hopes.

 

<snip Licker's incoherent, rambling, babbling union grunt's "Prove
it!">

I don't have to. You just did. Nevertheless, I must address this
particular gem of yours:

Skill level is not measured in years, except to union types who view
the terms "skill level" and "seniority" as interchangeable.

DS

 

Never said they have crested it, but they are above mid-pack and above
Chrysler, er, excuse me Daimler-Chrysler. They aren't up with Toyota
yet, but they will be.

My employer has a couple of plants in Korea and the Koreans want nothing
more than to bury the Japanes at their own games. They are doing this
rather will with steel, electronics, and other commodities and will do
this with cars as well. They are relentless in their pursuit of quality
and their desire to best the Japanese is palpable when you visit there.

Matt

 

Daniel J. Stern wrote"<snip Licker's incoherent, rambling, babbling union
grunt's "Prove it!">
I don't have to. You just did. Nevertheless, I must address this particular
gem of yours:'

How did I prove it. You have not named one car that the union stop from
being produced here and is produced overseas because the union will not
allow it.

"Skill level is not measured in years, except to union types who view the
terms "skill level" and "seniority" as interchangeable."

I will give it to you as far as seniority is concern it is a big deal in a
union. However many union folks know seniority does not necessarily mean
skill level. I would like you to explain how an American UAW worker is
unskilled labor compared to one overseas. Many companies would love to have
factories or plants in the US but that do not locate here due to cost of
doing business which includes not only labor but taxes and other required
government regulations. The US worker can compete with other countries but
we don't have a level playing field when it comes to regulations, taxes and
labor cost.

A good example of that is the company I work for built a brand new chemical
plant in Mexico which it hired 10 workers to every one worker that a plant
in the US making the same product. Once the plant was up and running they
shutdown the US plant. The company financial report shows the cost for
labor and benefits was reduced by over half. Theses workers have no health
insurance or retirement benefits since they receive theses from the
government. How can the US worker compete with this? The answer is support
companies that produce products here in the US. Support tariffs to equal
the playing field. Get rid of NAFTA and repeal China as a free trade
nation.

Sarge

 

GM's biggest problem is paying people 90% of their salary when they are laid
off. According to a Wall Street Journal article last week, GM actually came
up with the idea and presented it to the union during contract negotiations.
What jackasses.

 

Art wrote: "GM's biggest problem is paying people 90% of their salary when
they are laid off. According to a Wall Street Journal article last week, GM
actually came up with the idea and presented it to the union during contract
negotiations. What jackasses. "

I agree it is stupid to pay people when the plant is shutdown. However, I
disagree with this being a GM biggest problem. Stupid decisions on making
cars that are not selling, not enough innovation or improvements are a major
factor. Over producing floods the market and last year GM had to many
cars. That lowered the prices and went to that no hassle sale as a market
ploy to move their vehicles. Look at any Chevy lot. The are overflowing in
vehicles. I just past a Ford, Chevy-Pontiac dealership and a Chrysler Dodge
and Jeep. The Chevy dealership was loaded up with vehicles that have a hard
time moving in this area and so was the Ford dealership. The Dodge
dealership had models that sell and their were several customers in the lot
looking. The funny thing is all three of theses dealerships are next door
to each other and the Dodge dealership is the one that sells more then the
rest. I past there everyday and see the trucks off loading and I watch the
vehicles pulling out with their temp tags.

Sarge

 

In Cary, NC there are about a dozen dealerships located in a "auto park".
If you go by the Cadillac, Saturn, or Chevy dealer it looks like a ghost
town. The Chrysler and Dodge dealerships are doing ok. At the Honda
dealership there is almost a waiting line to see a salesman.