Ed Morrison · Learning v. contracts

December 16th, 2008

A lot of conversation in the current discussions on the auto bailout focus on labor cost comparisons between union and non-union plants. The labor rate issue should not absorb too much of our attention. It likely represents less than 1/3 of the cost difference between U.S. and Japanese manufacturers.

The real challenge comes confronting the different business models followed by the US manufacturers, compared to the Japanese. Generally speaking, in a U.S. plant, contracts define job security. In a Japanese plant, job security emerges from a continuous commitment to learning.

This difference explains why, in Indiana, U.S. manufacturers are in trouble, while Toyota, Subaru and Honda are not as severely damaged by the economic downturn.

Take a look at U.S. auto contracts.

Compare practices at Toyota’s Princeton, IN plant.

Last 5 posts by Ed Morrison

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Category: Economic Development
5 Comments »

5 Responses to “Learning v. contracts”

  1. VincentPerricelli Says:
    December 16th, 2008 at 8:29 pm

    Michael Barone has written a possibly relevant blog entry about the historical basis (“Taylorism” versus unionism) for the current automaker-UAW relationship.

  2. Ed Morrison Says:
    December 18th, 2008 at 12:22 pm

    Vince:

    Thanks for the link!

  3. John Colm Says:
    December 20th, 2008 at 6:41 pm

    I agree that the wage differential isn’t the driver for US automaker’s current challenges. But US management and the UAW share responsibility for only now entering the “competitive” range (compared to the foreign transplants) in terms of time to build, quick changeover of tooling to switch from model to model, reliability, fuel economy, safety, innovative design, etc.

    See this clip of Ford’s new plant in Brazil. These aren’t being built here in the US, in part due to union opposition to “insourcing” or co-location of supplier plants with Ford’s own plant:
    http://info.detnews.com/video/index.cfm?id=1189

  4. Bill Callahan Says:
    December 21st, 2008 at 5:39 pm

    The UAW has been bargaining for a more traditional form of insourcing — bringing component manufacturing back into the Big 3’s own plants by encouraging those plants (i.e. the union) to bid competitively against outside suppliers, with those new “insourced” jobs classified as new hires at the $14-per-hour pay level.

    With work forces shrinking across the board, this is probably the only way for the UAW’s new-hire pay concessions to have a significant impact on the companies’ total labor costs. But of course it also creates competitive pressure on outside suppliers.

    Also, here’s the full Detroit News article about the Camacari Ford plant which seems to have given rise to the video. Note that Camacari is a union plant — not the UAW, but the Brazilian ABC Metalworkers Union, which is not exactly a pushover.

  5. Bud Perry Says:
    December 24th, 2008 at 11:46 am

    It seems to be a topic of discussion at parties and on blogs that the foreign auto makers’ plants on American soil are non-union. Thank you for pointing out (obscurely) that this is simply not true. The UAW has contracts with nearly every automaker in America, foreign-born or not. The real difference came at the ridiculous stance Richard Wagoner, CEO of GM, took when asked about creating fuel efficient cars and hybrids, “we will not make them, America doesn’t want them!”. I don’t see how the Union holds any responsibility for Wagoner’s mentality. GM ended up spending millions on advertising and building large gs-guzzling SUVs despite his foreign competitors building smaller and more fuel-efficient cars. He paid little to no attention to the sales figures. Now he’s in trouble..go figure!