Manufacturing Flexibility

The folks at Future of the Union (which is a highly recommended read, by the way) posted an AP story in which a Ford worker was asking the entirely reasonable question, "Why are the auto companies sticking it to us, when labor is only 10% of the cost of a car?" You can read the story here. The simple answer is twofold:

1. It's harder to fix deeper mismanagement issues; reducing labor costs is the easiest way to show immediate progress. Showing immediate progress is a very important part of convincing investors that the Detroit companies can continue as going concerns, which is obviously in everyone's best interests.

2. There's a lot more to the added costs of the UAW than union wages. In fact, just about all the non-union auto plants pay roughly the same costs. Flexibility is the biggest issue; efficient production is impossible if the workforce isn't able to do different jobs. Toyota doesn't make cheaper cars because they pay less; they can do it because their factories are able to respond to changing demand conditions. To the extent that union rules prevent that, it costs a lot more than a few extra dollars an hour would. Hopefully the auto companies will give on wages to gain on flexibility, recognizing where their true costs lie.