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Author: AdvocatusDiaboli Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1955418  
Subject: Unions and Car Companies Date: 12/12/2012 9:48 PM
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Many people seem to believe that unions are the downfall of American industry, in particular the car industry, and if they could just be gotten rid of, it would flourish again. A look at the situation in Germany suggests otherwise.

The German metal working sector is heavily unionized, and wages tend to be obscenely high.
A low- to mid-skilled worker working for the Daimler AG will earn as much or more per hour than a great many academics working outside unionized industries.
Yet look at the German car companies, how successful they are. There is in fact just one German car company that is not doing well, and that is Opel (a.k.a Vauxhall).
So what's different about Opel? Opel is part of GM, and had been mismanaged since the 1980s.
Opel in fact is subject to much less onerous collective bargaining agreements than VW, BMW and Daimler, but that hasn't kept its market share from dropping by half over the last 30 years.

The problem of the US car companies is not the unions, the problem is that for some reason anglo-saxon countries (the UK, too) seem to simply be worse at running companies involved in heavy manufacturing than the rest of the world.

My personal theory on why that is focuses on two factors:

1. The obsession with short-term "shareholder value" at the expense of long-term results. There's always a lot of things a company can do to make the present look pretty while hiding future costs. And US companies seem to do that a lot more than German, Japanese, Korean companies.

2. The cancerous financial sectors in the UK and in the US are draining the cream of human resources from the productive sectors. Every financial engineer is one less REAL engineer who could be doing something that actually benefits the economy instead of just shuffling paper around (or blowing up the economy).
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Author: Icemann11 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844550 of 1955418
Subject: Re: Unions and Car Companies Date: 12/12/2012 10:10 PM
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I know in Japan, traditionally, there is more...'pride' (don't know if that is the right word necessarily) or 'importance' in having a large market share and 'profit' margins are not as important as they are regarded in North America. (I also don't know if that is necessarily as true as it was 20 years ago.)

I feel in many cases, short-term needs etc are what CEOs and politicians focus on and little else.

Icemann

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Author: BlueGrits Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844551 of 1955418
Subject: Re: Unions and Car Companies Date: 12/12/2012 10:18 PM
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Maybe this has something to do with it....

"Ratio of CEO Pay to Average Worker by Country"

http://creativeconflictwisdom.wordpress.com/2011/10/07/ratio...

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Author: Wessex99 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844568 of 1955418
Subject: Re: Unions and Car Companies Date: 12/12/2012 11:16 PM
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Perhaps the prime reason I think this country is doomed.

Wessex

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Author: salaryguru Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844574 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 12:26 AM
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And it hasn't always been that way: http://www.economist.com/blogs/graphicdetail/2012/05/ratio-c...

In the 60's and 70's US CEO to worker pay ratio was not that far out of line with the rest of the world.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844606 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 9:40 AM
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A few points as to why the comparison does not work well.

German auto workers were subsidized by their government. The salary of auto workers in Germany was paid in part by direct payments from the government.

Basically, Germany bailed out their industry via direct payments to the employees.

http://www.solidarity-us.org/node/2607

Between what they were paid by their employer and the government supplement, they earned 65-90% of their usual wage. The government also had a version of “cash for clunkers” so some auto plants were at full production.

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Also, unions (and management) operate very differently in Germany. They actually get along in many cases. Strikes are rare and they have joint committees where they often work out their differences. How they got there vs how we got to our situation, I don't know, I just know that they find a way to work things out much better. The following article seems to suggest that the councils are what make things different.

http://www.forbes.com/sites/frederickallen/2011/12/21/german...

The second institution is the German constitution, which allows for “works councils” in every factory, where management and employees work together on matters like shop floor conditions and work life. Mund says this guarantees cooperation, “where you don’t always wear your management pin or your union pin.”

As Michael Maibach, president and chief executive of the European American Business Council, puts it, union-management relations in the U.S. are “adversarial,” whereas in Germany they’re “collaborative.”

Does such a happy relationship survive when German automakers set up shop in the U.S.? No. As a historian observes in the article, “BMW is a German company and it has a very German hierarchy and management system in Germany,” yet “when they are operating in Spartanburg [in South Carolina] they have become very, very easily adaptable to Spartanburg business culture.” At Volkswagen’s Chattanooga plant, the nonunionized new employees get $14.50 an hour, which rises to $19.50 after three years.

The article’s author, Kevin C. Brown, asked Claude Barfield, a scholar with the American Enterprise Institute, why the German car companies behave so differently in the U.S. He answered, “Because they can get away with it so far.”

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The problem of the US car companies is not the unions, the problem is that for some reason anglo-saxon countries (the UK, too) seem to simply be worse at running companies involved in heavy manufacturing than the rest of the world.

Too simplistic. German car companies that come to the US, behave like US companies. For example, they fight unionization as strongly as any US company. The following article suggests that Germany auto companies see US unions as too confrontational and not like their home country counterparts.

http://www.guardian.co.uk/world/2011/dec/30/uaw-car-union-ge...

The United Auto Workers union is staking its future on the kind of struggle it hasn't waged since the 1930s: a massive drive to organise hostile factories.

This time, the target is foreign carmakers, whose workers have rebuffed the union repeatedly. Specifically, Reuters has learned, the union is going after US plants owned by German manufacturers Volkswagen and Daimler, seen as easier nuts to crack than the Japanese and South Koreans.

...

German auto executives declined to talk in detail about the UAW's push. Privately, they remain wary of the union and its confrontational past. "They view the UAW as a disaster," said a Wall Street banker who has worked extensively with the industry.

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In summary, German auto workers are or have been subsidized by their government, the workers and the companies have greater ability and incentive to work together, and German auto companies appear to blame US unions for the adversarial nature of the US market and reject unionization in the US.

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Author: xLife Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844610 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 9:57 AM
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A few points as to why the comparison does not work well.

Nice post, Hawkwin, but I think your points support Advo's thesis, not weaken it. Unions didn't wreck the U.S. auto industry. Management did.

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844625 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 10:30 AM
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Hawkins, note that all those factors you note for Germany apply for Opel (GM subsidiary as well), and Opel has still been in decline for thirty years. Like the rest of the US car industry, Opel just hasn't been able to keep up with the international competition.


German auto workers were subsidized by their government. The salary of auto workers in Germany was paid in part by direct payments from the government.

Basically, Germany bailed out their industry via direct payments to the employees.


The "Kurzarbeitergeld" applied for ALL qualifying companies, not only the car companies. It was a remarkably successful bit of Keynesianism. Yes, the car companies profited from it, but they would have (easily) survived without it, but the economic slump would have been substantially worse.

The second institution is the German constitution, which allows for “works councils” in every factory,

The works councils are a highly successful German invention. They seem like a totally communist idea (giving the union a direct say in how management runs the day to day affairs of the company) but they indeed seem to make unions and management partners more than adversaries (if management is willing to work with them, if the management fights them, the company will go down, I've seen it happen).
Also, and perhaps more importantly, works councils establish an INDEPENDENT CHANNEL OF INFORMATION from bottom to top which bypasses management hierarchy and which will convey inconvenient facts that would otherwise not be passed on.
Despite the benefits of a works council, I doubt any management will ever establish one voluntarily. Why not? Because it means power sharing and because it's inconvenient.

Too simplistic. German car companies that come to the US, behave like US companies. For example, they fight unionization as strongly as any US company.

I don't doubt that. However, there is a VERY important difference between German and Japanese car manufacturers working in the US and US car manufacturers.
The difference is that the Germans and Japanese companies are successful and the US companies are not.

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Author: telegraph Big funky green star, 20000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844631 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 10:44 AM
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The US unions insist upon 'job categories' and 'work rules'.


The work rules become obsolete after so many years (how many DOS experts do you need these days and how many union employees riding in the caboose?)...it took 60 years to eliminate the unneeded caboose!.....

The unions here are all about preserving every job, including buggy whip holder maker.......forever!...no changes allowed and featherbeadding encouraged......

IN Germany, they put advances into place with no hassles. The cabooses of industry are gone. The DOS expert gets trained in C++ when needed, and doesn't get a 'big boost in pay' now that the union just created a new job category of 'C++ expert'...as it always wants to do.....for a duration of infinity......

The US unions have done themselves in. They are all about extorting the most money and benefits each contract cycle...costing companies and other employees tens of millions in lost productivity.

it's like Hostess where 'bread trucks' could not carry 'dessert trucks' like Twinkies.....and drivers sat around while yet another person unloaded them and stock shelves..... and factory workers were divided up into 57 different unions with 57 sets of different work rules and categories of employment!.......chief bottle washer...assistant bottle washer...assistant to the assistant bottle washer - bottle washer apprentice - bottle washer holder - bottle washer dryer......when likely HOstess didn't even use bottles any more....but had to pay 240 union workers to sit around waiting for a bottle to appear and be washed!.....and all at different pay scales and 'seniority' on the ladder.....

Where it takes three 'electricians' to move a printer 10 feet.....plus a material handler...and you need to fill out 4 forms....oh, and a 'computer tech' to reconnect the USB cable......

No wonder they went under!....

and why the European companies fight unionization.


t.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844636 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 10:58 AM
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but I think your points support Advo's thesis, not weaken it. Unions didn't wreck the U.S. auto industry. Management did.

If that was the theory, then German automakers would not fight unionization of their US plants.

I blame both the unions and the management about equally.

More on this topic, from Germany, circa 2004:

http://www.wsws.org/articles/2004/nov2004/opel-n17.shtml

Two years ago, the German business monthly Manager Magazin bemoaned: “The most blatant example is General Motors. The automaker has 460,000 hungry pension mouths to feed—that’s 2.5 retirees per employee.” A “billion-dollar hole” has opened up in the pension funds. It went on: “The billion-dollar hole is forcing GM to direct valuable resources from the company kitty to the pension funds. For each vehicle sold this year, $900 will flow into these funds. According to UBS Warburg, unexpected expenses in the next five years could even top the company’s cash flow—a nightmare scenario for GM stockholders.”

“General Motors owes so much money to its employees through their pension and health funds that it is almost impossible for this company to ever make a profit again. For Honda, every vehicle sold costs the company $107 in pension and health payments. But for General Motors, the cost is $1,360. You can just imagine how high the same costs are for a Chinese manufacturer. How can General Motors be competitive there? How can this company remain in business?”

The German weekly newspaper Die Zeit reported in October: “The profit margin for GM without its pension and health contributions would rise from a poor 0.5 percent to 5.5 percent, according to analysts at the investment bank Morgan Stanley.... According to analysts’ estimates, these contributions cost the company $1,784 for every US-made vehicle.”

For Klaus Franz to now assume a leading role and take up the concerns of GM shareholders and stock market speculators regarding GM’s pension funds is the logical outcome of his politics. Whether Franz possesses a considerable amount of GM shares is beyond our knowledge. However, his perspective is shared by the entire union works committee, of which Franz is only its most outspoken representative. At the same time, it is a warning to Opel workers in Germany when Franz—after his already declared readiness to accept wage cuts and increased working hours in Germany—now suggests cuts to company-financed pensions and health insurance in the US.

----------

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844641 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 11:18 AM
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Despite the benefits of a works council, I doubt any management will ever establish one voluntarily. Why not? Because it means power sharing and because it's inconvenient.

I disagree. Other companies do this quite succesfully as well. There appears to be something about manufacturing, and perhaps especially automakers, that makes this unlikely.

The difference is that the Germans and Japanese companies are successful and the US companies are not.

The same is no longer true.

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Author: SpeedBump13 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1844729 of 1955418
Subject: Re: Unions and Car Companies Date: 12/13/2012 2:30 PM
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3. In comparison to well-run countries, US executives are much more overpaid and collect huge salaries even when they fail. Witness Hostess brands for the latest example.

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