So what difference do outsized UAW contracts matter to the Big Three? Locally, Jay Bullock says "machts nichts" citing calculations that bringing the Big Three into line with the Japanese manufacturers would save $800/car. Going back to the last post, I did a back of the envelope calculation for Chrysler/Daimler that seems to bear that out. Of course, if Sherk is right, the legacy burden adds another $500 or so to that figure.
Hardly enough to bother over, says Jay. American cars, he says, are already cheaper than their Japanese counterparts. Certainly it couldn't matter if they were even less expensive? It might. An $800 to $1300 cost difference is significant even if you are already at a lower price point. No rational businessperson would imagine that it is possible to exist with labor costs that are 70% higher than the competition unless your workers are adding some substantial value that the competition's are not.
But here's the larger point. The Big Three are losing money and say they need an immediate transfusion of cash. They want the taxpayers to come up with the money because no one else will. The UAW has made some concessions but the cost of their contracts is still, as we have seen, roughly 70% over the labor costs for the Japanese nameplate manufacturers.
But let's look at the excess labor costs. The UAW says it is making concessions. But, again, by a back of the envelope calculation using Chrysler Daimler numbers, let's see what that extra $800/vehicle means. Daimler/Chrysler sold 4.7 million units in 2006. $800/unit is almost 4 billion dollars annually. If the impact is the same for Ford and GM, then noncompetitive labor costs are costing the Big Three $12billion each year and the cost of deferring labor concessions for two years (as the UAW insists upon) could be as much as $24 billion even as, if Sherk is right, the legacy costs are untouched.
It could be more. It could be less. But, when we are talking about - at least initially - $ 25 billion in loans that no rational creditor would make (otherwise there would be no need to come to DC), the deferral of concessions to 2011 is material. The UAW is, in effect, asking the taxpayers (most of whom are earning substantially less) to give them a few more years of benefits their employers can no longer afford.
So Jay wants to be taxed to permit people whose compensation is twice his to continue to enjoy their unaffordable contract for a while longer.
What's the matter with Bay View?
I concede that the Big Three's problems are not limited to ill advised labor contracts. They have too many salaried employees (who also may be paid too much), designed lousy cars and have too many dealerships. They are a mess. But I do think that all of it is rooted in the same problem and that's where we'll start tomorrow.