US Auto Industry:
Effects of Labor Unions
Dr. Gomis-Porqueras
ECO 680
Industry Overview
• Over the past decade, Big three has lost
10% of market to foreign rivals
• Labor unions have caused US auto industry
to become less competitive
• Companies with unionized workers are
losing market share to those without
• Labor issue is an example of PrincipalAgent problem
• Net Income: Toyota: 2005 11.7 billion, 2004 10.9
billion
GM: 2005 (10.6 billion), 2004 2.8 billion
US vs. Foreign Brands
UAW represents both Lincoln and Cadillac workers. The UAW does not
represent any BMW, Lexus, or Mercedes workers
Sales of US brands vs.
Foreign Brands
• 1999: GM & Ford sold 16M autos
– Toyota sold 5.2M.
• 2005: GM & Ford sold 14.5M autos
– Toyota sold 8.1 M
• Cost of Revenue is 20% higher for GM
than Toyota
Unions Demand High Wages
• Delphi paid $76/hour to factory workers
• GM must pay 95% of wages to laid off workers
• GM pays full health benefits to 340,000 retired
workers
• Of every car DCX sells, $2,000 goes to union
benefits
• After Delphi filed for bankruptcy, they offered UAW
wages of $12.50, down 60% from $27…offer
rejected
• Ford factory in Toledo, Ohio: 680 people earn $25
to $30 an hour making bumpers.
• Nissan plant in Tennessee (non-union) pays
$12/hour to line workers
Workers get Laid-Off:
2006 Headlines
• Ford to cut 30,000 jobs and offer all 75,000
union workers buyouts
• Ford to close 16 plants in the next two years
• GM announces it's wiping out 30,000 jobs
by 2008 - 27% of its hourly workforce
• DaimlerChrysler to cut production and
vehicle shipments by 16 %, or 135,000
vehicles, for the second half of 2006
Food for thought…
• “We’ve got to stop pretending that the global
economy operates on some Economics 101
textbook model of pure competition and open
markets … and that the hollowing-out of America’s
manufacturing base, lower living standards for
America’s working families and widening economic
disparity in the United States are simply the
consequences of the impersonal forces of
globalization.” - UAW President Ron Gettelfinger
• “Starbucks for some time now has spent more money
on health care than it does on coffee – just as GM
has for some time spent more on health care than
it does on steel.” - UAW President Ron Gettelfinger
• “One of the primary requirements listed by foreign
automakers when choosing a US factory is the
absence of union influence” – Claude Canup,
President of Canup & Associates (automotive
consulting firm)