Union Greed? Nope

I can’t count how many times I have heard that union greed is why we have lost so many auto manufacturing jobs and that is the reason plants were outsourced? I was having a conversation with a friend and he pointed to the high labor costs as the key factor.  He was shocked to learn that the labor costs to assemble a vehicle in the US is actually a very small part of the total cost of the vehicle.  It’s true, the average labor cost to assemble a vehicle is actually less today than it was pre bankruptcy.  

The UAW has always worked to keep the labor costs below 10% and it typically hovered around 7% to 8% of the total cost of the vehicle.  The same 7% to 8% when the Big Three was making record profits in the early 1990’s as it was when GM and Chrysler went into bankruptcy in the late 2000’s. Due to major concessions by the UAW the labor cost per vehicle post bankruptcy was around 2.5% and even after the 2019 UAW/GM 40 day strike the cost is still under 5%.  

Let me explain, the average auto assembler’s salary plus fringe benefits is approximately $60 per hour (including legacy costs).  Depending on the size of the vehicle some estimates are that it takes an average of approximately 15 to 30 hours to assemble a vehicle.  So, assuming these numbers are correct, and going with the highest estimate of 30 hours, the total hourly costs times hours to build would be $1,800.00. Granted labor is not the only costs, there is research and development, materials, building overhead, equipment etc.  

I found myself wondering what the impact of union wages were a generation ago and how it affected the profitability of GM, so I googled ‘GM profits in the 60’s’ and ran across an article from the NY Times in 1964.  According to the article in 1963 General Motors earned more than $1.5 billion on record sales, employment and dividend payouts. Which, at the time was more money than had ever been earned by any corporation in the USA.  

In 1963 General Motors accounted for 53.7% of new car sales which was nearly double Ford at 26.3% followed by Chrysler’s 13.1, American Motors Corporation at 5.6 and lastly Studebakers 0.9%.  Foreign cars were not even mentioned.  It wasn’t until the 70’s and 80’s that new foreign cars sales started having an impact on sales of the Big 3.  

The bottom line?  Outsourcing has nothing to do with paying union wages and all to do with corporate greed.