Thursday, October 11, 2007

Saving the Auto Industry

For decades, the unions have strangled already ailing auto manufacturers in the United States without allowing for the fact that they were hemorrhaging money. It never occured to the menoras that they may want the shark to live.

Recent developments, while not perfect, seem to be trending in the right direction:
The UAW and Chrysler, the third-largest U.S. automaker, announced a settlement late yesterday that will bring workers back to plants today. In a similar showdown last month, GM employees staged a two-day strike before the carmaker agreed to invest in a health fund. The commitment by Chrysler matches GM's on a percentage basis.

The agreements attempt to narrow the cost gap between the U.S. automakers and Japanese rivals Toyota Motor Corp. and Honda Motor Co. Chrysler will spend $11 billion to finance a union-run health fund and will pay beginning employees lower wages while protecting the jobs of others, people with knowledge of the negotiations said.

"Chrysler's labor costs will be a lot like those at Japanese automakers in the U.S.,'' said Dan Luria, an analyst at the Michigan Manufacturing Technology Institute in Plymouth, Michigan, after being told of the terms. ``In return, the UAW gets a certain amount of jobs, but it isn't all the jobs they have now.''

Under the contract, Chrysler's $11 billion would create a trust fund giving the UAW control of an estimated $19 billion in future retiree health-care liabilities. Chrysler's investment, amounting to 60 percent of those obligations, takes the retiree liabilities off its books.

The idea that the UAW is willing to make even the most trifling concessions to one of the Big Three demonstrates that they mah have finally realized the realities of the situation. Chrysler cannot pay them more or up the benefits. They already can't compete. Slashing their hamstring any further would just take them out of the race completely.

Now we see two of the three making very similar deals with the UAW in which they offload their health benefits to the union while implying that any future workers will be paid at a much lower (more reasonable) level which might keep them competitive. I hope so.

An aside...

I live in Kenosha, Wisconsin, which was once a major Chrysler town after being an epicenter of AMC manufacturing. In the late 80's they shut down the main Chrysler factory leaving only the engine plant. This was exactly when I moved there and even as a child I remember the epic pronouncements of doom and gloom from the now jobless Chrysler employees. It turns out, it was the best thing that could ever happen to the city. The elimination of run-down manufacturing areas allowed commercial and retail ventures to thrive and thousands of people moved in to take advantage. Kenosha is now much larger with a healthy tourist industry and a much lower crime rate.

Packers fans aside, it is a pretty great place to live. I'd like to get some comparative images Lileks-style to demonstrate just how stark the difference is.

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