By Mish Shedlock of MishTalk
The real problem is productivity says Greg Ip at the Wall Street Journal.
For the United Auto Workers, it makes perfect sense to demand more pay and better work-life balance from Detroit’s three automakers. After all, workers throughout this historically tight labor market are getting exactly that.
But what makes sense to striking factory workers makes no sense for manufacturing as a whole. Pay is ultimately tied to productivity: the quantity and quality of products a company’s workforce churns out. And here, American manufacturing companies and workers are in trouble. The issue isn’t with labor-intensive products such as clothing and furniture, which largely moved offshore long ago. Rather, it’s in the most advanced products: electric cars and batteries, power-generation equipment, commercial aircraft and semiconductors.
Yes, American companies still lead the world in design and innovation, but the resulting products increasingly are made abroad, especially in Asia. Biden, like former President Donald Trump before him, wants to reverse this, through tariffs, subsidies and other government interventions. Japan, South Korea, Taiwan and especially China certainly intervened plenty to help their manufacturers.
Unions need to accept they’re not yet up to the job. “Everyone loses the skills they don’t practice,” Kevin Xu wrote recently on his China-focused blog, Interconnected. Xu, who once worked with unions to get former President Barack Obama elected, says unions need to be told “that they are not the best, but they can be if they stay humble (and) soak up all the know-how and skills from workers elsewhere.”
Manufacturing Productivity Growth
The US leads the world in innovation and design. No one competes with Apple in phones, US companies in chip design, or Tesla in starting EV innovation.
But the best chip factories are in Taiwan and South Korea, Apple depends on China, and Tesla’s best plant is in Shanghai.
Labor Productivity Since 2009
The WSJ has this alternate chart that’s worth a look.
I would gladly have used that data in my chart except the St. Louis Fed doesn’t have it, the data is annual, doesn’t go back far enough, isn’t current, and percentages can be misleading.
The decline in 2022 was certainly influenced by the Covid pandemic.
Labor presents problems other than just cost, such as the shortage of skilled workers. “They find desirable candidates, they hire them, they train them, they don’t retain them,” said Jim Schmidt, an automotive expert at consultants Oliver Wyman. “A lot of the younger workforce doesn’t want to do that type of work.” For some, absenteeism is another problem.
“You need a lot of additional labor to backfill for absenteeism,” Schmidt said. “That can lead to large effects on productivity, quality and culture.”
The US big 3 automakers have just two of the top ten 10 dependable brands ranked by J.D. Power and just one of the 10 best cars picked by Consumer Reports, note Greg Ip.
Beyond autos, Boeing has been plagued by production and quality issues. Airbus delivered three times the number of aircraft than Boeing.
Union work rules and absenteeism are problems in the US. The UAW wants a shorter work week and jobs protection.
US companies use the fewest robots in general. Unions don’t like robots or the loss of jobs that come with robots.
Topping it off, EVs are easier to manufacture. The internal combustion engine has about 2,000 moving parts but an electric engine has about 20.
So not only will EVs reduce the manufacturing need, they will reduce the need for union auto mechanics.
Total UAW Unit Labor Costs vs Tesla
- Big Three: Analysts estimate $66 an hour
- Tesla: Roughly $45 at Tesla
- UAW Demands: Meeting Fain’s initial demands would boost costs to $136 according to Wells Fargo analysts.
Elon Musk Taunts the UAW, “Tesla Pays Workers More and We Have Fun”
Production costs are far cheaper at Tesla and nonunion plants.
For discussion, please see Elon Musk Taunts the UAW, “Tesla Pays Workers More and We Have Fun”
The unions want protection from foreign competition, from Tesla, from EVs in general, and higher wages to boot while producing lower quality cars.
A huge UAW pay increase will only exacerbate the problem.