More on the auto industry

Following up on my previous post regarding the possibility of a Detroit bailout, here are a few interesting links I’ve run across.

First, on the UAW. In my post I mentioned that yes, indeed, Detroit’s labor costs are higher. Here’s another way to look at it from Felix Salmon:

You might expect it from right-leaning commentators like Will Wilkinson. You wouldn’t expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn’t expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs.

It’s not true.

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM’s total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.

Now that GM’s healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you’re going to end up with a very large hourly rate. But it won’t mean anything, unless you’re trying to be deceptive.

James Surowiecki also adds:

It’s true, of course, that G.M. does have to pay retiree costs, and mentioning those costs in any discussion of the financial burdens G.M. is under makes sense. But that’s not what people are doing, rhetorically, when they use the seventy-dollars-an-hour number. What they’re doing is trying to make it sound as if G.M.’s current assembly-line workers are earning outrageous compensation for their labor, in order to demonize the U.A.W. U.A.W. workers are well-paid by industrial-worker standards. But they are not getting rich building Buicks, and making it sound as if they are is pure propaganda.

I think they both makes good points, and I agree – if the commentator is trying only to bash the UAW. But let’s face it, what commentators like to label “legacy costs” – those benefits for retirees and surviving spouses – are a real financial problem for the U.S. automakers and the UAW. (And for the U.S. taxpayer if the pensions end up at the PBGC – the FDIC of pension plans.) You can’t just leave them out of the discussion completely. If anything, let’s work those legacy costs back into a larger conversation on health care and retirement insecurity in this country and what we can do about it.

On the subject of environmental regulation, I tend to agree with the views in this post by Greg Mankiw:

Allan Sloan joins the Pigou Club:

Having permanently high gas prices would let the market, rather than incomprehensible, loophole-ridden Corporate Average Fuel Economy regulations, make the decisions on what kind of vehicles Americans get to drive. As part of my plan, I’d scrap these CAFÉ standards, abandon the current attempts to force automakers to spend tens of billions of dollars to meet higher fuel-economy standards. Instead, the market, guided by a high gas tax, would rule.

And so do many CEOs:

Members of the Journal’s CEO Council tasked with discussing priorities for the U.S. economy and finance offered several fairly uncontroversial suggestions to the incoming administration: implement a fiscal stimulus plan without worsening the long-term deficit, appoint a panel to address financial regulation, create an economic vision.

Tucked away in the proposal, in the category of long-term tax policy, was this political grenade: “consider raising taxes on gasoline.”

Yes, THAT Greg Mankiw. Even conservatives can bring something to the table. If you remember, Barack Obama also supported keeping a gas tax in place, although his argument seemed to be that it was necessary to sustain our roads and that it wouldn’t help consumers very much.

The problem, of course, with raising the gas tax is how regressive it is. The people who are least able to pay it would suffer the most. But we could look for other ways to help people, like tax refunds, that would make them whole. So, we’d get the market incentives necessary to finally get more environmentally friendly cars on the road, while making sure the less-well-off didn’t fall behind.

By the way, I’d also like to see us fold all of the money we spend on the military protecting our Middle East “interests” – that is, oil supplies – into the gas tax. That’s pure rational accounting, baby. But that’s a different post.

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