Detroit's Problem: It's Health Care, not the Union

by Christopher R. Martin

The Senate's failure to pass the bailout of the U.S. auto industry strikes a big blow at one of labor's last stands in manufacturing in the U.S.

What's at stake? According to the bill: 355,000 workers in the U.S. directly employed by the automobile industry; 4,500,000 employed in related industries (the auto industry has the highest job creation multiplier effect of any industry); 1,000,000 retirees (with pensions and health care benefits).

Vice President Dick Cheney, mindful of his administration's economic legacy, reportedly pleaded to fellow Republicans in the Senate, "If we don't do this, we will be known as the party of Herbert Hoover forever."

Welcome to forever, Dick.

It's too late for Cheney, as his party and their think tank associates celebrated the opportunity of Detroit's woes to pin blame on their perennial target, labor unions. In September, the conservative Heritage Foundation, with a barely concealed smirk, was already spreading disinformation:

"There are plenty of auto industry jobs being created every day right here in America - and with no government help. Toyota recently opened a new plant in Texas, and is building another factory in Mississippi. Toyota already produces more than 1.5 million cars in America, and that number is set to soar as more factories like those in Texas and Mississippi come on line. Unlike the Detroit automakers, Toyota has a union-free workforce, which gives the company a huge competitive advantage. Toyota still pays good wages but its workforce is younger, not burdened by seniority rules, and the company has smarter and lower benefit costs."

Two contentions - that foreign automakers in the U.S. have received no government help, and that union workers are grossly overpaid-are either misleading or completely untrue.

First, let's start with government assistance. It's easy to forget that there are government subsidies other than the ones asked for in Congressional hearings. For foreign automakers such as Toyota, Nissan, Honda, Hyundai, Mercedes, and BMW, the better way of wringing out public subsidies is to get Southern states to battle for your plants by offering a bevy of tax abatements, infrastructure projects, and even employee recruitment, screening and training. According to the Center for Automotive Research at the University of Michigan, between 1998 and 2003, the Southern states paid out an average of $87,700 in "government help" per nonunion auto job created-an average of $143 million per facility-compared to $50,180 per job created in the haplessly unionized North.

The second contention - that the unionized autoworkers of the north are grossly overpaid - is misleading. In fact, Sen. Bob Corker (R-Tennessee), one of the opponents of the bailout, encouraged the deception. The Chattanooga Times Free Press reported the Senator "said the automakers pay their rank-and-file employees an average of $70 to $74 an hour, including benefits, while foreign automakers pay an average of $42 to $44 an hour." The quote, repeated nearly everywhere in the news media over the past few weeks, obscures the situation.

Only a very few news organizations - Jonathan Cohn at the New Republic and David Leonhardt at the New York Times, among the few-bothered to break it down. As it turns out, the base wages are fairly close - about $29 an hour for Detroit's three automakers, and about $26 for the foreign automakers in the U.S. What nearly every Republican politician and news report fails to mention, though, is that wages in Detroit are already dropping. The UAW gave major concessions to GM, Ford, and Chrysler in 2005 and 2007, setting a new second tier starting wage at $14. This lower wage will continue to decrease the base wage cost going into the future.

Another difference in North vs. South autoworker wages is benefits. Adding in things like healthcare, training, vacation, and overtime, Big Three autoworkers make about $55 compared to about $46 for nonunion workers. True enough, unionized workers do better here. But a big part of this expense is healthcare.

Healthcare also is part of the largest difference between North and South: what the industry calls "legacy costs" - the pensions and health care of retirees. The foreign auto companies currently don't have these costs, since they've been operating in the U.S. for only about 25 years or less, and have few retirees. But, the Big Three have more than a million retirees and their families to cover. Corker and others unfairly lump this into average wage costs and arrive at something over $70 an hour.

So, when the Senate Republicans are talking about equalizing wages, what they are really talking about is taking pensions and healthcare away from retirees. That doesn't sound as nice as "equalizing" the wage of current workers, so they never say it that way.

The UAW has made a number of concessions over the years, but that's where they said no. They wouldn't sell out the dignity and well being of their retirees.

Back in 2006, GM vice president Bob Lutz famously said, "Sometimes it feels like we're a health-care company that tries to sell enough cars to pay the bills."

Exactly. Hello Washington? This is a primarily a health care problem, not an auto problem.

Corker and his colleagues might begin with a better comparison for the Big Three's unionized autoworkers -- their union colleagues in Canada. Their work and wages are similar, except that Canada has a public healthcare system that evens the playing field for all companies. According to the Canadian Labour Congress in 2006, health benefits for unionized autoworkers in Canada cost $120 per car. In the same year, health benefits for Big Three autoworkers cost $1,500, and they're still rising.

If Corker and his colleagues are truly serious about changing the structure of the auto industry, they should start by working to give people health care, not take it away. And if the news media wants to get to the bottom of Detroit's problems, health care is what they should be writing about.