Auto Bailout

A column in Tuesday’s New York Times raises an issue not raised by many who opine on the bailout of the auto industry – the relationship between health care financing and the bailout.  David Leonhardt  examines the much discussed wage disparity between the unionized autoworkers and their non-union counterparts employed by foreign manufactures in the US like Toyota and Nissan.

Ezra Klein in his blog picks up the same theme.  Apparently the Republicans in the US Senate missed their helpful analysis – as did most of the talking heads on the news shows.

1210-biz-webleonhardt1

They make two relevant points. Most of the disparity between the wages is in legacy cost, and secondly, wages are not the significant cost driver in the cost of an automobile.  They both agree that Detroit’s troubles are not related to costs, but to their inability to design and build cars that the American public wants.

Personally, I do not think the car makers deserve all of the criticism they received; a lot, just not all of it.  Until a couple of months ago, our family had two American made vehicles in our driveway.  Their combined mileage was almost 350,000.  Our high priced foreign car cost more per year to repair than the other two combined.

But I digress. This graphic reveals yet an another example of how the inequity in health care financing distorts the marketplace.  In this graphic, Ford workers get slightly higher wages and slightly better benefits than the Japanese automakers.  The real difference is the legacy costs.  They pay more for retiree pensions and retiree health care costs than their foreign competitors.  They pay less for retiree benefits primarily because they have fewer retirees.

Thirty to fifty years ago, automobile manufacturing, in fact manufacturing in general, was much more labor intensive.  It took more workers to build a single automobile.  Thirty to fifty years ago there were no foreign manufacturers building cars in America.  

At the time the Japanese entered the US markets building less labor intensive cars, those American manufacturers already had made commitments to their workers to provide security in retirement.  The newbies hired younger workers and only recently incurred any retiree costs at all.  That is why the three dollars in the graphic says more about how long the Japanese have been in this country than it does about the difference in their retirement benefits.  

The same was true in the steel industry.  New steel companies hired younger workers, built lean, less labor intensive manufacturing facilities and carved into market share in small specialty markets.

Occasionally an executive of one of the American steel or auto companies speaks out against the system of health care financing in this country.  But their loyalty to their free market ideology trumps their commitment to the competitiveness of their own industry.

It has become  clearer to many that the reliance on an employer based system of financing health care puts those socially responsible companies at a competitve disadvantage.

I wonder how that unfair cost burden affects the decision making process of Detroit auto executives. Do they consciously build trucks and SUVs because they need the extra profit margin to cover those legacy costs?  How do health care costs affect policies about overtime or part time workers?  

America may have free market health care  but the result is a less competitive  economy.

I also wonder if, by blocking support for the auto industry, those Republican senators may have let a genie out of the bottle that they despise even more than the bailout – a single payer health care system.  If millions of workers in the auto and related companies are put out of work without health insurance will there be a rising tide of support for a single payer heath care system that they will be unable to stop?

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One Response to Auto Bailout

  1. William Small says:

    Great piece. Terrible pictures! The header burns your eyes and the chart is a strain.
    Keep up the good writing, but please change the header image!

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