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> I vaguely remember reading that $3000 of the cost or producing a car in Detroit went to the union (pensions I believe) due to agreements made in the 60's to k

> I vaguely remember reading that $3000 of the cost or producing a car in Detroit went to the union (pensions I believe) due to agreements made in the 60's to keep salaries down. That's a huge competitive disadvantage. It's a point that is often made, but a few considerations: 1) How much do labor costs impact overall profitability? 2) There may be advantages to paying workers well in salary and benefits. 3) You weren't addressing this aspect, but certainly there are advantages to the workers, who I have no reason to be less sympathetic with than management, and in some ways to society.

chaostheory 12y ago
> 1) How much do labor costs impact overall profitability? Well in this case a lot. Competitors were able to produce better quality cars at the same price point, since they didn't have approximately $3000 in extra overhead. > 2) There may be advantages to paying workers well in salary and benefits. There are advantages and there are good examples for this, but it depends on the industry, the culture, the location as well and a lot of other factors. > 3) You weren't addressing this aspect, but certainly there are advantages to the workers, who I have no reason to be less sympathetic with than management, and in some ways to society. Then why did Detroit fail?
- hackuser 12y ago
  >> 1) How much do labor costs impact overall profitability? > Well in this case a lot. Competitors were able to produce better quality cars at the same price point, since they didn't have approximately $3000 in extra overhead. Many factors determine quality and costs. Nothing you say indicates that labor was a decisive or major factor. For example, people assume much manufacturing is in China due to labor costs, but many businesses will tell you it's because of manufacturing capabilities and resources, and labor costs are a minor factor. >> 3) You weren't addressing this aspect, but certainly there are advantages to the workers, who I have no reason to be less sympathetic with than management, and in some ways to society. > Then why did Detroit fail? I don't know what exactly you mean by 'fail', or if you mean the city or the car industry. As far as the city 'failing', structural racism played a big role as did the related flight of the tax base to the suburbs, which are doing well. A race to the bottom for workers' welfare didn't help, as factories moved to non-union locations. For the industry, from what I know bad management was a major contributor, as well as poor engineering. I think labor was too.
  - chaostheory 12y ago
    > Many factors determine quality and costs. Nothing you say indicates that labor was a decisive or major factor. When labor costs adds an extra $3000 to your own costs that your competitors don't have to deal with, how is this not a major factor in both quality and costs (either lower quality to meet price points, raise the price, or a mix of both)? http://www.npr.org/templates/story/story.php?storyId=98643230 http://www.npr.org/templates/story/story.php?storyId=9864323... http://archive.fortune.com/2007/01/26/news/companies/pluggedin_taylor_ford.fortune/index.htm http://archive.fortune.com/2007/01/26/news/companies/plugged... Since we're on the subject, you haven't provided much meat to your argument either: being that labor was a major factor in US car companies' competitive disadvantage. > For example, people assume much manufacturing is in China due to labor costs Low cost, skilled labor was initially one of the major reasons how Chinese manufacturing became dominant. > but many businesses will tell you it's because of manufacturing capabilities and resources It's only recently that Chinese manufacturing capabilities got better and it was due to rising labor costs. As for natural resources, it is not a Chinese competitive advantage. That's why they're very keen on striking a lot of agreements with foreign countries for access to natural resources. > I don't know what exactly you mean by 'fail', or if you mean the city or the car industry. I meant the car industry. > For the industry, from what I know bad management was a major contributor, as well as poor engineering. Yes to be specific for bad management, it was short sightedness that led management to offer rich pensions in return for lower salaries in 60's. This in turn led to bad quality. How? When you have an extra $3000 of extra costs from pensions for a product that your Japanese competitors don't have, what does management do when they want to be competitive price wise? They lower quality of parts and materials, which led to poorer overall reliability and quality of the entire vehicle. Detroit engineering was not 'poor'; they just had to work at a disadvantage. (A lot of those engineers now work for Telsa and other non-Detroit companies.) > I think labor was too. I'm confused. I thought your main argument was that labor wasn't a factor?

chaostheory 12y ago

> 1) How much do labor costs impact overall profitability? Well in this case a lot. Competitors were able to produce better quality cars at the same price point, since they didn't have approximately $3000 in extra overhead. > 2) There may be advantages to paying workers well in salary and benefits. There are advantages and there are good examples for this, but it depends on the industry, the culture, the location as well and a lot of other factors. > 3) You weren't addressing this aspect, but certainly there are advantages to the workers, who I have no reason to be less sympathetic with than management, and in some ways to society. Then why did Detroit fail?

hackuser 12y ago
>> 1) How much do labor costs impact overall profitability? > Well in this case a lot. Competitors were able to produce better quality cars at the same price point, since they didn't have approximately $3000 in extra overhead. Many factors determine quality and costs. Nothing you say indicates that labor was a decisive or major factor. For example, people assume much manufacturing is in China due to labor costs, but many businesses will tell you it's because of manufacturing capabilities and resources, and labor costs are a minor factor. >> 3) You weren't addressing this aspect, but certainly there are advantages to the workers, who I have no reason to be less sympathetic with than management, and in some ways to society. > Then why did Detroit fail? I don't know what exactly you mean by 'fail', or if you mean the city or the car industry. As far as the city 'failing', structural racism played a big role as did the related flight of the tax base to the suburbs, which are doing well. A race to the bottom for workers' welfare didn't help, as factories moved to non-union locations. For the industry, from what I know bad management was a major contributor, as well as poor engineering. I think labor was too.
- chaostheory 12y ago
  > Many factors determine quality and costs. Nothing you say indicates that labor was a decisive or major factor. When labor costs adds an extra $3000 to your own costs that your competitors don't have to deal with, how is this not a major factor in both quality and costs (either lower quality to meet price points, raise the price, or a mix of both)? http://www.npr.org/templates/story/story.php?storyId=98643230 http://www.npr.org/templates/story/story.php?storyId=9864323... http://archive.fortune.com/2007/01/26/news/companies/pluggedin_taylor_ford.fortune/index.htm http://archive.fortune.com/2007/01/26/news/companies/plugged... Since we're on the subject, you haven't provided much meat to your argument either: being that labor was a major factor in US car companies' competitive disadvantage. > For example, people assume much manufacturing is in China due to labor costs Low cost, skilled labor was initially one of the major reasons how Chinese manufacturing became dominant. > but many businesses will tell you it's because of manufacturing capabilities and resources It's only recently that Chinese manufacturing capabilities got better and it was due to rising labor costs. As for natural resources, it is not a Chinese competitive advantage. That's why they're very keen on striking a lot of agreements with foreign countries for access to natural resources. > I don't know what exactly you mean by 'fail', or if you mean the city or the car industry. I meant the car industry. > For the industry, from what I know bad management was a major contributor, as well as poor engineering. Yes to be specific for bad management, it was short sightedness that led management to offer rich pensions in return for lower salaries in 60's. This in turn led to bad quality. How? When you have an extra $3000 of extra costs from pensions for a product that your Japanese competitors don't have, what does management do when they want to be competitive price wise? They lower quality of parts and materials, which led to poorer overall reliability and quality of the entire vehicle. Detroit engineering was not 'poor'; they just had to work at a disadvantage. (A lot of those engineers now work for Telsa and other non-Detroit companies.) > I think labor was too. I'm confused. I thought your main argument was that labor wasn't a factor?