Big Three: Sharpen your pencils and begin to take notes

GM announced yesterday it will lay off 30,000 workers. Before pressing the panic button, we should first examine the entire US auto industry. In a Wall Street Journal Editorial titled A Tale of Two Industries it contrasts the flight of Detroit’s Big Three, to the emergence of the foreign Big Three ( Honda, Nissan, and Toyota) which are made domestically. Indeed, even the "Big Three" is an outdated misnomer since Chrysler is German-owned.

Foreign car companies producing domestically "now account for 26% of all cars made in America." They also employ 60,000 high paying domestic manufacturing jobs. Their payroll costs per employee are $64,000("foreign") to $69,500 (big three). It is ironic the Japanese automakers that were once feared, are now engaging in its domestic Renaissance.

For U.S. automakers, a large problem is the unions and the uncompetitive culture they have established. With outlandish demands, and the exorbitant health costs it was inevitable that The Big Three would eventually crumble by their own design. ("Currently GM is paying for the health care of more retirees than active employees.")

"A largely non-unionized American automotive industry is thriving" from Ohio to Georgia. "One lesson for union leaders is that, far from offering job "security," union contracts create long-term insecurity if they make their employers uncompetitive.” It’s also little surprise that much of this new production is in sunbelt states with "right to work" labor laws.