David Leonhardt has an excellent column today on the woes of the automakers and the relevance of labor costs, in particular that $73 number you always hear. He even has a graph:
As Leonhardt correctly points out, the current difference between the American automakers and the Japanese automakers is simple: Retirees. But as Leonhardt says, that's not "a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country." Ford's been around since 1903. Toyota opened its first North American plants in the 1970s. This sort of thing matters.But not that much. The useful thing about the compensation comparison is that it's simple and clean. Toyota pays this much, Ford pays this much more, ergo Toyota is ahead. Leonhardt, however, runs the numbers and imagines what would happened if Ford paid exactly what Toyota paid. "Do you know how much that would reduce the cost of producing a Big Three vehicle?" He asks. "Only about $800." And few believe that an $800 rebate on every vehicle would be enough to bring Ford or GM back into the game. Rather, Leonhardt argues that the problem is reputation. People don't believe in American cars. And it takes a long time to change reputation. It requires lots of new car owners with the time to feel satisfied in their purchase and proselytize to their friends. To contrast this with the financial bailout, the banks were having a short-term solvency crisis. They needed money to continue operating until next year, when their basic business models would be relevant again. GM, conversely, needs money to continue operating till next year when their basic problem will have gotten even worse -- near-bankruptcy does not increase consumer confidence in your product, particularly when it's a product that will need to be serviced a decade in the future. Which is why I'm extremely pessimistic about Congress being able to legislate the turnaround, rather than the temporary survival, of the American auto industry. But even so,, I agree with Leonhardt's final point. "Think of the Detroit bailout as a relatively cost-effective form of stimulus," he says. "It’s often cheaper to keep workers in their jobs than to create new jobs."
As Leonhardt correctly points out, the current difference between the American automakers and the Japanese automakers is simple: Retirees. But as Leonhardt says, that's not "a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country." Ford's been around since 1903. Toyota opened its first North American plants in the 1970s. This sort of thing matters.But not that much. The useful thing about the compensation comparison is that it's simple and clean. Toyota pays this much, Ford pays this much more, ergo Toyota is ahead. Leonhardt, however, runs the numbers and imagines what would happened if Ford paid exactly what Toyota paid. "Do you know how much that would reduce the cost of producing a Big Three vehicle?" He asks. "Only about $800." And few believe that an $800 rebate on every vehicle would be enough to bring Ford or GM back into the game. Rather, Leonhardt argues that the problem is reputation. People don't believe in American cars. And it takes a long time to change reputation. It requires lots of new car owners with the time to feel satisfied in their purchase and proselytize to their friends. To contrast this with the financial bailout, the banks were having a short-term solvency crisis. They needed money to continue operating until next year, when their basic business models would be relevant again. GM, conversely, needs money to continue operating till next year when their basic problem will have gotten even worse -- near-bankruptcy does not increase consumer confidence in your product, particularly when it's a product that will need to be serviced a decade in the future. Which is why I'm extremely pessimistic about Congress being able to legislate the turnaround, rather than the temporary survival, of the American auto industry. But even so,, I agree with Leonhardt's final point. "Think of the Detroit bailout as a relatively cost-effective form of stimulus," he says. "It’s often cheaper to keep workers in their jobs than to create new jobs." 
