The Weekend Economists' Panglossian Pandemic January 20-22, 2012

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67. America’s Dirty War Against Manufacturing (Part 2)

http://www.bloomberg.com/news/2012-01-19/america-s-dirty-war-against-manufacturing-part-2-carl-pope.html

So who really lost Detroit? Why did the U.S. auto industry’s domestic market share decline from 71.1 percent in 1998 to 44.8 percent in 2009? Why does the U.S. now produce fewer cars than China? And what does this story tell us about the overall causes of decline in American manufacturing?

The conventional wisdom is that wages and union contracts simply made American cars too expensive. During the auto- industry collapse of 2008, the news media bombarded the public with data about how much higher labor costs are in Detroit factories compared with those in non-unionized Southern states. The New York Times reported, for example, that at GM “the average worker was paid about $70 an hour.”

Trouble is, that figure was wrong.

In 2007, the average hourly wage in a unionized Detroit auto plant was $29. The average hourly wage in a non-unionized Toyota plant in Kentucky? $30. In Japan, Toyota paid assembly- line workers about $22 an hour. True, that’s less expensive. But when you consider that wages make up about 10 percent of a car’s cost, it becomes clear that wages are not the reason for Detroit’s struggles.

As for that $70-an-hour figure, it’s the sum of the hourly wage plus the cost of retiree health-care benefits and pensions. U.S. auto companies have carried these costs like a ball and chain.