The US auto industry

An excellent piece in the Investor's Business Daily on the US automobile industry.

Ford's investment of $3 billion in two auto plants near Mexico City is the largest foreign company investment ever in Mexico. As oil prices soar and new climate-change rules are readied in Washington, Ford must shift from its reliance on trucks and SUVs to lighter, more energy-efficient vehicles.

This should be something that workers in Michigan and other Midwestern states with decades of automaking experience should excel at doing. Instead, Ford and other automakers are pushing more and more investment abroad — especially to Mexico.

It's tempting to blame automakers for this. Indeed, they do deserve a big chunk of the blame for poor management decisions. And by far, their worst decisions yet came when they agreed to company-destroying labor pacts with the United Auto Workers union that practically guaranteed Big Auto's demise.

We don't fault workers for trying to get more in labor negotiations. But the fact is, past UAW deals have saddled U.S. companies with such high costs that they can no longer make cars here and compete on a global market. So they make cars elsewhere.

Like a coyote caught in a trap, U.S. automakers have been desperately gnawing off a leg to escape certain death. They're closing plants and slashing jobs in Michigan, Ohio and other U.S. union havens, in favor of non-union, foreign places. Like Mexico and China.

Meanwhile, foreign companies have no problem making cars here. They do it in the non-union South, where the UAW is weak.

Though little noted, last year was a watershed for U.S. carmakers. For the first time, foreign producers in the U.S. made more cars — 54% of the total — than the former Big Three. As recently as the 1980s, Ford, Chrysler and GM made 73% of all cars here.

Why is this? U.S. carmakers pay their workers an average of about $73 an hour in wages and benefits — way more than others.

According to the Center for Automotive Research, there's a $16.15 per hour gap between what Detroit's Big 3 pay workers and what Toyota pays workers in the U.S. Add to that a $5 billion a year difference in health care and other retirement costs, totaling thousands of dollars in extra costs on every car sold, and U.S. automakers operate at about a $12 billion a year disadvantage.

It doesn't take an MBA to understand this is an industry in peril.