Quote Of The Day

“There is absolutely no way whatsoever that GM has any hope of profitably making a car with labor costs higher than their competitors.  Their labor costs should be lower than their competitors, because they have to sell their cars at a steep discount.  Even if we somehow magically revolutionize the management tomorrow and get them steep discounts on their debt, it is going to take them years to rebuild their brand to the point where they can charge comparable prices to Japanese cars.  GM cannot afford to pay its workers more than the competition in that situation.”–Megan McArdle, blogging in the Atlantic…more here and here.

2 Responses to “Quote Of The Day”

  • In my humble opinion, a far more interesting McArdle posting is here wherein McArdle attempts to justify her curious animosity directed at the lower-paid workers of the auto companies, while basically ignoring the fact that insurance and financial employees were making much more, and the bailouts were much larger.

    In other words, if McArdle thinks lowering wages is the right answer for GM, why isn’t it also the right answer for Citibank, et. al? It’s a fair question, and I don’t find her answer convincing. But judge for yourself.

  • I knew someone was going to ask that…that is why I included the “more here and here” part.

    In the second “here”, I link to her response, she writes:

    For starters, I am not trying to punish the UAW. I am thinking about how the company can be made profitable. The company cannot, in my estimation, be made profitable with higher labor costs than the competitors.

    Labor costs are not the issue at banks, or AIG; balance sheet impairment is. Labor costs are a much smaller portion of their financial burden than at an automaker. Cutting their compensation will not return the balance sheets to full strength.

    However, in fact, workers in the banking industry are taking a massive hit. CEOs were forced to take huge paycuts, and if their bank is in trouble, they’ve already lost the greatest portion of their personal net wealth. The banks are firing huge numbers of people, and the ones who are left can count on their paychecks looking pretty anaemic this year. I know that many of you would like to see every single one of them have their paycheck reduced to that of a Nissan line worker, but it doesn’t work that way. The good people at those banks have better alternatives than being a Nissan line worker, and have usually invested substantial amounts of time and money in building human capital, rather than hitting the line after high school. If you cap their pay there, they will leave to pursue those other opportunities, leaving you a firm staffed with the rejects who can’t work elsewhere. Given that we are trying to save the banking industry, not destroy it, that’s not a good idea. A UAW worker, on the other hand, has alternatives that are generally much worse than the wages on a Nissan line.

    But workers at banks face a stark choice that GM’s line workers don’t: if they are not providing value to the firm in line with their salary, they will be asked to leave. As hundreds of thousands of them have, or will be over the next few months. That is precisely the deal that the UAW is resisting.

    There is more in her post…but I think this is rather convincing in itself. What say you?

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