A tale of two systems

Dec. 21, 2011 ­— American autoworkers are constantly told that high-wage work is an unsustainable relic in the face of a hyper-competitive, globalized marketplace. Apostles of neo-liberal economic theory — both in the public and private sectors — have stressed the message that worker adaptation is necessary to survive. Indeed, Steven Rattner, President Obama’s “car czar” during the restructuring of General Motors and Chrysler in early 2009, spoke last week of his regret that the federal government had not required the United Auto workers to take a wage cut at that time to enhance the competitiveness of those companies, comments similar to those he made in a recently published book (after the outcry created by last week’s remarks, Rattner yesterday backed away from them, though reiterating his view that more “shared sacrifice” would have bolstered American competitiveness).

Governments, too, the globalists have contended, should not think that markets can or should be controlled. As Remapping Debate reported earlier this year in an article about the role of large consulting firms in the promotion of the notion that national policy can and must allow global capital a free hand, McKinsey & Co. was already arguing back in 1994 that “a national government has no choice but to move forward to embrace the global capital market unless it wants to harm its own citizens, its economy and its own purposes.”

But the case of German automakers — BMW, Daimler, and Volkswagen — tells a different story. Each company produces vehicles not only in Germany, but also in “transplant” factories in the U.S. The former are characterized by high wages and high union membership; the U.S. plants pay lower wages and are located in so-called “right-to-work” (anti-union) states.

It turns out that “inevitability” has nothing to do with the differing conditions; the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the U.S., they operate within an environment that encourages such a race.

Sales and profitability

In 2010, over 5.5 million cars were produced in Germany, twice the 2.7 million built in the United States. Average compensation (a figure including wages and employer-paid benefits) for autoworkers in Germany was 48.97 Euros per hour ($67.14 US), while compensation for auto work in the United States averaged $33.77 per hour, or about half as much as in Germany, all according to 2007 data from the Bureau of Labor Statistics. For Germany-based auto producers, the U.S. is a low-wage country.

Despite German companies’ relatively high labor costs in their home markets, these firms are quite profitable. An examination of the latest publically available financial statements of BMW, Daimler (Mercedes-Benz cars), and Volkswagen reveals strong sales and profits even in the midst of the currently weak consumer markets in Europe and the U.S. In 2010, for example, BMW, produced 1.48 million cars (63 percent of them in Germany), and earned a before-tax profit from its automotive division of 3.88 billion Euros. The Mercedes-Benz car division of Daimler, likewise produced 1.35 million cars (72.4 percent in Germany) in 2010, and earned a before-tax profit of 4.65 billion Euros.

Race to the bottom in the U.S.

Officials in anti-union states have long sought to lure businesses with the promise of free rein in relation to labor (and to regulation more generally). Sen. Lamar Alexander (R -Tenn.) delivered the weekly Republican Party address this past June, telling his listeners frankly that, when he was Tennessee’s governor in 1979, the state’s right-to-work law was part of his successful pitch in getting Nissan to open an auto plant.

Alexander participated in a ceremony celebrating the opening of a new Volkswagen assembly plant earlier this year near Chattanooga, and again he cited the state’s right-to-work law as among the reasons that Volkswagen chose to come there.

At that Chattanooga plant, according to a company spokesperson, new employees earn $14.50 an hour, with wages gradually rising to $19.50 after 3 years on the job.

A representative of BMW’s Spartanburg plant declined to divulge wages employees earn in its South Carolina (non-unionized) facility, but the Washington Post reported last year that employees at the plant earned $15 per hour.

Workers at American companies have seen their wages eroded. As Remapping Debate has reported, the UAW has made significant concessions on wages, especially through the creation of a permanent “Tier 2” level for all new employees. Whereas incumbent “Tier 1” workers earn about $28 an hour, all new UAW hires at the GM, Ford, and Chrysler earn around $15 per hour. 

The companies have argued that this new tier is essential. Marci Evans, a Ford spokesperson, told Remapping Debate, “It is our [Ford’s] preference to build competitively in the markets we sell in.” She added, “reduced cost through introducing an entry level [Tier 2] workforce” is an important part of that strategy.