The American Way Doesn’t Come Cheap

If you want to appreciate the American dream--and the fact that it’s only affordable if U.S. industry stays competitive--then pay attention to the contract negotiations between the United Auto Workers and General Motors Corp.

To do so, you’ll have to read between the lines because the public arguments about wages and jobs will obscure the issues. There will be comparisons showing that it costs General Motors $800 more to produce a car than it costs the U.S. plants of Japanese car makers--Honda in Marysville, Ohio, Nissan in Smyrna, Tenn., or Toyota in Georgetown, Ky. Against plants back in Japan, the cost gap is more than $1,000 a car.

Behind those numbers lies a difference in what U.S. auto makers pay for pension and health benefits compared to what Japanese firms pay. And the real story goes beyond industry to reflect different societies, different priorities and beliefs.

The story begins with the aging United Auto worker. Assembly line employees in U.S. plants typically have 20 years on the job, with salary, vacation and rising health-care bills to match. And there are a lot of retirees. General Motors has about 400,000 active hourly and salaried workers in automotive operations and 325,000 retirees. Health and pension benefits for worker and spouse are for life--and add more than 33% to the average GM wage.

They are the kind of benefits that reflect the prosperous postwar period, when U.S. auto makers ruled the market. And they reflect something more--decades of social reforms that brought increased recognition of employee rights, to respect at work and dignity in retirement. Pushed by that ideal, U.S. industry produced a very high standard of living.

Higher than other nations. In Japan, benefits simply are not on the order of what they are in the United States. During working life, companies such as Toyota and Nissan provide medical facilities and doctors. But the individual choices--of physician and treatment--offered in U.S. medicine are unheard-of luxuries. Company responsibility for health care ends with retirement, and government takes over.

Retirement in Japan means more work for less money. At 55, a male worker is given a lump sum payment--female workers usually are not given retirement benefits--and then may take a part-time job with a supplier to his company. Suppliers offer lower wages and benefits. And there are a lot of suppliers. For example, Toyota has 67,000 employees, about one-sixth GM’s total, because much of its work is done by suppliers. Japanese priorities are different.

In the United States, to be sure, Japanese car makers offer wages and benefits roughly comparable to those of U.S. firms. Here their $800-per-car cost differential results largely from a younger work force--hence lower health and pension bills. Honda of America has one retiree, and pension costs won’t become a burden for decades.

Tax breaks, from Ohio, Tennessee and Kentucky, also favor the transplants, as do their new and efficient plant and equipment and flexible non-union labor.

But “health-care and pension costs make the biggest difference,” says analyst Maryann N. Keller of Furman Selz Mager Dietz & Birney, author of “Rude Awakening,” an analysis of General Motors’ recent history.

That doesn’t mean the costs are necessarily too high. They would be affordable if U.S. car makers still held 80% to 85% of the North American car market--the world’s largest, with 200 million cars and trucks on the road and more than 15 million vehicles sold each year. U.S. companies held 83% of this market just 10 years ago.

But both managements and the union blew it by acting like monopolies--the producers imposing cars and prices on customers, the union imposing wage settlements and work rules on companies. Customers found somewhere else to shop. And now the U.S. industry holds a 65% share of the market, with roughly 28% held by Japanese manufacturers--a share that auto experts project will reach 33% by 1995.

General Motors has fallen from 45% of the market five years ago to 36% today, a loss of share that costs the company more than $20 billion in reduced sales and as much as $1 billion in foregone profit.

The effect on employment and productivity has been devastating. What had been useful at the higher share becomes surplus at the lower. Pension costs are spread across fewer car sales. Productivity declines because people have less to do even though plants have been revamped and employment reduced by 100,000.

A further long, slow decline seems inevitable unless GM regains market share. And that’s why the current negotiations, looking toward a Sept. 14 contract date, are so critical. To regain market share, GM will have to produce and sell cars more economically. And that will mean more staff reductions through early retirement, the elimination of layers of clipboard-carrying supervisors and the spread to all GM plants of the team production system now working at its new Saturn plant in Tennessee.

Successful negotiations will demand a level of trust between union and management that hasn’t existed in recent years. Yet success is possible because the alternative is so bleak.

Does it matter? After all, many people say, if foreign companies produce here and employ Americans, does it matter who owns them? Well, right now in the auto business “produce here” is an overstatement. The domestic content of the typical Ohio Honda or Tennessee Nissan is 40%--with the high-value parts, transmissions and most engines, made in Japan. That means U.S. workers miss out on jobs offering not only higher pay but greater opportunity for learning and advancement.

The job situation may improve over time. But the most profound effects on our society could come in taking orders from owners who do not share American values, who do not believe in the priority of individual choice.

Those American priorities aren’t wrong, or even unduly expensive. But we should realize that we have to work hard to afford them.