Labor costs are less than 10% of the cost of a car; the other 90% goes toward research and development of new product lines, parts, advertising, marketing and management overhead. Surely this 90% is more likely to be a source of poor competitiveness, especially because, according to data from the latest Harbour Report, an annual study of manufacturing efficiency, nine out of the 10 most efficient auto assembly plants in North America are union plants, represented by either the UAW or the Canadian Auto Workers. In addition, one of Toyota’s successful assembly plants in California is unionized.
Although the average hourly wage of a UAW worker is a few dollars more than a non-unionized auto worker, any labor cost advantage the Japanese automakers have is due almost entirely to the fact that these companies have far fewer retirees. Honda, Nissan and Toyota have been operating in the United States for close to 30 years and thus haven’t had many workers reach retirement age. Ford and General Motors, however, have been around for nearly a century; Chrysler has existed since 1925. Of course the U.S. auto companies face higher legacy costs.
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Senior Fellow; Senior Adviser, American Worker Project