Just when you thought the news couldn't get any worse for the UAW...

Thomas Lifson
The nature of the automobile industry is changing, and the United Auto Workers, once the flagship of organized labor in the United States and the world, has been left behind and is now a shadow of its former self. From a peak of over a million and a half members 35 years ago, the UAW has declined to a mere 380,000 or so at present. Retirees vastly outnumber active members, at 600,000.

The graph below (source) tells the story of a union that got too greedy, earning wages and benefits for semi-skilled work that were the envy of many professions requiring college and professional degrees, job security, and many perquisites, including having a paid holiday on one's birthday. All this was only possible because the shared oligopoly of the Big Three automakers threw off so much money that buying labor peace was more lucrative than suffering through a long strike that the UAW would target at the maker judged most vulnerable. Once concessions were won at one auto manufacturer, the others would follow as night the day.


It was paradise for the union members, but not so cool for consumers, as car prices went up and up, faster than inflation, and quality was not nearly as high as technology would permit. What brought the shared benefits of oligopoly crashing down, of course, was foreign competition, first imports from VW, and later from Japanese manufacturers. Eventually, trade pressure and the decline of the dollar led to the growth of a second US auto industry, comprised of nonunion "transplants" run by foreign nameplates, located largely in the South (though the very first one was Honda's manufacturing facility in Marysville, Ohio).

As UAW membership plummeted and Detroit fell to ruin and bankruptcy, the second US auto industry boomed. And as readers now know well, the UAW has been completely unsuccessful in its attempts to unionize the factories, even when, as in the case of VW in Chattanooga, TN, management was supportive of unionization.

But the latest transformation of the auto industry bodes even worse for the UAW. Thanks to NAFTA, which removes all barriers to trade in automobiles among the US, Canada, and Mexico, automobile production is shifting to Mexico, where auto assembly workers earn less per day than American assembly workers earn per hour. The AP writes:

Mexico is on track to replace the Asian automotive giant, Japan, as the second-largest exporter of cars to the United States by the end of the year.

An $800 million Honda plant opening Friday in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the U.S. to 1.7 million in 2014, roughly 200,000 more than Japan, consulting firm IHS Automotive says. And, with another big plant starting next week, Mexico is expected to surpass Canada for the top spot by the end of 2015.

"It's a safe bet," said Eduardo Solis, president of the Mexican Automotive Industry Association. "Mexico is now one of the major global players in car manufacturing."

There are already 580,000 auto workers in Mexico, vastly outnumbering UAW members in the US. And there are many more Mexican workers coming:

Just 25 miles from the new Honda plant, Mazda is set to open a factory next week to produce 230,000 cars a year. Nissan is expected to turn out 175,000 cars annually at a $2 billion plant it opened late last year in the nearby state of Aguascalientes. And Audi will be producing luxury models at a plant in the state of Puebla that is slated to open in 2016.

The nature of the world economy is that manufacturing moves from the higher wage countries that invent new products toward lower wage countries. This has been going on for well over a century. New England is full of old cotton mills that once flourished in the early days of the American industrial revolution. First the mills moved to the South, and then they moved overseas, and then from richer countries like Japan and Taiwan to poorer countries like Bangladesh. Manchester, England reveals the same migration, as do Lyon, France, Osaka, Japan and many other cities. It is virtually a natural law of industry, and attempt to repeal it through tariffs and other measures always fail in the long run.

Mexico is at a stage of economic development where automobile assembly is in its sweet spot. High quality workers are attracted to the industry, and are very trainable and diligent. A cadre of technical and professional workers is developing in Mexico, as well. For now, the higher-paying and more technical jobs remain in the Detroit suburbs, Stuttgart, Munich, Toyota City, Yokohama, Seoul, and a number of other first world locations, including advanced design centers for most of the world's leading auto makers in Southern California.

The world is an integrated economic system. If you happen to live in an advanced country, the best way to get ahead is to develop knowledge and skills that are not easily duplicated elsewhere, and that create value greater than can be supplied by workers recruited in any third world country. The days of highly paid semi-skilled labor are vanishing.

Hat tip: Monica Showalter

The nature of the automobile industry is changing, and the United Auto Workers, once the flagship of organized labor in the United States and the world, has been left behind and is now a shadow of its former self. From a peak of over a million and a half members 35 years ago, the UAW has declined to a mere 380,000 or so at present. Retirees vastly outnumber active members, at 600,000.

The graph below (source) tells the story of a union that got too greedy, earning wages and benefits for semi-skilled work that were the envy of many professions requiring college and professional degrees, job security, and many perquisites, including having a paid holiday on one's birthday. All this was only possible because the shared oligopoly of the Big Three automakers threw off so much money that buying labor peace was more lucrative than suffering through a long strike that the UAW would target at the maker judged most vulnerable. Once concessions were won at one auto manufacturer, the others would follow as night the day.


It was paradise for the union members, but not so cool for consumers, as car prices went up and up, faster than inflation, and quality was not nearly as high as technology would permit. What brought the shared benefits of oligopoly crashing down, of course, was foreign competition, first imports from VW, and later from Japanese manufacturers. Eventually, trade pressure and the decline of the dollar led to the growth of a second US auto industry, comprised of nonunion "transplants" run by foreign nameplates, located largely in the South (though the very first one was Honda's manufacturing facility in Marysville, Ohio).

As UAW membership plummeted and Detroit fell to ruin and bankruptcy, the second US auto industry boomed. And as readers now know well, the UAW has been completely unsuccessful in its attempts to unionize the factories, even when, as in the case of VW in Chattanooga, TN, management was supportive of unionization.

But the latest transformation of the auto industry bodes even worse for the UAW. Thanks to NAFTA, which removes all barriers to trade in automobiles among the US, Canada, and Mexico, automobile production is shifting to Mexico, where auto assembly workers earn less per day than American assembly workers earn per hour. The AP writes:

Mexico is on track to replace the Asian automotive giant, Japan, as the second-largest exporter of cars to the United States by the end of the year.

An $800 million Honda plant opening Friday in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the U.S. to 1.7 million in 2014, roughly 200,000 more than Japan, consulting firm IHS Automotive says. And, with another big plant starting next week, Mexico is expected to surpass Canada for the top spot by the end of 2015.

"It's a safe bet," said Eduardo Solis, president of the Mexican Automotive Industry Association. "Mexico is now one of the major global players in car manufacturing."

There are already 580,000 auto workers in Mexico, vastly outnumbering UAW members in the US. And there are many more Mexican workers coming:

Just 25 miles from the new Honda plant, Mazda is set to open a factory next week to produce 230,000 cars a year. Nissan is expected to turn out 175,000 cars annually at a $2 billion plant it opened late last year in the nearby state of Aguascalientes. And Audi will be producing luxury models at a plant in the state of Puebla that is slated to open in 2016.

The nature of the world economy is that manufacturing moves from the higher wage countries that invent new products toward lower wage countries. This has been going on for well over a century. New England is full of old cotton mills that once flourished in the early days of the American industrial revolution. First the mills moved to the South, and then they moved overseas, and then from richer countries like Japan and Taiwan to poorer countries like Bangladesh. Manchester, England reveals the same migration, as do Lyon, France, Osaka, Japan and many other cities. It is virtually a natural law of industry, and attempt to repeal it through tariffs and other measures always fail in the long run.

Mexico is at a stage of economic development where automobile assembly is in its sweet spot. High quality workers are attracted to the industry, and are very trainable and diligent. A cadre of technical and professional workers is developing in Mexico, as well. For now, the higher-paying and more technical jobs remain in the Detroit suburbs, Stuttgart, Munich, Toyota City, Yokohama, Seoul, and a number of other first world locations, including advanced design centers for most of the world's leading auto makers in Southern California.

The world is an integrated economic system. If you happen to live in an advanced country, the best way to get ahead is to develop knowledge and skills that are not easily duplicated elsewhere, and that create value greater than can be supplied by workers recruited in any third world country. The days of highly paid semi-skilled labor are vanishing.

Hat tip: Monica Showalter