Posted by: Tobias | November 17, 2008

Fighting popular memes

Megan McArdle writes:

One of the things you hear over and over again from critics of Detroit, especially ones from the left, is that their current woes are all management's fault because they kept making big cars.

Management has made a lot of mistakes. But making big cars wasn't one of them. That's because they couldn't profitably make small cars in the United States. And the reason they couldn't is that their labor costs were too high. All in, Detroit was paying about $30 more an hour than other companies to make cars. At that kind of differential, you have to concentrate on large cars with big profit margins, not economy cars where consumers fight to save $15 on the headlight bezels.

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Responses

  1. Not sure about this. I don’t have any data on labour costs available, but I would not think that labour costs are much higher in Detroit, than they are in Paris, Cologne or Wolfsburg. And while it is true that also for European car producers, profit margins seem to be higher for large cars, Renault, Ford and VW certainly nonetheless made profits on their smaller ones as well until some weeks ago.

  2. See Greg Mankiw

  3. Right, but I never doubted that Japanes car manufacturers had much lower labour costs. But what about European car producers? Being able to witness the French work ethic at close range (high wages, 35-hour weeks, and somebody striking literally every week), I wouldn’t believe that labour costs in France are much below than those in the U.S..
    True, the French car industry is also having massive troubles at the moment, but it’s still faring much better than GM, Ford and Chrysler.


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