As the workers at GM are continuing their strike, I am reminded of two stories.
When I was much younger, there was a bakery named Van De Kamp’s.
In addition to their lines of frozen foods, they made the most delicious cookies I had ever enjoyed.
There was one that I can still taste, a butter cookie in crisp flakey layers with crystalized sugar sprinkles on top.
The Voice of Common Sense.
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During the early ’90s, the bakery got into serious financial trouble. It couldn’t pay back its loans.
The problem was the labor cost.
The Van de Kamp family had always been very generous. Union bakers who worked at the bakery were making about $60,000 per year.
Non-union bakers, at the time, were making $5 per hour.
For the bakery to survive, the union bakers had to agree to take a pay cut to about $40,000 per year.
This would be very hard.
Bakers were used to living on these higher wages, had mortgages, and the cut would have a significant impact. But no cut meant no jobs for anyone. The bakery would be closed.
We went to the union, let them know that $40,000 was a best and final. If they didn’t agree, the bank would close the plant down. We explained to the union that if we issued the order to close, it could not be rescinded. The refrigeration and the machines would be turned off and there was no way to restart. We gave them two weeks to decide.
After two weeks, the union said $40,000 was unacceptable. The order to close was given that day and everything was immediately turned off. The place was closed down that day and locked up.
The next day, the workers came to the plant, as did the union reps. “Why did you close the plant down?”, they asked. We said what we said before, “you had the information, we gave you a best and final, you made a decision and said no. We did what we said we would do. Why are you surprised?”
The Voice of Common Sense.
Everyone lost their jobs, and I mean everyone, company management, the clerical staff, the delivery and support people. The business was dead.
The company couldn’t compete when their cookies cost 5+ times more than their competitors.
Today, the break-even price for a box of cookies, at those wage rates, would have been more than $50.
Labor costs had priced the product out of the market and consumers would no longer pay exorbitant prices, even for the most delicious cookies in the world.
The end of the story is sad. None of the bakers ever found work again at the wages they were making.
Most were unemployed for a very long time and eventually took non-union jobs at $5 per hour.
Since the Van De Kamp family paid above market wages, this story also was true about almost everyone who worked there.
The second story involves tool and dye makers. Being a tool and dye maker used to be a very good middle-class job. Today, for the same reason, we no longer have people here with that skill. Moving production overseas was so much less expensive, even with the cost of importing the goods, it was cheaper to end production here. Noone ever considered this move might come back to bite us.
The truth is the United States does have a vested interest in maintaining some degree of manufacturing here. Made in America needs to mean something. Companies are willing to pay more to have certain functions retained here.
If there is an embargo, or if war comes, what would we do? If we no longer have plants here that make cars, car parts, or other kinds of transportation vehicles, what would happen if we couldn’t get replacements from sources overseas? It is for that reason that GM and others maintain a small presence in the US.
But, just as with Van de Kamp’s, there is a threshold where the decision to stay in the US becomes untenable.
Just a reminder, in California several years ago, we had a strike for grocery store workers.
Eventually, they got what they wanted; but, we also got automated scanners instead of cashiers.
Amazon, Fresh and Easy, and others are trying to make stores that don’t require cashiers, at all.
The wages made it cheaper to employ technology to do the job that a person used to do.
We have an expanding population in a time when jobs are disappearing and being replaced by technology.
Replacement jobs pay less than current pay.
The escalation of the portion of benefit costs paid by employees is one of the key reasons employees seek and need more money.
Employers are unable to pay those costs without pricing themselves out of the market.
To the unions who have created this mess, I would suggest they look at requiring alternative benefit structures that would result in lower benefit costs for their employers. This is a win for everyone.
The overall cost is less, the coverage is generally the same, and the reduction can be passed onto employees in the form of higher wages.
For the company under pressure by its unions, it might be time for shareholders to listen to Warren Buffet.
Senior-level executive wages are out of proportion to the wages of the people who work for them.
Only the board of directors and/or shareholders can change this.
Perhaps a little activism is called for.
If senior executive compensation was in line with those who work for them, maybe there would be less discontent.