Auto Industry: Germany VS USA

Leadership 12/21/2011 @ 5:42PM 311,853 views

How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much

A BMW assembly plant in Leipzig, Germany.

In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour. Yet Germany’s big three car companies—BMW, Daimler (Mercedes-Benz ), and Volkswagen—are very profitable.

How can that be? The question is explored in a new article from Remapping Debate, a public policy e-journal. Its author, Kevin C. Brown, writes that “the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the U.S., they operate within an environment that encourages such a race.”

There are “two overlapping sets of institutions” in Germany that guarantee high wages and good working conditions for autoworkers. The first is IG Metall, the country’s equivalent of the United Automobile Workers. Virtually all Germany’s car workers are members, and though they have the right to strike, they “hardly use it, because there is an elaborate system of conflict resolution that regularly is used to come to some sort of compromise that is acceptable to all parties,” according to Horst Mund, an IG Metall executive. The second institution is the German constitution, which allows for “works councils” in every factory, where management and employees work together on matters like shop floor conditions and work life.  Mund says this guarantees cooperation, “where you don’t always wear your management pin or your union pin.”

Mund points out that this goes against all mainstream wisdom of the neo-liberals. We have strong unions, we have strong social security systems, we have high wages. So, if I believed what the neo-liberals are arguing, we would have to be bankrupt, but apparently this is not the case. Despite high wages . . . despite our possibility to influence companies, the economy is working well in Germany.

As Michael Maibach, president and chief executive of the European American Business Council, puts it, union-management relations in the U.S. are “adversarial,” whereas in Germany they’re “collaborative.”

Does such a happy relationship survive when German automakers set up shop in the U.S.? No. As a historian observes in the article,  “BMW is a German company and it has a very German hierarchy and management system in Germany,” yet “when they are operating in Spartanburg [in South Carolina] they have become very, very easily adaptable to Spartanburg business culture.” At Volkswagen’s Chattanooga plant, the nonunionized new employees get $14.50 an hour, which rises to $19.50 after three years.

The article’s author, Kevin C. Brown, asked Claude Barfield, a scholar with the American Enterprise Institute, why the German car companies behave so differently in the U.S. He answered, “Because they can get away with it so far.”