Jackson Jambalaya

The Wall Street Journal published an interesting story today on the opening of the Volkswagen plant in Tennessee:

"Volkswagen AG on Tuesday will celebrate the opening of a new Tennessee auto plant that gives the German auto maker much lower U.S. labor costs than not only its Detroit rivals but its Japanese competitors on American soil.

The new plant will present a stiff challenge for Detroit auto makers, which restructured with the goal of achieving cost parity with Japanese companies building cars in the U.S.

Located near Chattanooga, Tenn., the plant will pay starting workers about $27 an hour in wages and benefits, according to estimates by industry analysts. That's roughly half the $52 an hour cost of labor at the Detroit Three auto makers and some non-union U.S. plants owned by Toyota Motor Corp. and Honda Motor Co. It comes as Korea's Hyundai Motor Co. and Kia Motors Corp., whose Alabama and Georgia plant labor costs are similar to VW's, are gaining share against Detroit and Tokyo rivals.

During the auto bailout restructuring led by the U.S. government, General Motors Co. and Chrysler Group LLC were told they had to rework union contracts to be in line with Toyota. While unions agreed to sharply lower the pay for new hires, there haven't been that many workers coming in at the lower levels. As a result, their labor costs remain far higher than those of new plants in the South.

"Any current wage or benefit gap between the Detroit Three and transplants could grow as transplants add capacity in the lower-wage U.S. South," said Brian Johnson, the lead auto analyst for Barclays Capital.

VW plans to build its Passat, a sedan that will be priced at $20,000, about the same as the Honda Accord and Chevrolet Malibu, making it competitive with the other volume sedans in the segment. The current model starts at nearly $28,000 but the price is coming down.

Over the next three years, VW is expected to boost the average worker's wage from $14.50 to $19.50, pushing up the total cost for a worker to roughly $38 an hour, according to the Center for Automotive Research in Ann Arbor, Mich.

Ford Motor Co., GM and Chrysler have battled for years to lower the gap between themselves and Japanese auto makers that assemble vehicles in the U.S. Years ago, Detroit had labor costs of around $70 an hour, but in the last few years the three companies have won concessions from the United Auto Workers union. Ford's labor cost is now about $58 an hour, according to the company.

One key UAW concession allows GM, Ford and Chrysler to hire new workers at a wage of $14 an hour, about half the pay of veteran workers. New workers also get less costly benefits, such as 401k retirement accounts instead of a life-long pension program. The number of workers who get this "second-tier" pay package is limited, however.

The Detroit Three and the UAW are scheduled to begin negotiating a new labor contract this year. Barclay's Mr. Johnson expects GM, Ford and Chrysler to seek to increase the percentage of workers making the lower, entry-level wage up from the 20% cap today.

The string of non-union auto plants that have gone up in the South is a reflection of the U.S.'s increased competitiveness in auto manufacturing. Both BMW AG and Daimler AG produce vehicles in the U.S. and export them to markets around the world..." Rest of the article