From the Wall Street Journal: “Ford Motor Co.’s plan to cut North American production as much as 12% in the first half of next year signals that Detroit’s Big Three auto makers — as well as their many suppliers — could face headwinds in 2007 despite industry cost-cutting efforts.

Meanwhile, as a fresh sign of the ripples the auto makers could send across the manufacturing belt with further production cuts, Dura Automotive Systems Inc. became the latest auto-parts supplier to file for Chapter 11 bankruptcy-court protection. The separate developments highlight the continuing pain faced by General Motors Corp., Ford and DaimlerChrysler AG’s Chrysler Group, amid signs of a slowing economy.

Ford’s projected first-half 2007 cuts — reported yesterday by trade publication Automotive News — come on top of a 21% production cut planned for the current quarter.”

Many voices complain that the US companies - the Big Three - are in decline because of incompetent management that can’t design and market a decent product. Nonsense. They do quite well considering that their labor contracts force them to concede a several thousand dollar per car cost advantage to their non-union competitors. This advantage allows the competitors to put more “content” in their products and spend more on R&D to improve product and manufacturing technology, putting more and more distance on their handicapped competitors. The UAW is interested solely in maximizing the amount of money it can bleed from the car companies to the benefit of its present members. It cares nothing about future jobs or the shareholders, and so does not act to allow the companies the financial “room” to invest and be successful.

Yes there was incompetence - or perhaps a failure of foresight to be more precise - that the car companies got into this situation, where they are spending $60/hr. for essentially unskilled labor. They thought that it didn’t matter what they paid, just that everyone paid the same and the customers be damned, they would pay their price because there was no choice. But foreign competitors broke up that cosy little deal and now thay can’t afford to take a strike and they can’t afford not to. Probably bankruptcy and voiding of the labor contracts that way is the inevitable result.

At the heart of this problem is the anti-trust exemption for unions in the Sherman Act. It allows a union to effectively control all the union jobs in an industry and set wages at levels which are grossly out of line with the free-market price of the labor. This works for a while, but the companies involved are then vulnerable to competition because their prices are artificially high, thus providing the high returns that new competitors need to justify the start-up cost of entry into the market. We see this over and over again - the airlines, for example. The steel industry. The fundamental structure of labor unions makes them responsive purely to the very short term interests of their present members. They do not “invest”, they milk. Dunno how this gets fixed, maybe just be extinction of the species. But if the union movement is to be healthy, then repeal its anti-trust exemption. It is an irresistible lure towards self-destructive behavior.