Shawn Fain’s Economic Reality Test - DOES MATH MATTER?

Non-union Tesla has a huge cost advantage over Detroit’s Big Three owing to the United Auto Workers.

The United Auto Workers (UAW) strike is going on day five, and President Shawn Fain has rejected the latest offer from Stellantis

of a 21% pay raise over four years. He keeps citing corporate “greed” like a mantra. Yet it was telling this weekend when he refused to discuss the union’s impact on future job creation.

Asked on

CBS

’s Face the Nation how he would make the case to Detroit auto makers to invest “in more expensive union shops rather than move to these right-to-work states,” Mr. Fain ducked like a politician. UAW worker pay, he said, shouldn’t be compared “to how pitiful

Tesla

pays their workers and other companies pay their workers.”

He added: “Most of these workers in those companies are scraping to get by so that greedy CEOs and greedy people like Elon Musk can build more rocket ships and shoot herself in outer space.” Mr. Fain can criticize Mr. Musk all he wants, but Tesla is the chief competitor to the Detroit auto makers in the government-mandated electric-vehicle race. That’s the reality corporate CEOs have to consider, even if Mr. Fain ignores it.

According to Securities and Exchange Commission disclosures, the median worker at Tesla earned $34,084 last year in total compensation, compared to $80,034 at

GM

and $74,691 at Ford. Stellantis said its average worker earned €64,328 ($68,683). These internal calculations include non-production level workers as well as employees located in other countries, which in the case of Tesla includes China.

Yet the U.S. accounts for a larger share of Tesla’s workforce than it does for Ford or Stellantis. A large reason for the pay disparity is Detroit’s higher retirement costs. Ford reported a $1.2 billion cost last year for its U.S. worker retirement benefits, largely defined-benefit pensions and retiree medical care, according to its securities filings.

Detroit auto makers scrapped defined-benefit pensions and retiree medical care for new workers in 2007 as they lurched toward insolvency. But Mr. Fain wants to restore these benefits for all workers, which would create enormous new unfunded liabilities and obligations. Tesla offers its workers 401(k)s with a contribution match of up to $3,000, which keeps a lid on future legacy costs.

We understand the financial blow that the inflation of the last two years has been for workers, and that the union wants this next contract to recover lost ground. But Ford CEO Jim Farley said last week that the UAW’s demands would more than double his company’s union-related labor costs and drive it into bankruptcy.

“The average pay would be nearly $300,000 for a four-day work week,” he noted. Mr. Fain insisted over the weekend that the auto makers could afford such higher pay since labor makes up a small share of a car’s costs.

Yet labor is one of the few variables auto makers can control, which is why Tesla and foreign auto makers have tried to avoid unionization by expanding in U.S. right-to-work states. Mr. Fain is vindicating their decision.