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DETROIT -- Harley Shaiken, Ph.D. explained the importance of labor during the FACS conference at the Detroit Free Press building. He said there are three things hurting the U.S. Auto Industry -- competitiveness, conflict and China.

Shaiken said that Detroit's Big Three are experiencing tough times. However, the UAW is still a powerful union. UAW will be vital to the recovery process. Very important negotiations are coming up later this year. Many companies are undergoing restructuring right now, according to Shaiken.

"The industry is in tough shape. There are deep differences between parties. China is a defining issue for years to come," Harley Shaiken said. "The Big Three are tied. A lot of employment here."

He pointed out that unemployment is very high in Michigan but lower in the deep South. While Michigan's unemployment rate is 6.9%, it is only 3% in places like Alabama. The city of Flint, Mich. has an unemployment rate of 8%.

The industry expert mentioned that Hyundai pays less than the Big Three Detroit automakers. He said that it could invite unionization soon.

What are some of the major problems with U.S. automakers? Shaiken says it is health care, overtime costs, and vacation pay. The UAW understands how severe the crisis is. He noted that the UAW is one of the most socially active unions out there today.

Contracts will end for the Big three in September. There will be national talks between the union and Ford, GM and Chrysler. On the table will be big transformations. The Big Three will have to do some more cutting this time around.

Alan Mullaly, CEO of Ford Motor Company was recently quoted "The only thing I care about was the competitiveness of Ford." Chrysler announced they would build small cars in China and sell them in the U.S. Honda said they would build the Fit compact car in the U.S.

Shaiken said that it will be hard to predict what will happen at the bargaining conference later this year. "Nobody wants a strike this year. Both sides are looking to create more competitive companies. Labor costs are the problem."

The expert believes some of the problems are direct results of bad management decisions. He said management of the Big Three made the wrong moves in terms of targeting customers and providing incentives. In addition, oil countries are not stable.

Shaiken noted the average GM inventive for their vehicles was $2,700. Meanwhile, the average inventive for a Toyota vehicle is only $600. This difference allows Toyota to make more money on the sale of an automobile. GM needs to find a way to lower their incentives but still keep selling cars.

Legacy costs also hurt U.S. automakers. Those are fees that the automakers pay for health care for retirees and active workers plus pensions for retirees. The Big Three pay $1,500 per vehicle for legacy costs. On the other hand, Japanese automakers only have to pay $400 to cover these legacy costs.

Shaiken said, "U.S. automakers support thousands of retirees. It puts a burden on the Detroit three."

The third reason why the Big Three is in bad shape is due to the economy. When an analyst gives GM, Ford or Chrysler a junk bond rating, their stock price usually goes down. This hurts the company overall. The automakers have been taking loans out at 6% and paying them back at 7%. When you look at the millions of dollars they are borrowing, it has a huge effect on them. GM and Ford have been moving active employees to retirement through buyouts. According to Shaiken, labor costs are not the only problem.

JobsBanks were introduced in 1984 as a transitional spot for employees between jobs. They were meant to be a bridge. JobsBanks are expected to go down to zero in the next few years.

China was the final part of the discussion. Shaiken said there is a "highly integrated economy" in China. In 2005, China exported $10 trillion of goods. It is one of the top three traders globally, behind Germany and the U.S.

In 1950, China had high productive and quality with low wages. That statement is no longer true in 2007. The country has redefined it's character within middle class jobs. Wages are going up slightly within China.

The expert believes that not much help will be coming from Washington D.C. The Big Three wants to be profitable but they're not receiving any political support. The only help that might come out of D.C. is some health care relief. Shaiken said, "automakers need a political presence."

Shaiken is a professor of education at the University of California at Berkeley. He also heads the Center for Latin American Studies. He is considered one of the country's best experts on automotive labor, management and negotiations.

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