As Volkswagen opens its new plant in Tennessee, talks renew about how labor, particularly unionized labor, influence the cost of new vehicles and the viability of automakers. While foreign manufacturers are locating in the South and paying about half the amount a union worker makes, the Big Three in Detroit have been unable to see significant gains from wage concessions by the unions post-bailout.

QUESTIONS:

1. [Chapter 11] Compare the wages paid by Detroit automakers and foreign automakers in the South. Discuss the net effect of labor contracts for employers and employees.
2. Do differences in labor costs (American vs. foreign manufacturers) alter the productivity equation? Why or why not?
3. Is labor cost a source of competitive advantage? Discuss.
4. How do labor costs influence breakeven points? Where do they fit in the breakeven point equation?

SOURCE: M. Ramsey, “VW Alters Labor-Cost Equation,” Wall Street Journal (Retrievable online at http://online.wsj.com/article/SB10001424052748704083904576335501132396440.html)