Subaru Says Reluctant to Further Invest in US Because of Pay Competition from McDonald’s

Subaru cars for export park at Kawasaki port, near Tokyo, Japan, on Sept. 7, 2021.Koji Sasahara/AP Photo

Japanese automotive firm Subaru is reluctant to invest in manufacturing electric vehicles in the United States due to the high wage inflation, CEO Tomomi Nakamura said on Wednesday.

“In Indiana, part-time workers at McDonald’s earn $20 to $25 per hour, which is in competition with what temporary workers make at our plant,” Nakamura said while speaking at the company’s quarterly earnings announcement on Nov. 2, according to Automotive News.

“If we were to build a new plant, it would be very difficult to hire new people for that. Labor costs are rising now. It is quite challenging for us to secure workers for our Indiana plant, including those of suppliers,” the Subaru CEO said.

The company owns an automobile assembly plant in Indiana called the Subaru Indiana Automotive (SIA, which manufactures half of all Subaru vehicles sold in North America. The facility was founded in 1987, and employed 5,900 employees as of 2020.

The Inflation Reduction Act has a provision wherein electric car manufacturers can receive federal tax credits of $7,500 per vehicle, provided that specific conditions are met, including processing or extracting a certain percentage of critical battery materials within the United States or a country with which the United States has a free trade agreement.

Nakamura revealed that the company plans to stick with assembling electric vehicles at a facility that will be built in Japan. Complying with U.S. guidelines to qualify for the $7,500 tax credit would be tough at present, he added. Subaru is studying how the firm can qualify for tax credits in the United States.

Wage Growth and Inflation, Minimum Wage

Though the Subaru CEO considers U.S. wages to be relatively high, the fact is that workers’ earnings have not kept up with inflation.

An October report by the Federal Reserve Bank of Dallas calculated that 53.4 percent of American workers saw real wages—referring to inflation-adjusted wages—decline between second quarter 2021 and second quarter 2022.

For 53.4 percent of workers, the median decline in real wage growth was found to be 8.6 percent. The only other periods during the past 25 years when the real wage decline was more severe than in second quarter 2022 were those in 2008 and 2015.

Meanwhile, the Biden administration has been pushing to hike the minimum wage across the country to $15 per hour. However, the government has not been successful in raising the minimum wage, which was last revised in 2009, and at present is $7.28 per hour.

A 2020 study warned that raising the federal minimum wage to $15 per hour can potentially lead to the loss of around two million jobs in the United States.

“The arts, entertainment, and recreation, and accommodation and food services sectors will account for half of these job losses. Workers aged 16–24 will see the highest proportion of job losses, and the majority of jobs lost will be those held by women,” the study said.