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December 10, 2008
Economic Scene

$73 an Hour: Adding It Up
By DAVID LEONHARDT

Seventy-three dollars an hour.

That figure �?repeated on television and in newspapers as the average pay of a Big Three autoworker �?has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that’s wrong with bloated car companies and their entitled workers.

To the Big Three’s defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit’s decline. “We’ve heard this garbage about 73 bucks an hour,�?Senator Bob Casey, a Pennsylvania Democrat, said last week. “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we’re doing here.�?

So what is the reality behind the number? Detroit’s defenders are right that the number is basically wrong. Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year).

But the defenders are not right to suggest, as many have, that Detroit has solved its wage problem. General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country. Last year’s concessions by the United Automobile Workers, which mostly apply to new workers, will not change that anytime soon.

And yet the main problem facing Detroit, overwhelmingly, is not the pay gap. That’s unfortunate because fixing the pay gap would be fairly straightforward.

The real problem is that many people don’t want to buy the cars that Detroit makes. Fixing this problem won’t be nearly so easy.

The success of any bailout is probably going to come down to Washington’s willingness to acknowledge as much.

Let’s start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.�?It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix �?dividing those costs by the total hours of the current work force, to get a figure of $15 or so �?and end up at roughly $70 an hour.

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the �?73/hour�?pay of Detroit’s workers with the “up to $48/hour�?pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies �?as opposed to all of society �?must shoulder much of the burden of paying for retirement.

So here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour �?the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.

My own family’s story isn’t especially unusual. For decades, my grandparents bought American and only American. In their apartment, they still have a framed photo of the 1933 Oldsmobile that my grandfather’s family drove when he was a teenager. In the photo, his father stands proudly on the car’s running board.

By the 1970s, though, my grandfather became so sick of the problems with his American cars that he vowed never to buy another one. He hasn’t.

Detroit’s defenders, from top executives on down, insist that they have finally learned their lesson. They say a comeback is just around the corner. But they said the same thing at the start of this decade �?and the start of the last one and the one before that. All the while, their market share has kept on falling. check out

There is good reason to keep G.M. and Chrysler from collapsing in 2009. (Ford is in slightly better shape.) The economy is in the worst recession in a generation. You can think of the Detroit bailout as a relatively cost-effective form of stimulus. It’s often cheaper to keep workers in their jobs than to create new jobs.

But Congress and the Obama administration shouldn’t fool themselves into thinking that they can preserve the Big Three in anything like their current form. Very soon, they need to shrink to a size that reflects the American public’s collective judgment about the quality of their products.

It’s a sad story, in many ways. But it can’t really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.

E-mail: [email protected]

http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=1&hp=&pagewanted=print

Detroit Bailout
If GM Collapses, Don't Blame The Union
Joann Muller, 12.05.08, 6:00 AM ET

Unionized autoworkers are a favorite scapegoat for the problems facing U.S. automakers. Their job security guarantees and gold-plated benefits have surely cost General Motors Ford Motor and Chrysler a bundle over the past few decades. Indeed, the domestics' historically high labor costs are among the reasons they haven't been able to compete with Japanese rivals, and why Detroit CEOs were back on Capitol Hill again Thursday asking for $34 billion in taxpayer loans to survive.

But the U.S. automakers probably would have collapsed by now if not for the concessions made by the United Auto Workers union over the past three years.

Once bitter enemies, the Detroit Three and the UAW have long since buried the hatchet and are now working together to close the wage gap with Toyota Nissan and Hond through various productivity improvements and more flexible work rules, for instance.

The union has made some major concessions. Two biggies last year: The UAW agreed to cap the cost of retiree health care through creation of an independent trust fund and agreed to cut wages in half, to $14 an hour, for new hires in non-assembly jobs (20% of the workforce). More concessions came this week when the union agreed to end a controversial "jobs bank" program, which pays workers even when there are no vehicles to build. The union also said it would allow car makers to extend their scheduled payments to the health care trust fund. Importantly, UAW President Ronald Gettelfinger also said the union is ready to renegotiate additional contract terms.

Now, the playing field is just about level--or will be once the economy recovers.

There's the rub: Until car sales rebound, it's tough for the Detroit automakers to realize the savings from those new labor agreements. Sales are so depressed that none of the companies is able to hire new workers at the lower rate, for instance.

Detroit's current average labor cost is about $71 per hour, compared to $47 an hour at Toyota, which has no unions. But it's misleading to suggest that Detroit autoworkers are paid $71 an hour. About $17 of that is the cost of health care insurance for retirees. General Motors has 442,000 retirees in North America, four times as many current employees. Toyota has only 371 retirees in the U.S.; Honda has 2,400.

What do autoworkers really make? Detroit's hourly workers earn $28 an hour, or $57,000 a year. (Toyota workers make $25.) Benefits and payroll taxes bring the total cost per worker up to $54 an hour, versus $47 at Toyota. Under a breakthrough labor contract in 2007, new hires in non-assembly jobs will be paid only $14 an hour and will receive less generous benefits, which will narrow that remaining gap considerably.

Not everyone believes the union has given its pound of flesh yet, however. Sen. Bob Corker, R-Tenn., home to non-union Nissan factories, said at Thursday's Senate Banking Committee hearing that the UAW must also forgo company-paid supplemental unemployment benefits (worth $450 per week for laid-off workers) and be willing to accept company stock as a partial payment for the car-makers' retiree health care obligation. It's the only way GM can get bondholders to agree to a recapitalization, he said.

GM chief executive G. Richard Wagoner defended the UAW, saying, "Ron Gettelfinger has done more to address the competitive issues in our industry in the last three years than anybody has in the last 30 or 40 years."

Which means GM can't use labor as an excuse any more.

http://www.forbes.com/2008/12/04/detroit-labor-uaw-biz-manufacturing-cz_jm_1205union_print.html

U.S. NEWS
DECEMBER 9, 2008

GM's Hourly Workers Losing Edge Over Salaried Ones

By KRIS MAHER

WEST MIFFLIN, Pa. -- As domestic auto makers consolidate operations with or without a government bailout, the closing of an aging General Motors Corp. metal-stamping plant here shows how blue- and white-collar workers have been treated differently, with the former faring slightly better.

Earlier this year, United Auto Workers union members at the suburban Pittsburgh plant had the option of taking early retirement, a buyout or transferring to another plant. Those who didn't take one of the choices now face a layoff.

Under the union contract, laid-off hourly workers receive pay from GM to supplement unemployment insurance that brings their income to 72% of their gross pay. After 48 months, workers can enter a "jobs bank" and receive 85% of their gross pay, until another GM job opens up.

Salaried workers at the plant, meanwhile, had the option to transfer or take early retirement, but weren't offered a buyout if they weren't yet eligible to retire. A handful of salaried workers will lose their jobs when the plant closes this Friday and receive a severance package.

"There's a lot of guarantees that the auto workers have because they're under contract, as opposed to what happens to white-collar workers," said John Russo, co-director of the Center for Working-Class Studies at Youngstown State University in Ohio.

That calculus appears to be shifting as the UAW is under pressure to make concessions. On Wednesday, UAW President Ron Gettelfinger said the union would give up one of the biggest protections for hourly workers, the controversial jobs bank that enabled workers to continue to receive most of their pay after plant shutdowns.

Many of the remaining hourly workers here hoped the jobs bank would provide some financial security while waiting for an opening at another GM facility. But that option also appears to be fading given production cutbacks proposed by the company this week.

Lisa Sericola, a production worker who earns about $50,000 a year after 14 years with GM, was counting on the jobs bank when the plant closes. She doesn't know whether GM will make new offers of a transfer or buyout to hourly workers. "Our future is really uncertain," she said.

Tony Sapienza, a GM spokesman, said it was too early to comment on how union employees could be affected by proposed UAW concessions.

Despite the different treatment, there appears to be little resentment between hourly and salaried employees here. Workers described the plant as a close community of longtime employees in which many friendships had developed among workers from both camps.

Both groups said GM has been a generous employer, so much so that many don't want to disclose their compensation for fear it could feed a perception that GM employees are overpaid. They note that GM has tried to cut staff through buyouts, transfers and early retirements, rather than layoffs. This metal-stamping plant, which two years ago had 500 workers, including 80 salaried employees, is down to 100 workers, including 20 salaried employees, according to Rick Mismas, a local UAW official.

The plant opened 58 years ago in a now-faded industrial valley once dominated by steel plants. Most recently, workers made fenders, doors and hoods for the compact Chevy Cobalt. The plant originally was slated to close at the end of 2007, but won a reprieve when a former GM executive and other investors surfaced saying they wanted to buy it. A deal to sell the plant and keep it open fell through earlier this year as credit markets tightened.

Ruth Dischner, 57 years old, was recently forced to retire as communications manager. She is receiving 65% of what her pension would have been had she retired at age 62. In addition, she received severance of six months of salary that went into a 401(k) plan, whose value is down 40% this year.

Ms. Dischner, who worked 32 years at GM, said she thought it was time for the jobs bank to go, but she didn't blame the union for the company's troubles. She also noted that she had become friends with many hourly workers at the plant. "We watched each others' kids grow up," she said.

Even though hourly workers receive supplemental pay and transfer rights when the plant closes, she doesn't hold it against them, and says all the workers are affected. "The plant became our community and our little village," she said.

Rick Vargesko, who had been president of the plant's UAW local, took advantage of the union's job-transfer rights earlier this year and now drives a forklift at GM's plant in Lordstown, Ohio. Although he commutes on weekends back to Pittsburgh, he considers himself lucky to have the transfer rights, which allow all UAW members to apply for a job at another GM plant based on their seniority. When he lost his job at U.S. Steel 27 years ago, he was out of work for four years.

Yet, in the current environment, even transfers don't look as promising. The Lordstown plant is scheduled to lay off about 1,100 workers in January. "I really don't know what is going to happen," said Mr. Vargesko.

Write to Kris Maher at [email protected]

http://online.wsj.com/article/SB122878314147589917.html?mod=googlenews_wsj

There are things that must be done regarding auto labor, but it has become politically correct to demonize workers for everything and its just not true. its getting pathetic and has no basis in fact! If we demonize the worker, we can dump on them more, and make everybody forget what a POS job management stupidity and greed have done to these companies. we can even reward them for failure, because they are special!

go ahead lay them all off- am sure car sales will spike immediately-like when hell freezes over!

We are in a full blown game of what everybody doesn't to talk about.! CLASS WARFARE

The rich think they are smart, but this time they are coming to the bowels of hell with the rest of us!-Next year! The bailouts will end-then they better move off-shore! That won't save them-their pillow case of 100s won't be worth near as much! Nobody will buy crap when laid off. They will be home collecting unemployment and getting laid! Then that will end too!

Spoken from a true vendor company beholden to the auto companies! The vendors who get pimped on margins for their widgets and are paid whenever the auto companies get around to it!

Thats right blame the electrician on the line-the union shop---LOL

There is only one thing to do (sarcasm)-lower the salaries (union/non union of every working person in the entire US! Everybody who has a job on this board, everybody in government, everybody on Wallstreet, EVERYBODY!. Then we will be more competitive and strong---LMAO!

Lets lower mean US income from the between $45.000-50,000 to $20,000. That will make everything work! Then go buy that $30,000 SUV?

Toyota just cut their production 14% across the company and lost a billion dollars-even with their non unionized, sometimes non health care employees in the South receiving less than what supposedly we want to go towards to save these pigs! Every Southern state gave these foreign auto plants hundreds millions of dollars each to come here and endless tax breaks, and upgrades to infrastructure. It totals in the billions.

Some of this is the shape of the world economy, some of it is unions, some management. Employment in the auto industry is down already pushing 50% and its not saving them!

We just dumped 350 billion into financial institutions with little strings or even the knowledge of where it went and we are obsessing over 15 billion now and 25 billion later!

When will we learn that having a vibrant capitalistic system includes people who can BUY THE CRAP! When will people learn that throwing people on the unemployment line and cutting salaries will not lead to selling cars. It will cost us twice as much bantyied about in unemployment benefits! This problem and its answers are not simple and they eminate from warped globalization. We bought into it-now pay the price!

Class warfare-pure and simple!

A race to the bottom

Its also interesting to continue to hear everywhere the continued railing about the American auto worker and yet there is not one word in this board about the dude who just scammed the rich (guess those rich and famous Palm Beach folks weren't so smart), institutions, college endowments, pension plans and everybody else out of a reported 50 billion dollars! 3X what auto companies are asking for in a loan! Just a minor transgretion! He must be somehow entitled to perpetrate this scam and live higher off the hog than any of you or those overpaid auto workers! Where was the supply-sided SEC? they were winking too!

As if its all OK-just

at it. Todays capitalism in action! Wallstreet will be Wallstreet! Boys will be boys! No wonder Macro is worried about his retirement-he should be-he has a giant bullseye in the middle of his back and this broken system is aiming their arrows right at the middle of the bullseye!

Your whole system is warped and the auto industries problems are the least of your concerns! Lets cut some more regulations-let make it all better!

Disclaimer: Nobody in my family works in the auto industry any more! Not since the 1970s. I have no personal vested interest in what happens other than the economy and the sanctity of our country!

Just had to come back for one more post here about union workers!

Don't anyone tell me that all union/autoworkers are lazy. They are no different than any other entity-some are lazy and some are hard working people! I know-I was there for one summer!

I got a summer internship with GM and threw parts at Central Foundry in Saginaw, Michigan. I have seen more pistons and wheel housings than the average person-I threw them for hours on end! I lost 25 pounds in 11 weeks and ate more calories than our famous gold medal swimmer from the just completed Olympics.

I sweated so badly I needed windshield wipers on my protective glasses and had to shower/change at lunch instead of eat, because my clothes were a ball of sweat. It was 110 degrees in there at 2:00AM on the midnight shift. I crawled in 20 foot pits to clean oily sand and stuck parts in tracking for giant quench pits.

Don't anybody tell me I didn't work! Don't tell me the workers in these plants are lazy! Give it a try before saying a word-you would run for the exits in a day! The auto worker life is a hard physical life-especially in a foundry! I earned every freaking penny I got. Things are likely more automated now. it was a good learning experience and provides real PERSPECTIVE!

Now I also was offered an internship at GMI for when I graduated and turned it down-could not see that life for me! Had a crapload of cash to go back for my senior year in college. All the beer, food, milk and cookies, dancing, and dating I could handle! I gained that weight back real quick!

I was one svelte dude then! Now I am more spherical in my whitecollar position-typing on a computer more often than not!

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