Professor Mark J. Perry's Blog for Economics and Finance
A year ago, the Big Three had a 56% market share, now it is barely holding a 50% market share (50.2% in June, see chart above), and it may slip below 50% this month. 
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
9 Comments:
Professor Perry said:
"The big issue right now is the $25-per-hour pay gap between Japanese automakers in the U.S. like Honda, Toyota and Nissan and the Big Three.”
There is not a $25-per-hour pay gap. There is a $25-per-hour cost gap. Trying to say they are the same is the same as saying net pay and gross pay are the same thing. I think everyone would realize that’s not true.
Professionals' credibility is judged by correct terminology usage because nuances are very important to those personally involved in the situation. Either you don’t know the difference between pay and cost or you don’t care to differentiate them for your intended audience. Which is it in this case?
Where's the pay gap?
"General Motors Corp., which lost $10.6 billion in 2005 and didn't issue profit-sharing checks last year, paid its production workers an average of $27 an hour, GM spokesman Daniel Flores said. That would be a base of about $54,000 a year, based on a 2,000-hour work year. The $30 average at Toyota's Georgetown plant, which includes a bonus, equals $60,000 a year.
Source: GM Insider
Do a Google News search for "Ford paid $70.51" and you'll find almost 900 hits.
From one news report:
"Ford PAID its workers on average $70.51/hour last year.
GM PAID its workers $73.26/hr.
Chrysler PAID $75.86/hr.
Toyota, Honda and Nissan PAID an average of $48/hr."
In terms of what was paid by employers to have workers employed in their plants producing cars, there was a $25 per hour pay gap between GM and Toyota.
From the Associated Press: "Ford, according to its annual report, PAID $70.51 per hour in wages and benefits to workers last year. GM's annual report says its labor COSTS average $73.26 per hour, while Chrysler's COSTS average $75.86 - all well above the average $48 hourly COST incurred by Toyota, Honda and Nissan."
The difference between "pay" and "cost" seems to be a distinction without any significant difference, and those terms are typically used interchangably by the general public and the media.
If Ford PAYS out $70.51 per hour for its hourly worker and Toyota PAYS OUT $45.51 per hour, there is a $25 per hour pay gap or labor cost gap.
If I ask you "How much did your Camry cost?" and you say "I paid $25,000," then the cost of the car equals what you paid = $25,000.
If it makes any difference, I could certainly refer to it in the future as a "$25 per hour TOTAL COMPENSATION gap," or a "$25 per hour TOTAL LABOR COST gap," but it doesn't change the reality that there is real and significant $25 per hour differential between GM and Toyota.
GM’s C.E.O., Richard Wagner, is the corporate leader who uses the pay gap and pay cost terminology extensively. He's on record as saying that GM employees and Toyota employees are not paid that much differently in hourly wages.
When the word “pay” is used, a connotation of some employee putting the money in his or her pockets comes to mind. Even total compensation is not the correct word, but that does include money put into a worker’s pocket. Words are powerful. Correct words are important from authorities. There is a distinct and significant difference in word usage.
Labor cost is a legitimate business expense that is used to make business case decisions by operation managers. I’ve seen everything from workers’ compensation to welding helmets for welders and respirators for painters included in that figure. While those are necessary inputs and add to the cost of production for using humans instead of machines, the employees receive no direct benefits from this expenditure.
So, yes, your word usage makes a big difference. I don’t see how a finance professor citing weak sources such as journalists or Google strengthens a defense for using the wrong word in a post. You are correct that there is about a $25 difference between GM and Toyota, but it’s not in my pocket. Your usage of the word “pay” or “compensation” plays into the public’s perception that most GM workers have a $140,000-per-year job. UAW autoworkers are well-paid and a few might even approach an outlier of $140,000-per-year in pay or total compensation, but that’s far from the average line worker’s total compensation (by at least $50,000 per year). Your professionalism as a scholar, and as a professor at a college in a GM town, can dispel that myth by writing with careful attention to details and using accuracy instead of embellishment. Wouldn’t you expect the same meticulousness from your students?
It would be perfectly acceptable to me (and perfectly understandable to the general public I think) if a student wrote:
"GM PAID its employees $73 per hour in total labor costs in 2006, and Toyota PAID its employees $48 per hour in total labor costs in 2006, resulting in a $25 PAY gap between what GM and Toyota PAY for labor."
Further, the main point is that GM lost $15 billion last year, and Toyota made $14 billion in profits last year, largely due to the $25 per hour "pay gap" for labor cost.
Bottom Line: Call it whatever you want, but without transformational change, and without addressing the $25 per hour gap, GM will cease to exist at some point in the future.
General public: Any comments? Are confused at all by the term "pay gap" as it relates to a company's total labor costs? Do you realize that a $25 per hour "pay gap" is different than a $25 per hour "monetary wage gap?" Do you realize that your "total pay" or "total compensation" includes both monetary wages and fringe benefits?
From the AFL-CIO "America's Union Movement" website, about "2006 Trends in CEO PAY."
"In 2006, the average CEO of a Standard & Poor's 500 company received $14.78 million in TOTAL COMPENSATION. This represents a 9.4 percent increase in CEO PAY over 2005."
"Boards of directors are responsible for setting CEO PAY. Too often, directors award COMPENSATION PACKAGES that go well beyond..."
"Excessive CEO PAY takes dollars.."
".. a poorly designed executive COMPENSATION PACKAGE..."
Bottom Line: The terms "pay," "total compensation," and "compensation package" are used interchangably by the AFL-CIO, which I think is standard and common usage. Therefore, I think that any differences in "pay gap" and "compensation gap" are distinctions without any substantial significance or importance.
Professor Perry:
I think we agree more than we disagree. There's not an average GM UAW worker walking round with $146,000 worth of pay and benefits a year. But, that worker is probably costing GM that much money per year. How the figures are presented is not relevant unless it pits people against one another and causes envy and conflict.
For many reasons, GM is not competitive with Toyota and the other transplants. Some of it can be easily addressed by a willingness to change the way we do business. However, there are other problems that exist because GM is a 100-year-old company with legitimate commitments that the Japanese transplants don't have. If GM and the UAW can't profitably build cars, they will cease to exist and everyone will be worse off. We certainly have challenges in the upcoming contract.
I am often at odds with my fellow workers because I don’t feel that the Japanese transplants are Japanese anymore. Nowadays, I consider them our American competitors employing good hard-working Americans, and I am ashamed that we are pointing fingers at them and focusing efforts to vilify them. Too much effort is spent blaming someone else for our problems and that obscures what we really need to do. Whining about the “foreigners” taking all of our jobs is counter productive to solving the root cause of our problems.
Like you, I think the consumer is king, and if we build quality cars that customers want we will eliminate many of our problems. I want the customer to speak with his or her dollars and buy GM products. I envision current Toyota buyers as potential future GM buyers—if we do the right things to attract their business.
Thanks for your forum. An intelligent and civil discussion of all sides of an issue is important to unearthing and solving problems.
Not to beat a dead horse, but you do realize there are three different accounting terms here and not just two as in your UAW CEO explanation. The breakdown is like this: Hourly pay (about $30 per hour), Fringe benefits (about $22 per hour) this $52 is total compensation for the active worker. The other $21 per hour to equate to $73 per hour you mention is other costs spread across the active hourly work force. We derive no direct benefit from that $21 per hour. So, our total compensation is $52 per hour for 2080 hours or $108,160 per year—a nice yearly compensation.
The $146,000 figure is an accountant’s method to actualize labor costs in a burden center so that the books balance (kind of like a slush fund). They can send me the $37,840 if they need to so their books balance —I don’t mind a bit, but I won’t hold my breath.
History might possibly shed some light on this present day situation...
The following is from Time magazine, dated Sept. of '71: Nixon's Freeze and the Mood of labor
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