Friday, November 21, 2008

GM Paid $73.26 Per Hour for Labor Costs in 2006

Both in the comments on this blog and elsewhere, serious questions have been raised about the $73.26 total labor cost per hour that GM pays its hourly workers. For example:

1. Felix Salmon at Portfolio.Com writes "You might expect it from right-leaning commentators like Will Wilkinson. You wouldn't expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn't expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs. It's not true."

2. A comment on this CD post says "Have you still not figured out that the $70/hour figure is complete rubbish? That doesn't exactly reflect well on your credibility."

Let me quote directly from General Motors Manufacturing and Human Resources website (click on "Other Benefits," or go here directly):

The total of both cash compensation and benefits provided to GM hourly workers in 2006 amounted to approximately $73.26 per active hour worked. This total is made of two main components: cash compensation ($39.68) and benefit/government required programs ($33.58).

The average annual cash compensation for hourly employees in 2006 was $39.68 per hour. Included in average earnings are straight-time pay, Cost of Living Allowance (COLA), night-shift premiums, overtime premiums, holiday and vacation pay. In 2003, GM workers logged 41,363 (hours in 000’s) in overtime hours for an average of 371 hours per worker; in 2004, 39,409 overtime hours for an average of 374 hours per worker; in 2005, 33,555 overtime hours for an average of 337 hours per worker; and in 2006, 27,265 overtime hours for an average of 315 hours per worker.


Benefit/government required programs in 2006 added an additional $33.58 for each active hour worked. These costs include: group life insurance, disability benefits, and Supplemental Unemployment Benefits (SUB), Job Security (JOBS), pensions, unemployment compensation, Social Security taxes, and hospital, surgical, prescription drug, dental, and vision care benefits.

MP: Note that the $73.26 per hour was for 2006, and it's probably higher now, so if the $73.26 per hour labor cost was incorrect, it was probably too low, not too high.

Here are some links for additional sources for the $73.26 per hour cost for GM at
Business Week and USA Today, both of which I assume do strict and careful fact-checking.

28 Comments:

At 11/21/2008 4:22 PM, Anonymous Anonymous said...

Do you think using facts will improve your credibility with the trolls?

 
At 11/21/2008 4:25 PM, Blogger Walt G. said...

Actually, we use $75 per hour when we decide whether we will build or buy. Usually the controversy is between compensation (what the active worker actually receives in wages and fringe benefits) and labor costs (a legitimate but estimated amount to figure total labor expenses that includes a host of different items). All cost has to be accounted for somewhere to make intelligent decisions. Just like older people who have aches and pains, older businesses have legacy costs that are just as painful to absorb.

Demographics of an aging U.S. population will drive costs up for Social Security and Medicare just as it is driving up costs for the Formerly Big Three. Do you suppose there will be a bailout for those folks? I’ll bet on it. Don’t laugh too hard about the autoworkers; the last laugh will be on you (and your children and their children). If you don’t believe me, Google “unfunded public retiree liabilities” and see for yourself. Here’s a snippet of what you will find: “The GAO report notes there are various estimates of the present value of public retiree health liabilities, ranging "between $600 billion and $1.6 trillion."

 
At 11/21/2008 4:27 PM, Anonymous GW said...

In 1914 the $5 per day Henry Ford was paying is in today's dollars $108.29. If Ford worked six 10 hour days a week back then, that amounts to about $33785 annually in 2008 dollars or about 50 cents an hour in 1914 dollars.

$73.26 2006 dollars amounts to $78.70 for 2008.

http://www.usinflationcalculator.com/

GW

 
At 11/21/2008 4:36 PM, Anonymous Anonymous said...

GW -

You aren't adjusting for productivity, though.Its hardly reasonable to expect workers to be 10 or 15 times more productive and not reap any benefits from that improvement. Even though capital investment in technology aided in the improvement, the skills necessary to operate modern technology justify greater compensation.

 
At 11/21/2008 4:45 PM, Blogger bobble said...

"Let me quote directly from General Motors Manufacturing and Human Resources website (click on "Other Benefits")"

look, GM management is going to try make the labor cost seem as high as possible, to place the blame on labor rather than their own shortcomings.

here is another view
on that same number:

" study by a University of Michigan professor found that average hourly pay for a Big Three worker in 2007-08 was $73.20, compared with $48 for a Toyota worker.

But Alan Reuther, legislative director for the United Auto Workers, said those costs include retiree benefits that are ending. Union and company officials said the pay differences between U.S. and foreign automakers would virtually be eliminated when the new contract terms took effect in 2010."

 
At 11/21/2008 4:48 PM, Blogger K T Cat said...

MP, I read the criticism on Felix's post and I just don't get it. Who cares where the money is going? It's hardly some feat of legerdemain even if you were just dividing costs by hours worked. Money spent is money spent.

Profit = income - expenses.

The big 3 aren't profitable and that's all an investor (the US Government, for example) needs to know. How they return to profitability is their problem (and their workers' problem), isn't it?

 
At 11/21/2008 4:49 PM, Blogger bobble said...

by the way, talk about management incompetence. why would you chose to arrive in your $26 million dollar private jet to ask for a handout?

i'm not a big fan of unions, but these CEO's are morons.

 
At 11/21/2008 5:02 PM, Anonymous wcw said...

"In 2006 a typical UAW-represented assembler at GM earned $27.81 per hour of straight-time labor. A typical UAW-represented skilled-trades worker at GM earned $32.32 per hour of straight-time labor."

http://www.uaw.org/barg/07fact/fact02.php

 
At 11/21/2008 5:13 PM, Anonymous Fred said...

wcw,

You haven't been paying attention. Your numbers is the direct pay an employee sees on his paycheck. Everyone else has been talking about the total cost of an employee to GM.

 
At 11/21/2008 5:13 PM, Blogger Patrick said...

The $73.26/hr is certainly a scandalous number for hourly mfg labor cost. The bottom line here is whether the reason is labor cost, mismanagement, or undesireable products these companies are not profitable and the consequences of that should be that they go out of business. Our economy is changing. Our focus should be on how to adapt and create things that are needed, not on how to support what is clearly trying to die.

 
At 11/21/2008 5:52 PM, Blogger Dave Narby said...

...So what's the total cost per hour of compensation for the Asian car makers?

Inquiring minds want to know if we've been comparing apples to apples....

 
At 11/21/2008 5:55 PM, Blogger bobble said...

patrick:"The bottom line here is whether the reason is labor cost, mismanagement, or undesireable products these companies are not profitable and the consequences of that should be that they go out of business."

i sort of agree, but i don't think they have to go out of business.

let them do a prepackaged chapter 11 (feds provide debtor in possession financing). the bondholders and associated interest costs are wiped out. as part of the BK, accelerate the 2010 UAW contract to take effect immediately. ensure upper management and board of directors is replaced. voila, you have a competitive company!

 
At 11/21/2008 6:32 PM, Anonymous Anonymous said...

1. Well, comrade Felix Salmon is a resident socialist (Karl Marx would be proud of him) at Portfolio.com. Lenin called him a "useful idiot."
2. If comrade Salmon lived during 1930s, his ideological cohorts -
Adolf Hitler, i.e. a national socialist, and Joseph Stalin, i.e. international socialist - would have both given him a medal or two.

Sometimes I am surprised why such a publication will let a fool and an idiot like comrade Salmon run a blog, but I digress...

3. Don't let the facts get between Felix Salmon and the truth. If the guy had decency he would (a) apologize to you in public, i.e. on his blog, (b) correct the lies and misinformation. But don't hold your breathe!

4. Keep up the great work and don't even worry about the idiots.

P.S. I propose to refer to Felix Salmon as "comrade Salmon." Anyone second my suggestion? :)

 
At 11/21/2008 6:51 PM, Anonymous wcw said...

Fred, I've been paying better attention than most. I have dug through GM's Ks and Qs and have been short GM on more than one occasion over the last couple years. (I have no position now). Even for existing employees (not the new 'tier II' citizens who will make roughly squat) and even with GM's tortured all-in accounting, you don't get above $60until you add OPEB ('other post employment pension') obligations.

OPEB obligations have precisely nothing to do with hourly manufacturing labor costs. Nobody put a gun to GM executives heads and made them defer those obligations, nor made them help kill Clintoncare in 1994. Competent, responsible managers would have funded them when incurred and in 1994 would have welcomed the opportunity to move healthcare liabilities off the company balance sheet. Needless to say, I do not usually go short companies with competent, responsible managers.

Dave, comparing GM's unionized workforce to Toyota's right-to-work one is the apples-oranges comparison. The point of a union, after all, is to represent the interests of its members, just as the point of management is to represent the interests of shareholders. The UAW and GM management are both villains, but one has at least occasionally done its job. The other one is representing the interests of its constituency all the way to $0.

 
At 11/21/2008 6:52 PM, Blogger Walt G. said...

Every company has performance metrics that seem rather odd to outsiders. They are a great way to measure trend performance internally and they can be used externally to measure performance among peers as long as they are measured in the same fashion. Is that the case here? I honestly don't know, but there is no doubt that GM has legacy costs that the transplants do not have. There's no reason for name calling. You are all right for different reasons.

 
At 11/21/2008 7:00 PM, Anonymous wcw said...

..oops: OPEB's last word is 'benefit'. Apologies for any confusion.

Anonymous, Lenin certainly would have called nearly anyone a 'useful idiot', but there's no evidence he did. He did, however, publish a pamphlet titled 'Left Wing Marxism: an Infantile Disorder.' Try to work 'infantile disorder' into your next Lenin-based rant. It'll be historically accurate, if still puzzling to link an establishmentarian capitalist like Salmon to anyone to the left of, say, Eisenhower.

 
At 11/21/2008 8:21 PM, Blogger Craig said...

"the skills necessary to operate modern technology justify greater compensation"

Perhaps so, but if that compensation results in the company's going out of business, then it's all rather pointless, isn't it.

 
At 11/22/2008 9:07 AM, Blogger Rishi said...

GM was involved in contract negotiations with GM. They has an incentive to show high labor costs. It would be better if you could only compare cash compensation with the other auto manufacturers. Some expenses can be chosen to be what ever you want. For example pension expense can be whatever the company decides to put in that year. The government mandated expenses will not be different among manufacturers. Lastly, citing other publications which came up with exact same number as yours only shows that everyone is copying GM website numbers.

 
At 11/23/2008 1:30 AM, Blogger Glen said...

"In 2006 a typical UAW-represented assembler at GM earned $27.81 per hour of straight-time labor."

The phrase "straight-time labor" is weaselly in that context. They could have said how much the typical assembler earns on average *per hour worked*, but that would have included the typical amount of overtime pay, leading to a much larger figure.

 
At 11/23/2008 1:24 PM, Blogger wcw said...

Glen, if you had clicked through or read my second note, you'd have seen that neither the UAW nor I argue for a $28 all-in cost. I did and do assert that there is no way a rational accounting gets you past $60, and $73.26 is a good chunk of change past $60.

Feel free to defend $73.26. If you get to $59, you've lost. If you get to $61, you've won.

Go ahead -- win.

 
At 11/24/2008 2:46 PM, Anonymous Anonymous said...

Whether you look at straight time pay or total compensation these union workers are over paid for what they do. We need to let these companies die and take the unions down with them.

 
At 11/25/2008 12:40 AM, Anonymous Anonymous said...

What's wrong with the BIG 3 buying out the shareholdes and going employee owned??? Those employees would see to it that the other employees were worth their salt or they would be gone. They could also determine who was at the top and what the top got paid and if they did an excellent job there might be I said might be a bonus in it for them.
Why isn't anyone thinking outside the box for other solutions besides us tax payers.

p.s. What was wrong with those idiots driving into Washington in one of those wonderful cars they make? Leave the jet home.

 
At 11/25/2008 8:42 AM, Blogger g.harris said...

My pay is now 28.71 p/hr with 1.08 COLA. These figures are not right. Most GM workers don't get overtime or shift premiums. My cash payment is not less than half my HOURLY labor cost. If it is the finance exec ought to be fired. Those other things you speak of that GM pays for don't add up, PER HOUR, to more than my cash payment. We are the lowest people on the GM pole, so can you imagine what everyone else makes!!! There are no cars or trucks to be sold without us, so isn't that fair compensation. Salaried people don't make vehicles. Even if we took a pay cut, which after the last contract the company is now able to pay half the wage and no pension to new hires, the vehicle prices wouldn't go down. That's not the american business way. The people at the top and the shareholders would just collect more money. I notice, just as you do, though that the average person is ignorant of the inner workings of the auto industry. If want to paint a person, place, or thing to be the fall guy, then buy having a little more knowledge than the people i'm telling the story to and some word play i can make Christ seem like a sinner. After all isn't that what the religious leaders of biblical times did. Made a perfect man appear to be a criminal. Now that's a hefty comparison but it's on the same line. You don't want anyone saying you don't deserve your pay, so why do it to others? Don't we all have a family to feed? If the MEN at the top are pulling in millions in their pay packages why shouldn't the people that make the product to make that possible at least be given some crumbs. Oh! I forgot, misery loves company!! Ha, ha, ha! Your not making it so why should I! Gotta love the good ole american way! Wink! In that case see ya on the way down buddy.

 
At 11/25/2008 1:14 PM, Blogger Arman said...

How they return to profitability is their problem (and their workers' problem), isn't it?
Let's hear it for the cat.

i'm not a big fan of unions, but these CEO's are morons.
yup!

i sort of agree, but i don't think they have to go out of business.
Yes they do, or else put some tariff restrictions on imports. There is just too much competition today for the profits to sustain the huge retiree costs (costs of your 1980 cars). Trying to keep all 3 of the big ones afloat is flogging a dead horse. Let the market sort it out! One must die so that the other two can live!
The real culprit in all this misery is all the free trade that's been touted. Surprised that giving the US consumer greater access to a Toyota has tarnished the Chevy a bit?
Economics begins at home, and globalizing the economy hurts all business everywhere!

 
At 12/02/2008 3:44 PM, Anonymous Kurmudge said...

Hmm, G. Harris. That $60,000 a year *before* benefits is a pretty nice paycheck for the vast majority of US workers in industries where they are not asking for a subsidy.

Are we supposed to be feeling sympathy for you?

 
At 12/11/2008 6:36 PM, Anonymous jeff said...

Labor cost per hour is a bogus number that includes retires pensions and health benefits along with current workers hourly wages and benefits.

Simply something the company will use to make it look like they arent at fault here.

 
At 12/12/2008 11:28 PM, Anonymous Anonymous said...

Yes, the big 3 were mismanaging when they caved into the unions demands and became unprofitable. Go bankrupt and hire me for half what you pay the useless union workers and I will save my money and wait for Social Security when I am ready to retire. Let the union workers try it out here waiting in line for food for awhile.

 
At 2/13/2010 2:50 AM, Anonymous Anonymous said...

The $73.26 includes benefits paid to retirees, which would be owed whether the company employs a given current worker for an additional hour or not. So the current worker is not really getting this much in cash compensation plus benefits, and this is not an economically accurate way to measure labor costs. Stated another way, GM is including some of the cost of past production in its calculation of the cost of current production, which amounts to double counting. An accounting student would be flunked for doing this.

However, the GM worker is still getting more than his counterpart at Toyota's U.S. factories and is producing less.

-Larry Siegel

 

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