Monday, November 24, 2008

More On Total Hourly Labor Costs: GM vs. Toyota

ASSOCIATED PRESS -- The leaders of GM and the UAW told Congress last week that a new union contract will virtually erase the labor cost gap between GM and foreign competitors with U.S. factories. That's not quite true, according to GM's own figures.

GM says its total hourly labor costs dropped 6% this year from $73.26 in 2006 to around $69 per hour. The new cost includes wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said. The total cost will drop to $62 per hour in 2010 when the linchpin of the new contract - a UAW administered trust fund - starts paying retiree health care costs.

But that's still $9 more than the $53 per hour that GM estimated Toyota now pays in the United States, and the gap could be even wider. Toyota spokesman Mike Goss said the company's total labour costs at its older U.S. plants are around $48, with about $30 per hour in wages (see chart above).

The remaining difference largely is due to "legacy" costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said. "While legacy seems to be a dirty word of late, it also means we support hundreds of thousands of people via pensions, health care and good jobs," he said.

There's also the "jobs bank," a feature of the UAW contract that drew fire from senators, in which workers get 95% of their base pay and all of their benefits if they are laid off or their plant is closed. In the past, workers could stay in the jobs bank forever unless they turn down two job offers within 50 miles of their factory. GM's new contract imposes a two-year time limit, and workers are out of the jobs bank if they turn down one job within 50 miles or four jobs anywhere in the country. GM has about 1,000 workers in the jobs bank now because it's been thinned out by early retirement and buyout offers. At its peak, the jobs bank had 7,000 to 8,000 people, Sapienza said.

Bottom Line: Even with the new contract, there will still be about a $14 per hour pay gap in total labor costs between GM ($62) and Toyota ($48), and more than a 29% total labor cost premium for UAW workers compared to their nonunion counterparts at Toyota.


At 11/24/2008 11:22 AM, Anonymous Anonymous said...

As an internal auditor, I’ve found that data varies considerably. Oftentimes, data are collected and analyzed by those who have a biased perceptive. In fact, I’ve even been told by those I am auditing, “Here’s what we want you to find.”

Date need to be reliable, relevant, and when comparing to others (benchmarking) comparable. I’ve questioned the comparability between Toyota’s labor cost and GM in the past when I stated that a 100 year-old-company and newer company cannot be compared. I guess the question to that answers if the data are relevant, too. That leaves reliable. Labor costs are difficult to determine because everyone includes different items in the calculation (we include bathroom cleaning costs along with kotexes in ours). Has any outside person analyzed these reported labor costs, or are they all self-reported? I don’t agree or disagree with the published reports, but I have tried to compare Toyota’s and GM’s annual reports and found them confusing. It seems to me that GM, in the past, has had a reason to inflate their labor cost for bargaining reasons with the union, and Toyota has a reason to minimize theirs to show they are beating the pants off the domestic automakers. Can anyone shed any light on my admittedly conspiratorial theory?

At 11/24/2008 12:40 PM, Anonymous Anonymous said...

I'm confused. Sometimes GM's hourly numbers include legacy costs, and sometimes they don't. If you're trying to say "GM employees make too much money for GM to stay competitive" then that doesn't seem to be supported by this data. If you're saying "GM's costs are too high," then duh, and what can/should be done about it?

At 11/24/2008 12:59 PM, Anonymous Anonymous said...


Labor costs are only one input into the costs of production. Competitiveness is measured using all the inputs along with non-quantifiable factors such as perceptions. You can't deny that GM is not doing very well in the public relations' department nowadays. In this game, perception is reality.

GM and the UAW are not as bad as many people think. If they can adapt to the changing world as it is, and not the way they want it to be, they are a viable company that has a future. But at the same time, if they don’t change, GM and the UAW are not as important to the world economy as they think they are.

At 11/24/2008 1:06 PM, Blogger bobble said...

the costs of paying for retiree pensions and benefits should have been funded when those were put in the contract. the fact that management didn't do that is reason to ask for some bonus amounts back from executives that were thus overpaid in prior years.

management is being deceptive to add the cost of retiree benefits to its current labor cost.

At 11/24/2008 2:00 PM, Anonymous Anonymous said...


Deceptive? Yes. But GM is following generally accepted accounting principles. Pensions are guaranteed (well, somewhat), lifetime health care benefits are not.

For those who think the UAW special-attrition buyouts this year were a bonanza provided by GM, think again. That money was taken from the hourly pension fund for everyone who retired who had over 30 years’ of service. In essence, those retirees were given an advance of active workers’ future pensions. I’m still working, so I paid that bonus money for them to leave, and I have to hope something will be left when I get ready to retire. For those who don’t believe that, it’s clearly spelled out in GM’s 2008 Q-10 they filed with the SEC in November 2008. The buyouts’ cost resulted in a direct $800 million charge to the pension plan, and a $2.4 billion charge for the loss of aggregated future employee service. If you want to read it, it’s on page 23.

At 11/24/2008 7:21 PM, Anonymous Anonymous said...

I wonder if Comrade Salmon Felix, our resident-socialist, a fellow-traveler with Joseph Stalin (international socialist) and Adolf Hitler (national socialist), will continue misleading his readers about the overall compensation in GM vs. Toyota.

But I never hold my breath.

At 12/12/2008 5:32 AM, Anonymous Anonymous said...

Fire them lazy ass auto manufactures. Toyota makes better cars, and pays its employees less!

Am I missing somthing here?

At 12/13/2008 10:10 PM, Anonymous Anonymous said...

I just wasted two hours of study time trying to figure out whether current employees really cost GM ~$70/hr, and haven't found anything definitive. The majority of sources say the number is bunk. Some, however, suggest that GM is required to account for these liabilities when they commit to them. If the calculations are based on these numbers (total wages + current cost of benefits + expected cost of future benefits), they would seem to suggest that the $70/hr claim is accurate. Please help, as the suspense is killing me, and I can't afford to waste any more study time.

At 1/03/2009 9:36 PM, Anonymous t jefferson said...

You are a total dumb ass if you think that some graph is going to

convince me "AN Auto worker" is making $70.00 an hour. All I have to do is LOOK AT MY PAY CHECK. Also when I look at

my year ending benefits summary I see a total of $42 an hour that includes benefits, vacation hoilday health care.

How much money do you make? I have seen Professors in action before. You work about six hours a week and prey on

college students by making them buy your books that YOU change every year so we can't get used. Your a turd and a

parasite to the working middle class people and a traitor to this country.

At 5/22/2009 11:03 AM, Anonymous Anonymous said...

How come they only show "hourly" wages??? Why don't they compare salaried employees as well?? I'm sure GM's salaried people are paid astronomically higher than Toyota!! FACT: UAW only cost GM 10%of total costs. Compare that to any other business hourly employee costs? try 50-70%


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