Saturday, December 13, 2008

$10 Per Hr. Pay Gap = Billions of Extra Dollars

According to today's Detroit News, "Including benefits and other compensation, UAW workers cost $55 an hour on average [MP: Not counting legacy costs], compared with an hourly cost of around $45 at the transplants."

1. As far as I can tell, GM currently employs about 70,000 hourly workers (after buyouts) and Ford about 50,000. Assuming a 40-hour week and 50-week year, the $10 per hour pay gap would put GM at an annual cost disadvantage of $1.4 billion, and Ford's annual cost disadvantage would be $1 billion.

2. According to the 2008 Harbour Report (see CD post), the Big/Little 3 produce vehicles at a $606 labor cost disadvantage per vehicle vs. the foreign transplants. Assuming GM will produce 3 million vehicles this year, the $606 labor cost disadvantage per vehicle would cost it an additional $1.8 billion vs. its foreign competitors. For Ford's estimated 2 million vehicles produced in 2008, it will cost them $1.2 billion more than if Toyota or Honda produced those vehicles.

Comment: Both estimates suggest that the current pay gap between UAW workers and non-union workers at the foreign transplants impose additional labor costs on GM and Ford in the billions of dollars per year. And that's without legacy costs.

16 Comments:

At 12/13/2008 12:54 PM, Blogger wcw said...

Thank you for -- finally -- backing away from $75. Backing that number was stupid, and you're not stupid. Here you demonstrate that, if a little tardily.

Though it does confuse me that you don't get a central truth: if union workers don't cost more, unions aren't doing their jobs. If only Detroit management did its job half so well, we wouldn't be faced with bailing out an entire industry.

I know you like to focus on the union, but management ever and always hires and fires. If Detroit is in trouble, look to the executive suites (and in the mirror, if you've been a consultant). Don't blame the only group that seems to be performing here: the UAW.

 
At 12/13/2008 12:59 PM, Anonymous Patrick R. Sullivan said...

According to Heritages James Sherk (he uses SEC filings)

http://www.heritage.org/Research/Economy/wm2162.cfm

both UAW and non-union auto plants pay about $40/hour in cash.

However GM pays an extra $33.50/hr in benefits. That, and UAW work rules that require the Big 3 to put more labor into each car than their competitors, is the problem.

Also, GM has about 300,000 retirees collecting almost $5 billion per year

 
At 12/13/2008 1:05 PM, Anonymous Patrick R. Sullivan said...

...if union workers don't cost more, unions aren't doing their jobs.

The union's job is to make the company less competitive?

Btw, the $70 per hour is correct (see Sherk's work at the link in my earlier comment.

 
At 12/13/2008 1:25 PM, Anonymous Patrick R. Sullivan said...

According to NPR

http://www.npr.org/news/specials/gmvstoyota/

in 2005 it was even worse. $1,525 in health care costs per vehicle with 34 hours of labor in it, I make to be almost $45/hr.

 
At 12/13/2008 1:48 PM, Blogger Walt G. said...

The union's job is to serve and protect the membership. Killing the company does not do that. The UAW 2007 agreement is a hell of a breakthrough in union/company relations. Even people who do not necessarily like unions agree parity with the transplants is possible by 2011. I can adjust to a $10-an-hour pay cut, I’m frugal and I work 3 jobs, but can the people who I do business with do the same? I won’t be spending that money in you store or restaurant, and I will not be voting any tax increases to educate your children.

As far as the retiree cost, they built the company and this country. It's obviously a difficult cost to swallow and hinders competition direct competition with the transplants. Just like Social Security, Medicare, and the national debt, I don’t have a magic answer to that demographic problem.

 
At 12/13/2008 2:14 PM, Blogger Audacity17 said...

I had an idea years ago that I thought would solve this. Maybe it wont but here goes. The Big 3 should go directly to union members with an offer to increase their wages by about $10 an hour in exchange for giving up all benefits. Find you own health/dental insurance etc. A lot of newer employees would jump at this in my opinion.

 
At 12/13/2008 2:25 PM, Blogger Ironman said...

Walt G wrote:

"The union's job is to serve and protect the membership."

It's supposed to be in theory, but in practice, you'll more often find that unions act more like their job is to serve and protect their own leadership.

To their credit, sometimes, those interests overlap with those of the members. More often than not though, the leaders of modern unions view their members more as a revenue stream - at least, that's the logical conclusion one might arrive at by observing what they actually do.

Other than than quibble, I do agree with Walt's main point that the 2007 agreement is remarkable. The main problem is that it doesn't go far enough fast enough in the light of what's happened this year.

 
At 12/13/2008 2:43 PM, Anonymous Anonymous said...

Seems that if UAW labor rates are reduced to those of the transplants, the UAW workers will, in effect, be taking home less because of their union dues and state and local taxes that, I presume, are higher in Michigan than the states that host the transplants. Walt G, do you know what the average union dues are for a UAW member?
Thank you,
JCarr

 
At 12/13/2008 3:34 PM, Blogger Walt G. said...

UAW union dues are equal to two hours' base pay per month. So, production pays about $56 per month and skilled trades pays about $66 per month.

The property tax on my house is about 30% more than it would be in the South. I expect that to be cut proportionally. If my pay is like theirs, I want my bills to be like theirs.

 
At 12/13/2008 4:54 PM, Blogger Bloggin' Brewskie said...

Benefits for transplants are lower when compared to their Big 3 counterparts (sorry, I can't find the article stating this, but I will post it ASAP when it's found). Also, foreign car manufacturers have lately been on a mission of opening plants where wages paid are lower. According to an article found on autonews.com (http://www.autonews.com/article/20081212/ANA02/812129993/1197), Hyundai, Nissan, Kia, Toyota (Hyundai's sister company) and Honda have been opening auto plants where salaries are lower: starting wages for Toyota's San Antonio Tundra pickup plant were $15.50 in 2006, and are set to increase to $21 in 2009; starting wages for a Kia Motors plant in Georgia will be $14.90; and Honda's Greensburg, In, plant will start workers at $14.84. Factor in both the benefits and wage disparity, and there is little doubt there is this indicated pay gap.

The Detroit Big 3 have been a bad business model for the past three decades. Some speculate “if they only listened to Edwards Deming,” they would be lords of their industry today, manufacturing a stellar product without the threat of bankruptcy.

Still, one has to question the rationale of paying lower and lower wages. The automotive industry has a long history of paying intellectual morons good salaries - in this country and in Europe and Japan. This goes back to Henry Ford increasing factory pay to $5 a day; he was famous for saying, "If you don't pay your workers a good enough wage, they can't buy your product." One should consider the past twenty-five years - of which average working family wages have gone down, and household debt has gone up - factor in ever-increasing health care and college costs, and question the validity of not only driving wages down, but concentrating excessive wealth to a relative few.

I am certainly no socialist, I have no problem with people being billionaires; but how does society, as a whole, gain when the determining factor of increasing a rich man's wealth depends on the sacrifice of so many? The Wal-Mart workers, the Burger King greaseballs, the Boys & Girls Club devotees want to know: “When is the ‘trickle-down’ effect going to reward us? It’s been nearly three decades.” People can be wealthy in this country and still pay good wages to their workers. The Kohler family of Sheboygan, WI (yes, I’m from Wisconsin, laugh all you want), owner of Kohler, is worth billions - plus lives like it - that gives their factory workers good wages and handsome benefits.

The late Molly Ivins once wrote: "I've never been a socialist... I'm a supporter of regulated capitalism. I think the history of our country proves we need this - from the era of the Robber Barons to Enron."

Sorry for the interruption...

 
At 12/13/2008 5:08 PM, Blogger Walt G. said...

From today’s Detroit News:

Executives at the Japanese manufacturers have been surprised to hear lawmakers assert that their workers earn far less than workers employed by Detroit's automakers. One executive who spoke on condition of anonymity confirmed UAW President Ron Gettelfinger's remarks Friday that team members, or line workers, at Toyota's largest North American assembly plant in Georgetown, Ky., earned more than the average UAW worker.

According to Gettelfinger, a UAW worker earns wages of just over $28 an hour, on average, compared with $30.45 an hour for Georgetown's non-union workers. That includes profit-sharing bonuses that are likely to decline for the current year.

Wages at Nissan Motor Co. and Honda sites average between $25 and $29 an hour and tend to rise faster than pay at UAW plants.
Including benefits and other compensation, the gap widens, with UAW workers costing $55 an hour on average, compared with an hourly cost of around $45 at the transplants. But concessions made in the last UAW contract in 2007, including lower starting wages for new hires, are expected to close that gap by 2012.

In recent months, foreign automakers and parts suppliers have tried to work out contingency plans in the event of a collapse of one of Detroit's Big Three. But executives say they would not be able to shield themselves from the impact of an automaker's collapse because the number of distressed suppliers in North America already is in the hundreds.

 
At 12/13/2008 6:03 PM, Anonymous Anonymous said...

You should also include the labor costs in the parts.....

 
At 12/13/2008 6:22 PM, Blogger 1 said...

Hmmm, the AutoChannel has the following Reuters article dated 12-12: UAW Wage Vs. Non-Union Labor At Transplants a Surprising Look

WAGES: Base hourly wages and cost of living adjustments:

UAW: $29
Transplants: $26

there's more

Does this sound right?

This is what the UAW site has: Wages and labor costs

If you all think about it for a minute there's really NO reason the UAW should bow to the realities of today's world...

The rest of us don't...

 
At 12/13/2008 11:58 PM, Blogger Kazimer said...

The UAW with participation of the men and women membership negotiated landmark contracts with the Detroit based auto/truck manufacturers.

Any differential in pay gap simply translated to the UAW auto worker's value in the building of recognized world class autos/trucks which have bested their foreign competitors.

 
At 12/14/2008 4:14 AM, Blogger PeakTrader said...

U.S. autos may have been a public good. Smart consumers buy U.S. autos, instead of Japanese autos, because there are generally no quality differences. The perception of lower quality results in lower prices. The benefits and costs to society should be weighed.

Also, it's appropriate to bail-out U.S. automakers, because you don't want to worsen the recession during a rare systemic problem in the financial industry, which was worsened by U.S. policy, i.e. allowing Lehman to fail, which froze the credit market.

 
At 12/24/2008 11:14 AM, Anonymous Anonymous said...

Wages at Nissan Motor Co. and Honda sites average between $25 and $29 an hour and tend to rise faster than pay at UAW plants.

Including benefits and other compensation, the gap widens, with UAW workers costing $55 an hour on average, compared with an hourly cost of around $45 at the transplants. But concessions made in the last UAW contract in 2007, including lower starting wages for new hires, are expected to close that gap by 2012.


ENOUGH SAID.

 

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