Sunday, December 07, 2008

More on the $70 Total Labor Cost Per Hour for GM

FLINT JOURNAL -- The UAW said last week that it would review its contracts with the automakers and was open to making modifications in them to help the automakers secure needed government loans. Analysts and industry insiders have long said that GM needs to cut its hourly cost per worker down to levels on par with foreign automakers to be successful.

Factoring in retiree health care and legacy costs, GM's wage and benefit cost for a UAW worker is about $70 an hour, while Toyota's cost per hourly worker is about $48, said Erich Merkle, lead auto analyst with Crowe Horwath in Grand Rapids. Zuckschwerdt said that number actually already is lower, closer to the low $60s per hour."That gap has to be zero," he said.

MP: According to The Canadian Press:

GM, which negotiated the four-year deal that serves as a template for UAW deals with Chrysler and Ford, says its total hourly labour costs dropped 6% this year from pre-contract levels, 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 contract - a UAW administered trust fund - starts paying retiree health care costs.

8 Comments:

At 12/07/2008 2:54 PM, Blogger Walt G. said...

Personally, I don't like the idea of socialized medicine, but I would be interested in seeing what labor costs would be across-the-board if we had national health care in the U.S. Does anyone have such an analysis? Would that be the low $60-per-hour amount stated in the post?

I'm not sure about total compensation; however, in the years the transplants pay profit sharing, their wages-per-hour often surpass the Detroit Three. I'm not sure that is reflected in the analysis in this post. Analyzing labor costs is a tricky business because of the different methodologies and agendas that are used. These are all estimates and do not use generally accepted accounting principles (GAAP) for analysis. You won’t find these figures quoted in the companies’ 10-K or 10-Q reports to the S.E.C. because the C.E.O.s and C.F.O.s will not sign their names to them for fear of going to jail under the Sarbanes-Oxley Act. Accordingly, the difference in labor costs between companies should be taken as estimates, and rough estimates at that.

 
At 12/07/2008 3:18 PM, Anonymous Anonymous said...

If health care was government run the big 3 would still have inflated worker compensation. I would imagine that the UAW would also react to the big 3 being relieved (or partially relieved) of health care costs by demanding cash compensation increases. It would matter how government run health care was paid for as well (company/individual tax).

Walt, even if these are rough estimates it's pretty clear that the UAW has kneecapped the big 3. The differential in total labor costs is pretty large.

When times are bad the 'transplants' have a built in cost reduction mechanism - no profit sharing. When times are good their pay increases. This isn't the case at the big 3. I would also guess that the 'transplants' have higher labor productivity. Also when times are bad the transplants reduce production and lay off workers. When times are bad at the big 3 they can't cut costs so they continue to build vehicles (at a loss) and depress the prices of their vehicles.

The big 3 are run by the unions whereas the transplants are run on a business plan. Honestly I would like the UAW to get the big 3 via ESOPs so that they would be run like businesses and we wouldn't have to bail them out again.

 
At 12/07/2008 3:27 PM, Blogger wcw said...

If healthcare were socialized, and retirement were socialized, then UAW-represented workers would still make a little more than right-to-work peons.

That is the UAW's job.

If only GM's management were half so competent.

 
At 12/07/2008 4:18 PM, Blogger misterjosh said...

I have no love for the UAW, but I think that including legacy costs in a figure titled "total labor cost per hour" is inaccurate at best, and disingenuous at worst. Labor cost should be just that - the cost incurred by the employer in employing individuals to perform labor. It would appear that these costs STILL make the automakers uncompetitive, but to me it doesn't hide legacy costs.

I find the figure presented in a later post, legacy costs per vehicle, to be more indicative of the true impact of pension and medical for retirees.

 
At 12/07/2008 4:57 PM, Blogger Walt G. said...

Anonymous, The Japanese transplant companies do not lay off their core workers when production stops. They have them perform alternative work or training for full pay and benefits. They just don't call their workers who are not building cars, but still on the payroll, a "jobs bank." Perceptions are not always reality.

 
At 12/07/2008 7:06 PM, Anonymous Dr. T said...

Walt, let's compare labor costs.

High school grad UAW factory worker: $30 per hour, tons of benefits, 7 weeks vacation.

Medical technologist with Bachelor of Science degree: $22 per hour, mediocre benefits, 2-4 weeks vacation, evening or night shift for years, must work half of holidays.

Nurses with Bachelor of Science degrees: $29 per hour, mediocre benefits, same deal as med techs, must work overtime whenever hospital needs coverage.

Respiratory therapists fall between nurses and med techs. Pharmacists do better than nurses. Overall, hospital healthcare workers receive lower pay and benefits than UAW factory workers.

It is unlikely that socialized medicine will lower the pay of hospital workers. Since labor is the main component of healthcare costs, the only way socialized medicine can cut costs is by reducing access (healthcare rationing). If rationing is not imposed, costs won't go down, so the only gain for the auto companies is that healthcare costs will come out of workers' taxes instead of employers' benefits packages. But, because of the higher taxes to pay for NannyStateHealthCare, the workers will demand higher wages. THerefore, NannyStateHealthCare will not save the Big Three (perhaps relabeling them the Dumb Three would be more appropriate).

 
At 12/07/2008 9:50 PM, Anonymous Anonymous said...

I don't think it is unreasonable for the UAW to accept 5% LESS than the Toyota contract given that GM is battling for its survival.

A snowball has a better chance in hell than the proposal above getting through the UAW.

And while we're at it, the UAW at GM, Ford and Chrysler need to adopt the same work rules as Toyota.

If I were a Senator, that's what I'd tell the UAW - you give that to GM, Ford and Chrysler and we'll get them and you a loan guarantee.

I certainly wouldn't be calling for the resignation of the CEO of GM like Sen. Chris Dodd has, although I think Sen. Dodd should resign because of his part in causing the subprime mortgage and subsequent financial failures.

 
At 12/11/2008 2:56 AM, Anonymous mcdruid said...

These numbers have been decisively refuted in several places, if Professor Perry would care to look. Even the car companies themselves have admitted as much.

And I don't know where Dr. T is getting his figures, but nurses here in California make about $50/hour. This is actually above the Union negotiated rate.

 

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