Saturday, January 24, 2009

More On $71 Per Hour vs. $49 Per Hour

What do employees of the United Auto Workers cost auto makers in salary and benefits?

About $71 an hour, significantly more than the $49 paid by nonunionized counterparts at Japanese, German and other so-called "transplant" factories in the U.S. But most of that gap is in how much GM, Chrysler and Ford shell out for workers who long ago clocked out for retirement.

According to documents submitted by Ford to Congress, the auto maker pays its current workers $29 an hour. Wages and other labor costs are generally the same for GM and Chrysler, according to company officials and labor experts. The equivalent wage on the nonunion side is a bit less at the older foreign-owned auto plants. Toyota pays workers in Kentucky about $26 an hour.

The gap widens because United Auto Workers get more holidays and vacation pay. The Big Three also have to continue paying workers who have been laid off. For that, Detroit's three auto makers pony up an additional $14 an hour, compared with $9 for the transplants. The big difference comes in the cost of health care and pensions for retired workers. Over the decades, the number of retired Big Three workers has risen into the hundreds of thousands. Their health care and pension costs add $16 to the hourly labor costs the Detroit companies pay.

~Wall Street Journal

Update: Chart above added.

17 Comments:

At 1/22/2009 7:45 PM, Blogger @sethstorm said...

Fine.

After that is trimmed, then what?

Ask them to make European style golf carts ala the import brands?

 
At 1/22/2009 8:34 PM, Blogger wcw said...

Why are you still posting this drivel?

People like you make me hope the US auto industry goes away forever.

 
At 1/22/2009 11:06 PM, Blogger @sethstorm said...


Why are you still posting this drivel?

People like you make me hope the US auto industry goes away forever.

Perhaps some of us want a bit more variety than what is offered by the imports.

 
At 1/22/2009 11:31 PM, Blogger misterjosh said...

Lots of facts and figures here, but I've seen little enough analysis. What to do? what to do?

The only viable long term option seems to be declare bankruptcy, screwing the older workers, and reorganize as a profitable entity that will hopefully make the higher performance yet affordable vehicles that @sethstorm and I appreciate.

 
At 1/23/2009 5:40 AM, Blogger 1 said...

West Coast Whiner wails: "Why are you still posting this drivel?
"...

Could it be due to the entertainment value of your non answers?

"People like you make me hope the US auto industry goes away forever"...

Obviously YOU can't figure it out...

Hmmm, have you considered visiting a site more in tune with your inability to come to grips with reality?

Consider the Angry Bear site...

 
At 1/23/2009 5:56 AM, Blogger Jeff Lehner said...

"Perhaps some of us want a bit more variety than what is offered by the imports."

Great. Why should I pay for your variety?

By the way, I drive a Chevy.

 
At 1/23/2009 10:39 AM, Blogger Walt G. said...

Nissan has been down since the Christmas break and not assembled one car in the U.S., yet their entire full-time workforce has still reported to their workplace every day for training etc. Should the Detroit Three copy that business model? It sounds like a disguised jobs bank to me.

Pointing fingers will not solve the auto industry problems; however, it would be interesting to analyze the Detroit Three’s total labor cost for salary on an hourly basis and compare that to the Japanese transplants. If the new initiative of the auto industry is to emulate the Japanese auto industry business model, no stone should remain unturned in that process.

C.E.O.s working for a dollar-per-year is nothing but a publicity stunt. Likewise, double- charging the current organized workforce for their own retirement costs along with past workers’ costs is a bit sensationalistic and a strange way to analyze labor cost. Realistically, if the current workforce is burdened with the past workforce’s retirement cost, shouldn’t the future workforce be charged with the current workforce’s retirement costs? It appears to me that as a UAW current worker, I am paying not only my bill but everyone else’s too. Maybe an accountant on this blog can explain how labor costs are determined using generally accepted accounting principles instead of an analysis designed to sell newspapers or a collective bargaining stratagem.

 
At 1/23/2009 11:15 AM, Anonymous t jefferson said...

You say "The Big Three also have to continue paying workers who have been laid off" I say the foreign transplants don't lay off their employes in a downturn they continue paying also. So where is the difference? The American auto worker adds 8-10% to the cost of a vehicle, how come no one looks at the other 90% for savings? I do know the ratio of managers vs. hourly at G.M. is 1 manager to 3 workers. Focus on the 90%!

 
At 1/23/2009 12:26 PM, Blogger Walt G. said...

The way I figure it, and this is using the same $71/$49 methodology stated in the article, Nissan is paying $98 per hour for labor for the months of January and February. This assumes the following: 1) Nissan does not produce any vehicles in the U.S. for 4 weeks in January (this is their current plan), yet still pays their workers for 4 weeks pay of 40 hours per week (160 hours not worked), and 2) Nissan produces vehicles for 4 weeks in February (160 hours worked). Since Nissan only received 160 hours worth of output from their workers yet paid them for 320 hours, Nissan’s total labor cost was effectively $98 per hour.

Can anyone find fault with my application above using the analysis of amount paid-per-hour for labor divided by the number of hours WORKED commonly stated in the media? In this case, maybe the UAW should bargain for a $28-per-hour raise to equal the transplants!

 
At 1/24/2009 4:05 PM, Blogger misterjosh said...

I wonder is any of this location related? I know it can't account for the majority, but I know that $20/hour in Georgia is not the same as $20 in some place like California.

 
At 1/24/2009 6:58 PM, Anonymous Ralph Short said...

Walt G., years ago when I was a cost accountant, the way we determined our DIRECT labor costs for the product we manufactured was to take the a)rate of pay b)average vacation time and costs c) paid holidays d) health care costs e) sick days if allowed f) shift differential (averaged) g) health insurance costs and h) social security costs for the co. In our case we then assigned these costs to a machine or process.

For the INDIRECT labor (store room, QA (if unionized), and other hourly personnel employed but not directly involved in the manufacture of the product we then allocated their total costs to the various machines, depts, etc. based on what we believed they were most used.

Then came the fixed portion which was also allocated and included us bean counters, technical types, executives, managers, building and equipment depreciation, etc.

Not being from the Auto industry I am sure there are some differences but essentially all of the above have to be included somehow when you make the widget.

Interestingly, we never had to include pensions nor did we have a job bank in our industry. When a person was laid off, payments stopped until that person was rehired. In the case of the pension costs these were either covered or if there was a shortfall that would have been posted on the balance sheet as a potential liability. Since I never got to the corporate level I never saw that portion of it.

Which brings us back to part of the issue in my view which is that if the pension and health benefits of the retirees are coming out of "current operating costs" then the company did not adequately plan for it by setting aside sufficient funds. This may sound harsh but the reality is once a person retires he/she contributes zero and therefore if there is a promise of benefits then they should have been set aside beforehand.

Here is another take on it from my own experience which included working in union and non union environments. Unions will, if allowed by management, create a straight jacket in terms of operational efficiency. I believe the UAW is a classic example of a union that helped to create contracts suited strictly for a monopoly and the managers of the company failed by not recognizing the monopoly was finished. I also believe that in the 80's and 90' when they had the chance to correct it the pressure from the government (instigated by union leaders) to avoid a strike along with "range of the moment" thinking from professional managers contributed to the current situation. It should also be noted that at one time, and maybe presently, the head of the union was on the board of directors for one or more of the big three. That should never have happened and only reflects on how political, instead of entrepreneurial, the business has become.

I still drive a chevy and also own a jeep.

 
At 1/24/2009 9:46 PM, Anonymous t jefferson said...

Ralph Short
Thanks for the info. that is close to what I saw in the auto industry, pension costs for ACTIVE employes were included.

"Retirement benefits were earned and therefore paid for in the past. Earning a retirement with thirty
years of labor is essentially no different than paying off a thirty year mortgage. Retirees have
already paid for their benefits. They own the benefit—like a paid off mortgage—outright. Now that
payment is due, the companies plea poverty and media hacks blame workers for their heartless
greed." "GM/Delphi used to send active employees an annual “Personal Total Compensation Summary”
which would sum up “the value of your benefits including Social Security” on a “per hour
basis.” In 2004 the average “Total Compensation” [wages & benefits] cited was $42 per hour. *
2004 was the last year that Delphi provided the “Personal Total Compensation Summary”."

Quotes from Gregg Shotwell, Live bait and Ammo #121

 
At 1/26/2009 10:39 AM, Anonymous t jefferson said...

Tokyo to help pay car workers’ salaries
By Jonathan Soble in Tokyo

Published: January 25 2009 20:08 | Last updated: January 25 2009 20:08

Thousands of Japanese car workers will soon draw part of their pay from the government under a scheme to prevent redundancies at companies hit by production cuts.

Mazda and Mitsubishi Motors, respectively Japan’s fifth and sixth biggest carmakers, have applied for the employment adjustment grants, according to industry officials, and others may follow soon.

The grants are available to struggling manufacturers of all types but the particularly sharp downturn in the car sector, combined with a recent expansion of the programme, has made carmakers eligible for large levels of support.

Mitsubishi, for example, plans to build passenger cars at its main plant in Okayama prefecture on just seven days next month. On the other 14 weekdays, the plant’s 3,000 full-time workers will stay at home but receive 85 per cent of their wages, half of which will be paid by the government.

Japan’s carmakers have been hit hard by the global slump in demand. Toyota, the world’s biggest carmaker, is eliminating at least 6,000 contract jobs in Japan and is understood to be looking at ways to reduce its full-time workforce overseas, including in the US and Britain. The company ruled out “involuntary” job cuts, suggesting any reductions would be accomplished through attrition and buy-outs.

Toyota said it would not apply for adjustment grants. It plans to cut 18 shifts at its domestic factories over 11 days in February and March.

Nissan, which made use of the grant scheme when its fortunes sagged in the 1990s, may be preparing to do so again. The company said it was still negotiating with its union over how many days workers would be told to stay at home during production shutdowns.

To qualify for aid, a company’s output must have fallen by 5 per cent or more over three months. By law, companies must pay workers at least 60 per cent of their wages on days when shifts are cancelled. Under the grant scheme, the government picks up half the bill for large companies and more for smaller ones.

The government made it easier to apply for grants in December as part of a Y2,000bn ($22bn) economic stimulus package.

The labour ministry said applications had soared since the rules were loosened. Along with carmakers, steelmakers and shipbuilders are among the bigger companies making use of the scheme.

Copyright The Financial Times Limited 2009

 
At 1/26/2009 12:23 PM, Anonymous Anonymous said...

I don't get why the healthcare has to be so high. At my place of employment I pay out of pocket about $40 a month for my wife and myself. My employer pays an additional $600 or a month. Yes, it is not a gold plated healthcare plan that pays for everything. But why is it that the employees can't pay for some of their own healthcare? We have a $1300 deductible before our insurance pays %80 of the bill (excluding doctor visits at a $20 copay). I guess the employees at the Big three don't make enough to pay some of their own healthcare though (29*40*52=$60320).

 
At 1/26/2009 2:21 PM, Blogger Walt G. said...

UAW members pay part of their health care costs. I paid over $2000 last year for doctors, dentists, prescriptions, glasses and hearing aids. In addition, we are told which doctors we may see, and we have to get pre-approval before many procedures. Tests that were covered in the past have been eliminated without notification. As always, the best insurance is to not get sick!

 
At 1/26/2009 2:30 PM, Blogger Walt G. said...

anonymous,

I don't know about gold-plated health care for UAW/GM workers. I'm a UAW worker, and I am already at $385 out-of-pocket expenses for 2009. And the year is only 25-days-old. Hopefully, that will not happen every month this year!

 
At 1/26/2009 2:58 PM, Anonymous t jefferson said...

Anonymous said...
I don't get why the healthcare has to be so high. At my place of employment I pay out of pocket about $40 a month for my wife and myself. My employer pays an additional $600 or a month. Yes, it is not a gold plated healthcare plan that pays for everything. But why is it that the employees can't pay for some of their own healthcare? We have a $1300 deductible before our insurance pays %80 of the bill (excluding doctor visits at a $20 copay). I guess the employees at the Big three don't make enough to pay some of their own healthcare though (29*40*52=$60320).

You should be asking WHY our Congress doesn't pay anything out of pocket for their gold plated health care and what about Executives, how mush do you think they pay?

 

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