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Author: Subject: $70 an hour auto-workers? Not so much...

Zen Peach





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  posted on 11/21/2008 at 12:14 PM
quote:
Assembly Line
Debunking the myth of the $70-per-hour autoworker.

Jonathan Cohn, The New Republic Published: Friday, November 21, 2008


If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour.

That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with auto workers making so much, why should taxpayers--many of whom make far less--finance a plan to bail them out?

Well, here's one reason: The figure is wildly misleading.

Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.


But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $24 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just "not true."

Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.

The first foreign-owned plants didn't start up here until the 1980s; many of the existing once came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.

To be sure, we've known about these demographics for a while. Management and labor in Detroit should have figured out a solution it long ago. But while the Big Three were late in addressing this problem, they did address it eventually.

Notice how, in this article, I've constantly referred to 2007 figures? There's a good reason. In 2007, the Big Three signed a breakthrough contract with the United Auto Workers (UAW) designed, once and for all, to eliminate the compensation gap between domestic and foreign automakers in the U.S.

The agreement sought to do so, first, by creating a private trust for financing future retiree benefits--effectively removing that burden from the companies' books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.

In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.


One can debate the propriety and wisdom of these steps; two-tiered wage structures, in particular, raise various ethical concerns. But one thing is certain: It was a radical change that promised to make Detroit far more competitive. If carried out as planned, by 2010--the final year of this existing contract--total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory. The only problem is that it will be several years before these gains show up on the bottom line--years the industry probably won't have if it doesn't get financial assistance from the government.

Make no mistake: The argument over a proposed rescue package is complicated, in no small part because over the years both management and labor made some truly awful decisions while postponing the inevitable reckoning with economic reality. And even if the government does provide money, it's a tough call whether restructuring should proceed with or without a formal bankruptcy filing. Either way, yet more downsizing is inevitable.

But the next time you hear somebody say the unions have to make serious salary and benefit concessions, keep in mind that they already have--enough to keep the companies competitive, if only they can survive this crisis.


Jonathan Cohn is a senior editor at The New Republic.




http://www.tnr.com/politics/story.html?id=1026e955-541c-4aa6-bcf2-56dfc3323 682

 

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Maximum Peach



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  posted on 11/21/2008 at 01:10 PM
Excellent. The most extensive, thorough and accurate explaination I've seen. These companies are poised to be much more competitive in the coming years, if they are around that long. The cars and trucks they are building now are among the best they ever have built. And they are extremely competitive on price, many times being cheaper than similar foreign cars.

A new $25billion loan to GM, Ford and Chrysler? We've already been led down the bailout road. Why AIG, but not Ford? Why work to have banks aquire one and other, but not GM and Chrysler? $172 billion stimulus package, but not $25billion for 3 of the most important companies in America? Hell, Congress took 4x as much money as the big 3 are asking for in pork of the infamous $700billion rescue plan.

The domino effect of these auto companies going under will be a huge ripple effect, not isolated as some think who support the financial bailout, but not this one. There are several problems that could arise through a bankruptcy of these companies. It isn't as cut and dry as some think.

I think you either have to keep this whole rescue plan going now or just not done any of it from the start. If the financial rescue plan didn't pass we'd be heading for a depression? The same reasoning could certainly be applied to the the big 3 as well.

70%+ of our GDP is consumption. If you want to further shrink our manufacturing base and rely on foreign manufacturing for everything than you need to oppose this $25b loan. I think the globalist approach we've been on is not in the best interest of our country and I support helping the big 3 auto companies keep as much of their production in the US as possible. In fact I'd like to see more domestic investment from them rather than less. These are US companies, unlike Honda, Toyota, etc, the profits from US companies by and large stay in our country. If you don't like high paid CEOs would you atleast not want them to be living in the US employed by a US company? We are building wealth in foreign countries not only through foreign oil, but also through foreign autos. The more we push the big 3 either away or under the worse off as a country we will be.

[Edited on 11/21/2008 by nebish]

 

Maximum Peach



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  posted on 11/21/2008 at 01:27 PM
I don't get the purpose of this article. It goes a long way around the barn to explain exactly what everyone paying attention to the issue already knew. How the $70/hr is made up is of no importance because the fact remains that if your running those plants, your labor costs still total up to that figure. The article disputes none of that.

The point about the UAW benefit trust is an important one. But where did most of that money come from? As the article points out, that money came from deposits from the big three. Again; a cost to them that their competitors don't have.

Much as many people will howl about this, the problem is the whole mentality of pensions and retirement benefits. The belief that a business or society can forever maintain retiree pensions and benefits as life spans get longer and longer is going to be crushed by oncoming economic realities. Until our society's mindset changes to the individual being primarily responsible for their retirement, we're going to have major fights between different groups over this issue.

Our parents may have been fortunate enough to benefit from an economic anomaly where the US had so much wealth built durng the 50's, 60's, and 70's that funds were there for pensions and other retirement benefits in addition to normal salaries. Those days are gone - and they're not coming back.

 

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True Peach



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  posted on 11/21/2008 at 01:54 PM
That looks like reasonable pay for the grunt blue collar workers. The way they calculated and reported their earnings was very misleading. Sounds to me like certain retirees with overblown pensions and the managment might be the ones needing to make concessions. Either way, they need to reorganize in some way to make themselves competetive which they obviously aren't under the current conditions.

 

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Sublime Peach



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  posted on 11/21/2008 at 02:02 PM
quote:
The way they calculated and reported their earnings was very misleading.


Shocking, ain't it. Some people will just lie and lie and lie to steal a dollar, while at the same time blaming workers. I think they get immense satisfaction with that combination. Our business leaders in action. Wonderful people.

 

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Ultimate Peach



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  posted on 11/21/2008 at 03:39 PM
Squatch,

Thanks for posting this, as it's puts into perspective what a union autoworker really makes. 50-60K a year really isn't all that much money, especially considering that it probably takes 10-15 years for an autoworker to get to that level. For all those who are complaining I wonder what they think a factory worker should be making? And for the amount they give, I wonder if they and their family could live on that salary?

 

Zen Peach



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  posted on 11/21/2008 at 04:52 PM
Squatch, thanks for sharing this. It puts things into more perspective.

And Fuji - I'm lucky to currently have a pension plan at work. It's been tooted as part of my compension plan for the past 25 years and I feel lucky to be with a company that still has this type of benefit. I have been investing heavily in 401K, also, because I can see which way the wind blows. Not sure where you are in your lifecycle but I'm on the cusp of retirement and since this is part of the compensation I've been working for these past 25 years I certainly hope to be able to collect from it since it's part of the total salary package I've been working towards (and have been promised).

 

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World Class Peach



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  posted on 11/21/2008 at 05:15 PM
Not to mention the Senator from Michigan explained that some of that "Bailout" money
for the Auto Industry will be used to "Retool" so the Industry can continue toward becoming "GREEN"
(Improvement in Productivity/Competitiveness/Ecology/Energy)

Banks and Wall Street get "Bailed Out" tenfold that amount
with NO IMPROVEMENT in policy ?

Paulson can piss away more than the Big Three can INVEST ?

 

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Maximum Peach



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  posted on 11/21/2008 at 05:17 PM
quote:
Squatch, thanks for sharing this. It puts things into more perspective.

And Fuji - I'm lucky to currently have a pension plan at work. It's been tooted as part of my compension plan for the past 25 years and I feel lucky to be with a company that still has this type of benefit. I have been investing heavily in 401K, also, because I can see which way the wind blows. Not sure where you are in your lifecycle but I'm on the cusp of retirement and since this is part of the compensation I've been working for these past 25 years I certainly hope to be able to collect from it since it's part of the total salary package I've been working towards (and have been promised).
I hope for your sake that the fund is well managed and fully funded, and I hope you and your coworkers get everything you expect.

Unfortunately, many such programs are set up to rely on future profits and continued contributions by the company. It's those programs that will likely suffer.

Just as Social Security is set up to be paid in large part from current-year tax revenues, these plans that bet on some return from tomorrow's profits are going to disappoint a lot of people. That mindset may have worked ok for us in past decades, but I think it's rapidly coming to an end.

 

____________________
Obamacare: To insure the uninsured, we first make the insured
uninsured and then make them pay more to be insured again,
so the original uninsured can be insured for free.

 
 


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