by Frank James
One of the stumbling blocks that reportedly caused the Senate to fail to pass the auto-bailout legislation was Senate Republican demands that the United Auto Workers at the Detroit Three auto plants get their wages to parity with workers at Toyota and Honda.
But just what is the divergence between the wages paid by the Detroit Three and those paid by the foreign transplants?
It's been said often that workers at the Detroit Three make more than $70 hourly while those at the foreign transplants are somewhat north of $40 an hour.
But as the New York Times' David Leonhardt recently pointed out, this is isn't true.
Let's start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.
The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn't made up. But it is the combination of three very different categories.
The first category is simply cash payments, which is what many people imagine when they hear the word "compensation." It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That's why $73 is sometimes $70 or $77.)
The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don't show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.
Add the two together, and you get the true hourly compensation of Detroit's unionized work force: roughly $55 an hour. It's a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda's or Toyota's (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.
So we get $55 for a union work force versus $45 for a non-unionized labor force, a not surprising difference given that unionized workers have collective bargaining power their non-union counterparts don't.
But as Leonhardt goes on to say, the Detroit Three have significant costs tied to their large army of retired workers.
The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix -- dividing those costs by the total hours of the current work force, to get a figure of $15 or so -- and end up at roughly $70 an hour.
The crucial point, though, is this $15 isn't mainly a reflection of how generous the retiree benefits are. It's a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You'd never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the "$73/hour" pay of Detroit's workers with the "up to $48/hour" pay of workers at the Japanese companies.
These retirees make up arguably Detroit's best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies -- as opposed to all of society -- must shoulder much of the burden of paying for retirement.
Here comes the critical point. What does this all mean for the price of a car? Leonhardt answers:
So here's a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That's roughly the gap between the Big Three's retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour -- the same as at Honda and Toyota.
Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.
That's because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.
That last paragraph contains important information worth repeating, that the U.S. legacy car companies sell their cars for about $2,500 less than the equivalent vehicle with a Japanese nameplate. Even so, they continue to lose market share. Small wonder they're in so much trouble.
So while getting to pay parity sounds good in theory, it clearly isn't the entire answer.
Actually, it's rather interesting that Toyota and Honda aren't screaming bloody murder about the U.S. government's attempts to force the Detroit Three's to reduce their costs to levels more comparable to the transplants since that would take away the transplants' comparative advantage.
Could it be that it's so important to the Japanese and German car makers with factories in the U.S. that the Detroit Three remain viable, since they all get their parts from many of the same suppliers, that the Japanese companies are willing to risk more competition in the future than have to contend with Detroit Three bankruptcies today?
Comments
If this is ture which I don't believe- Why are Americans swictching to foreign autos so rapidly????
Posted by: Inky | December 12, 2008 11:00 AM
When I worked in the steel industry, long ago, we used to hear about the $50 per hour steelworker. Nobody ever met the guy.
Basically the B3 are being punished for being successful enough to survive for a century.
Posted by: C.Morris | December 12, 2008 11:24 AM
While the Big 3 does have its own issues, the main problem the Big 3 have is that the US does not have universal health care - as do all of the other countries which make cars which compete with the US automakers in the US. Instead, as noted in the article, the Big 3 have to pay for health benefits for its employees - whereas its competitors' health benefits are paid for by their respective governments. That's the primary reason for the "labor cost differential".
Posted by: Buster | December 12, 2008 11:45 AM
Inky, Americans started switching to Japanese cars in the 1970s and 80s. Where have you been?
Posted by: mort | December 12, 2008 12:11 PM
Somebody needs to tell this to the GOP goons who killed the bailout last night. Not that it would mean much...
The Big Three got in the position they're currently in not solely because of unions. A whole collection of bad executive decisions, bad design, desire for quick profit and - no kidding - the worst economic collapse since the Depression caused the current auto industry crisis.
http://www.political-buzz.com/
Posted by: matt | December 12, 2008 12:19 PM
Labor costs are not the reason domestic auto makers are failing. It may cost more for Detroit to manufacture cars but the added cost, when passed on to the consumer, isn't enough to stop someone from buying the car they really want.
My last big purchase was a $ 35,000 Ford pickup. It's what I wanted and needed at the time. I financed it for 72 months. I didn't quibbled over a couple of thousand in additional manufacturing costs; that's the vehicle I wanted.
Give consumers the cars they want and they'll gladly buy them. If advertising in this country can sell the ridiculous concept of clean coal, they can certainly promote the real benefits of worker health care and retirement plans.
As long as the UAW exists and workers in transplant factories make even 10 cents less than union workers, executives at Toyota, Honda and the other transplants will put pressure on law makers to eliminate that bit of competition. Workers in these plants look at union wages and wonder why they aren't making comparable wages; especially since they are supposedly producing a superior product.
Labor leaders, like auto executives, have shot themselves in the foot many times. I've had my run in's with unions in the past but in this instance, I think the UAW is on the right side.
Posted by: Stan Evans | December 12, 2008 12:20 PM
I've read elsewhere as well that the average auto worker makes far less than the figures that have been thrown out there. However, do NOT think that any fact will EVER be allowed to get in the way of the message that these people want to get out there. Once they decide they want to believe something, there's no amount of proof that's going to sway them.
Posted by: Op109 | December 12, 2008 12:25 PM
Inky, Americans started switching to Japanese cars in the 1970s and 80s. Where have you been?
Posted by: mort | December 12, 2008 12:11 PM
Good Coment but you don't get the point- The American Auto industry has ben slipping ever since- Correct?
Posted by: Inky | December 12, 2008 12:26 PM
When a blue collar worker wants decent pay it's called greed. When the CEO wants to make 300 times what the blue collar worker makes, it's called the American way.
Posted by: Union | December 12, 2008 12:49 PM
Yes Frank, thank you for doing a real story instead of all the made up ones, and the rehashes of blags and birth certs.
I believe I brought this point up about the false $70/HR worker weeks ago (with references and everything) but I see it must have been one of the 30 blocked posts you guys did to me lately.
Inky, no one gets your points. You post more questions that points. Your English is so bad, that usually your points are inteligable.
The numbers James cites in the article are spot on....do your homework rather than spouting all the time.
The reason the big 3 are in this position is because of the management that supressed good engineers & good materials for profit and greed. They also chose to ignore and suppress the fuel efficient vehicles. They had 30 years to perfect fuel efficiency since our last oil crisis, and they chose not to. VW addressed it and they are one of the fastest growing manufacturers out ther with cars that get 55 MPG.
Posted by: Xcellentform | December 12, 2008 1:33 PM
One thing no one seems to mention is all the money spent to bring the foreign car companies here. Millions in free land, tax breaks, worker training etc. So if the American three should be left to market forces we should quit giving out tax dollars to the foreign ones.
Posted by: Jason | December 12, 2008 1:47 PM
Well said Jason. The last numbers I heard were $250,000 tax break per employee. Hard not to be competitive when the American Govt. is paying foreign companies to come here and put American companies out of business. They'll break all the unions in the name of greed.
If the congress really wants to follow the Japanese business model, maybe they should hold their own pay and benefits to 10 times the lowest payed legislature around the world.
Posted by: Adrian | December 12, 2008 2:09 PM
Amazing how these congressional Republicans are making even Bush look reasonable and responsible. If it the stakes weren't so high for so many working families, I'd say let them turn themselves into a regional party (the south) for the next 50 years.
They kill the auto industry and there are likely to be a few of their saner members joining the Democrats. Voinovitch, some of the other midwestern senators, and the ladies of Maine have got to be seriously thinking about it.
Posted by: Kylie | December 12, 2008 2:21 PM
If this is ture which I don't believe- Why are Americans swictching to foreign autos so rapidly????
Posted by: Inky | December 12, 2008 11:00 AM
Interesting....then why did Toyota and Honda stocks collapse today?
The market seems to think the company's fortunes are inextricably intertwined...
Who knows who is right, but I suspect that those Toyota and Honda costs will go up if local suppliers go out of business...and parts need to be imported...
In other words, the thought the this would be a windfall for foreign automakers could be sadly mistaken...
Posted by: Blinky | December 12, 2008 2:32 PM
The NYT reporter is unlcear that if included in that $15/hr includes health insurance and pensions. Retiree health insurance is a real cost to the corporation now, just like pension, even though it will not be paid out until the future. These costs ahve to be accrued and hopefully funded.
.
The $70/hr just might be true, the reporter needs to be clearer. What needs to be know is how much per hour for the current worker needs to accrued for their future retiree benefits. These benefits do have a cost and it is not zero as the reporter implies.
.
If you think the UAW pension and retiree costs are a mess, this is just a microcosm of what this country faces with Social Secuity and Medicare.
Posted by: Terry | December 12, 2008 3:18 PM
It's curious what guys like Mitch McConnell decide they want to fight for.
$700 billion for bankers? Not a problem! Here's your blank check.
$14 billion emergency loans to stave off the imminent bankruptcy of at least two American automakers? Heck no! (Unless you're willing to slash wages and destroy the "evil" UAW.)
So now, barring some last minute miracle, Senate Republicans have decided to block Congress from saving the auto industry.
Keep in mind that it's not like Senate Republicans represent a majority of the Senate, or anything like that.
Heck, they even managed to defeat the emergency loan package with just 35 votes. Yeah, that's right...the vote failed 52-35...but in the world of the Senate, the guys who won the vote had the 35.
That's just totally upside-down, but then again, just about everything about Senate Republicans is upside-down.
It's a story that they started to tell on Thursday night, and it's a story they will keep on telling over and over and over again until every American citizen is aware of this fact: Senate Republicans are the single biggest obstacle to getting this economy back on track.
Only heaven knows why these guys are so bent on their ideological extremism, on their obstruction and destruction, but this much is clear: the only thing they have on their Christmas list this year is job loss and despair.
And that's just what they are giving the country right now.
Posted by: Lorenzan J | December 12, 2008 3:30 PM
There is no problem with the report. It is clear that the healthcare costs of retirees is the problem. The Detroit workers will be paid less than their southern counterparts in 2011.
What the Republicans did today was to tell the country that knew how to run a car company better than the CEO. In the case of GM there may be a question but not with Ford I am sure. It is Republicans who feel that government should not regulate and that is exactly what they wanted to do. Fortunately Bush covered their bottoms. I have been impressed how out of touch Republicans are. Now they are not even following the ideology they preach. Bush did that and the mess we have now in Iraq is the result. The poor performance of the economy prior to this crisis resulted from not following sound conservative principles.
The same people who do not believe that the UAW is no longer the problem also believe that the health insurance companies are more efficient than Medicare. Nothing could be further from the truth.
Posted by: Ron M | December 12, 2008 3:50 PM
The only justification for using taxpayer money to cover GM's losses that I have heard is that people won't buy GM cars if they file bankruptcy. That is nonsense. Bankruptcy protection will make GM a far more viable company and, if this is considered at all, make their products more attractive.
Posted by: Taxpayers should pay for GM retiree health coverage and pay for no work. | December 12, 2008 3:54 PM
The White House and Treasury Department are now indicating that they may relent and use the TARP funds to help out the auto industry. But if that falls through, and GM and/or Chrysler go down, they'll take with them many parts suppliers used by Toyota, Nissan, Honda and others. Toyota understands the stakes. But the Senate Republicans are either too stupid to understand that, too driven by ideology to care...or C—all of the above.
Posted by: Teresa | December 12, 2008 5:46 PM
I believe the math in your article has to be flawed. In order to save $20 per labor hour and reduce total labor costs $800 per vehicle, then you are using 40 hours of labor to build a car. 40 hours at $73/ hour is $2920 per vehicle. If labor represent 10% of the vehicle cost, then each vehicle costs $29200 to build. Based on that cost model and with many models selling well below $25000 per vehicle, this sounds like a terrible business to be in. Either that or your facts are wrong.
Posted by: Bob | December 12, 2008 6:53 PM
I cant believe that so many people think it someone who uses a torque wrench to bolt on tires is worth $80,000 per year ($40/hr). Then I saw a segment on the news showing a worker placing one of those space saver spares into trunks...using a motorized hydraulic lift! They are too lazy to even pick up the tire and place it into the trunk by themselves. Sorry, no pity here.
Posted by: firethemall | December 12, 2008 8:49 PM
Bob, because I love numbers too, here are some more fun things: First off, using your final number of $29,200 for a vehicle sounds like a pretty good average for all vehicles sold, so that pretty much should end things there. But, just to have fun, I re-ran all of the swamp number using favorable rounding, as all numbers are assumed rounded, as there are no fractions used. Using ((750/(10.49+10.49)*72.5)*10)=$25,917.54051, which of course is an even more favorable number for an average/ median amount of vehicles sold.
When I take your number of $2,920 and find out the percentage of labor on a $20,000 car, then I come up with 14.6%. Using my numbers in the same scenario I get 12.9%. Either way, Frank’s statement that a $2,500 discount on a vehicle that has $2,920 in labor on is still incredibly valid, and yet appalling all at the same time. Also ridiculous is how much the salesman gets for the sale. I am guessing that is a big part that is killing the big three as well….the number of dealerships involved. If a big 3 salesman sells 3 vehicles per month at $1,000 each (guessing…any hard figures anyone?) and a Toyota salesman sells 6 vehicles per month, then the Toyota salesman has much more room to deal with, and I am sure that is figured in their pricing structure…..the number of vehicles sold per dealership. All of this does not even figure in the discounts in financing, which is amazing that a company can loan out $25k over 5 years with no interest made. THAT is a loosing business proposition, and I am sure it was not the union guys on the floor that came up with that brilliant idea.
Thanks again swamp for blocking 2 more posts today. I guess no one can make comments about the swamp turning into an obituary page. Yes, that is a comment with a double meaning for the bubble gum chewers out there.
Posted by: Xcellentform | December 12, 2008 10:35 PM
Then I saw a segment on the news showing a worker placing one of those space saver spares into trunks...using a motorized hydraulic lift! They are too lazy to even pick up the tire and place it into the trunk by themselves. Sorry, no pity here.
Posted by: firethemall | December 12, 2008 8:49 PM
What a crock, you watched a commericial clip and this is what you come up with?
That's kind of funny considering that you weren't asking any questions when your stumble-bum Republican heroes were falling all over themselves to pass out money to the white collar wall street criminals who don't even have to bother to drive themselves to work everyday.
Teresa, you can use whatever stupid saying that you want as your "post name" (and you do this because you know your posts are crap) but we always know it's you because you're always blindly following your GOPer overlords off the cliff.
Posted by: Alaskans for impeaching Palin | December 12, 2008 11:43 PM
Ever wonder what a UAW contract looks like? It is over 2200 pages and weighs 22 pounds. It no wonder the big three can not compete in the global market. Honda and Toyota don't have to deal with that kind of crap. It would take a team of lawyers just to understand this document. 2215 pages of inefficiency brought to you by the UAW
Posted by: The Intellectual Redneck | December 13, 2008 8:08 AM
Firethemall, I am glad you do not work around numbers for a living! No one uses total amount paid per hour per employee for anything except employers. I was suprised that Frank did not say the widely known fact that the employers hourly rate on their check is closer to $26 per hour....that's what's used for tax purposes.....benefits do not get taxed. So, the tire installer you quip about is getting about $52,000 per year, not your error-filled $80,000 number. We really do need to invest in better education for our kids!
Posted by: Xcellentform | December 13, 2008 9:11 AM
firethemall has no clue about mass production methods.
'They' are lazy? You think the line worker decided to design and build the production line?
And picking up a space saver 200 times in 8 hours for years would destroy your body.
Oh but that's right! Labor should be expendable. Once the back is gone he should be tossed out with nothing.
Posted by: C.Morris | December 13, 2008 11:09 AM
firethemall has no clue about mass production methods.
'They' are lazy? You think the line worker decided to design and build the production line?
And picking up a space saver 200 times in 8 hours for years would destroy your body.
Oh but that's right! Labor should be expendable. Once the back is gone he should be tossed out with nothing.
Posted by: C.Morris | December 13, 2008 11:11 AM
I've read on more than one occasion information explaining that the seemingly much higher cost per worker is is a distortion of reality, that the costs are really much more in line with overseas auto workers. Yet, FOX commentators--even a so-called newscaster I heard-- reported the numbers to suggest the disparity as real, with no explanation of the facts that siginificantly narrow the gap.
My bet is that Sean Hannity et.al would divluge this information if only they received it. Nah, that would qualify as "We report, you decide." What do you think?
Posted by: Richard Palzer | December 13, 2008 6:15 PM
The Intellectual Redneck sounds like just another 'Country Club' Intellectual Redneck.
Hey Redneck! What car will you be rooting for down at the NASCAR race?
The Smart or the Prius??
BTW, a 2200 page contract is not necessarily inefficient. And what do have against contracts? The modern world is built on contracts.
Posted by: C.Morris | December 13, 2008 6:35 PM
They need a 2200 page contract because history has proven you can't trust a greedy capitalist. Just check your 401k losses for proof. We need a contract there if you ask me.
Posted by: OldCreaky | December 13, 2008 6:51 PM
firethemall seems to love to denigrate the work ethic and intelligence of the auto workers, yet would probably argue against any hint of a class system in the USA.
Posted by: The LeninSisters | December 13, 2008 7:19 PM
It doesn't matter who says the UAW workers are getting $70+ an hour, the real figure is how much labor costs there are PER CAR. GM = $1,600. Toyota = $400. That is the reason the American auto industry is insolvent. It is the UAW and management's irresponsibility and poor execution, respectively.
Posted by: sirbOOm | December 14, 2008 2:28 PM
I am confused by Xcellentform's comments--did you read the story? The $40/hour ($83,200) is the taxable income from wages, vacation pay, and overtime. Benefits are part of the block that increases the $40/hour to $70 or $77/hour. I have two college degrees, work 50-60 hours a week, and make the same pay, with poorer retirement benefits. Somehow it seems unfair.
Posted by: cantretirenow | December 15, 2008 11:48 AM
Did you read the story? the 70-77 figure includes benefits to retirees. Just because you have two college degrees that means someone is not entitled to the same amount of money as you? Maybe you should have gotten better degrees.
Posted by: Glen | December 19, 2008 11:39 AM
Trying to understand why Big3 are paying so much for pension and health care costs for those already retired.
Shouldn't these be fully funded during the employees career?
I know my defined benefit pension is.
Is this common in the US (I am Canadian)
Posted by: Rosie | February 19, 2009 7:28 PM