The Myth of $70 Auto Workers
While everyone is debating the Big 3 Bailout, you’ve undoubtedly heard something along the lines that current Big 3 autoworkers are making about $70.00/ hour fully burdened and the automakers in the south are making considerably less. It turns out that $70 figure is wrong:
The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM’s total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.
Jonathan Cohn at TNR does the work to try to pin down the real numbers. What is clear here, is that current unionized autoworkers aren’t making anywhere near the burdened rate of $70 per hour — and the only way to get to that number is to make current employees carry the costs of the retirees. Which, if you are a competent businessperson with some basic knowledge of accounting, you already know is Just Not Done. The costs for the current retiree pool would have been booked when they were incurred — when those retirees were actually building cars — and they would have been built into the cost of the cars these retirees were building back in the day.
No doubt that the Big 3 have significant retiree overhead to deal with — but then, the newer plants don’t have that because they are newer. Their retiree pool is just that much smaller as a result. The Big 3’s problem is that they made a bunch of commitments that they certainly built into the cost of their products, but they didn’t bank for future payouts. And, to be fair, no one could anticipate in the 60’s and 70’s the massive increases in health care costs. But no matter how you cut it, the $70.00 per hour meme is just plain false.
Tags: Bailouts, Bush's Fubar Economy, Unions
“But no matter how you cut it, the $70.00 per hour meme is just plain false.”
It’s not false. It’s only false if it is described as an hourly wage. It is not false if it is defined as the total labor cost. GM has to pay that cost, and that gap makes GM uncompetitive.
You can talk about time and age and other factors, but GM has to pay $2,000 per vehicle that Toyota doesn’t, plain and simple.
Add that to poor management, a fleet of cars that people don’t want, and the PR problems they’ve created for themselves, and you’ve got one big mess.
You know what cracks me up? When right-wingers call liberals Communists and socialists for questioning executive pay, I can only laugh. Liberals have bitched and moaned about high-paid execs for years, realizing though they’re not the only piece of a fucked up puzzle, they’re a pretty big piece. And all the Rush Limbaughs and Ann Coulters and Michelle Malkins of the world have said is “Get over it. They’re delivering. They deserve the pay.”
Now, the right-wing has the NERVE to call into question the earnings of the blue collar workers whose pay and benefits PALE in comparison to the CEOs and the right-wing says nothing or, in Dave’s case, continues to propagate the shit. I heard this on WGMD yesterday driving down to DTR. One of their right-wing lunatic hosts was bitching and moaning about the overpaid workers. But what did he have to say about executives? Nothing. Nada. Zip.
No wonder conservatives were the equivalent to the Tories in the Revolutionary War. They have some fucking weird obsession with royalty and wealth.
You’re right, Mike. What amazes me is how the “Rush Limbaughs and Ann Coulters and Michelle Malkins of the world” have convinced their audiences to vote in support of their financial interests, not the interests of their audiences.
Let me offer a response as the only Republican who comes to the site and who is a union member who punches a clock. Yes, airline captains get paid by the hour.
GM pays for the health care of 1.1 million people and that is an incredible burden. Foreign makers here in America have a much younger workforce so their pension and health care obligations are much less. The Employee trust UAW negotiated less than two years ago with the auto workers is indeed never going to be paid.
Now for executives. At Delta when we were losing 38% of our pay and our pensions the senior executives took $45 million of the taxpayer stabilization fund right after 9/11 and put that taxpayer money in to a bankruptcy proof account. Yes, your tax dollars funded their retirement.
The auto executives are equally clueless, inept and out of touch. Unfortunatelty, the big cars and trucks which produced huge profit margins are not selliing and the entire CAFE compliance strategy by the auto makers was to make the small cars at a near loss to meet CAFE requirements but not to move to smarter cars which would have mass appeal.
All of the auto execs should be required to step down and move on.
I agree with both Mikes! (Well not completely with Mike P. – Japan also has an aging society, much more than ours).
So true, MM. Conservatives seem to resent good paying jobs for blue collar workers but don’t blink an eye at insane executive pay. These same executives who give themselves huge bonuses despite failure and golden parachutes while asking their workers to sacrifice. Unfortunately we had terrible political policies that allowed these abuses to flourish (Republican economics with Democrats caving in) and now these jokers have run our whole economy into the ground.
I agree with Mike P. that those auto execs should be fired, immediately. At least those autoworkers who get paid $28/hr earned their pay! Our automakers are uncompetitive because of their huge healthcare obligations as well as making poor decisions about making cars.
IMO, the best thing we can do to make American industries more competitive is to enact universal healthcare.
Also, if some companies are looking for CEOs, I could be a bargain. I can run a company into the ground for 1/4 of the pay. (Adding a little gallows humor).
It’s only false if it is described as an hourly wage. It is not false if it is defined as the total labor cost.
It is false even as a total labor cost. Because these companies would have booked those costs and presumably recovered those costs when they built and sold the cars that the retirees made back in the day. The only way you can get away with a Total Labor Cost figure is to work out the delta between the retirement burden that these companies already booked years ago and the actual cost now. You do not get to either: 1) Book costs twice or 2) make pretend that current workers are vastly overpaid in relation to their non-union workers. Which is –exactly — the game here.
This, folks, is why the Republican businessman as politician is quite the failure.
EDIT: A Note on that $2000 per car figure that burdens US cars vs. Japanese cars — 1) if you can’t trust the $70 worker figure, I would not trust this one until there are sensible numbers to back it up, 2) even just guessing at the figure, it is certain that these companies are paying retirees their promised benefits now and they are paying them out of current revenues. See any problem with that? They booked and recovered these costs years ago, but are ill-prepared to make their payouts. That indicates extremely bad planning and certainly no effort to put aside funds to meet their commitments. As before, current revenues — if these folks had been planning for the future — ought to be making up the delta between the budgeted,planned costs and the current actual, but that is clearly not what is happening.
I’m still not sure what I have to do with any of that.
Back to reality, part of the problem is that the current auto workers only make up about 25% of the UAW, where retired workers and widows make up the rest. It’s almost a mirror image of what is happening with Social Security.
Another part of the problem is how the Big 3 got to a total cost of nearly $100 billion for future retiree health care. If you look at the platinum-plated health plan that the UAW negotiated (and management accepted), you might get an idea. Everything plus the kitchen sink is covered (LASIK, contraceptives, etc.).
Check it out for yourself.
No one is begrudging the UAW the compensation they negotiated or saying they should get less, but the situation itself is unsustainable. I personally blame the management, but I think the UAW seems to be dominated by, and more concerned with, its retired workers than its current workers.
Also, it’s easy to pick on top management because of the excesses in executive pay (and I have), but GM CEO Rick Wagner made $15.7 million in 2007. Cutting his pay even by half amounts to very little in savings spread over the total. It’s symbolically stupid, sort of like flying in on a corporate jet is symbolically stupid. But cutting CEO pay (which should be done) will not end the competitive imbalance.
“The only way you can get away with a Total Labor Cost figure is to work out the delta between the retirement burden that these companies already booked years ago and the actual cost now.”
As in “health care costs a WEE bit more now than when Mr. Jones was making Pintos in 1977?”
Dave – is it not the case that GM should have been banking the retirement funding in the past and not paying for it as they go? You are correct that this is the same issue that social security has, but you cannot use poor planning by GM, et al to paint the UAW as the bad guys, nor specifically the retirement benefits to cost of the car.
So in a perfect scenario, back when GM was founded, they could have started with 1000 25 year old men. For the next 40 years, they would pay no retirement benefits. Were they saving for those benefits? If not, you are going to have to pay for two workforces and your company deserves to be bankrupted.
If they did save for the retirement benefits then you cannot count the cost of retirement benefits on the cars manufactured after those guys retire.
I might add that some of the issue with the $70/hr number is that it includes overtime. Overtime is often a sign of poor management also. If the company hired enough employees, they wouldn’t require overtime.
I certainly understand that some OT is frictional, but there is a good deal of BS “Hiring Freeze” crap that goes on. Same thing applies to prisons and the state hospital.
The auto executives are equally clueless, inept and out of touch.
I agree with everybody that auto executives are a real problem in this equation, but I’d also remind everyone that these guys stay in place because shareholders say OK — so I would posit that these executives are doing what shareholders want on a quarter by quarter basis. Shortsightedness has been something that shareholders have long been rewarding (in alot of industries) — stock prices going up is more important than having a long-term plan for not just survival, but growth.
As in “health care costs a WEE bit more now than when Mr. Jones was making Pintos in 1977?”
Well, yes….so you are agreeing with my point then, I gather. It is only the additional incremental cost that ought to count in any calculation of “total labor cost”. But without that (and some assessment of what the current retirement fund would look like if they had actually put one up), “total labor cost” (masquerading as what workers make NOW) doesn’t mean anything.
Back to reality, part of the problem is that the current auto workers only make up about 25% of the UAW, where retired workers and widows make up the rest. It’s almost a mirror image of what is happening with Social Security.
I have no idea if your numbers are right here, but what is true is that there are commitments made by management to the workers for excellent retirement benefits in return for somewhat lower wages while they were working. That may or may not have been a stupid deal to make, but that was the deal. And, like Social Security — management has been using the funds they have been collecting for benefit payouts (plus any tax advantages they got for providing said benefits) for purposes other than paying out on their commitments. Now that they actually have to cough up the money they have a crisis on their hands. A crisis quite of their own making. Social Security is paying for itself until 2040 or so. The only crisis that is looming is that for the politicians who need to figure out how to put back in to the system the Social Security surpluses they’ve been delighted to spend over the years.
love to see what the top execs make per hour….isn’t that more important than a couple of lunch pail guys wanting a piece of the pie they are breaking their backs to get?
Dave – is it not the case that GM should have been banking the retirement funding in the past and not paying for it as they go?
IIRC the pension funding is overseen by some regulatory body that knew about the underfunding but gave them the OK year after year. I assume this lack of oversight probably predated the Clinton administration. Nonetheless, the Bush regulators should have forced the Big Three to top off the pension funds when they were flush with SUV and truck profits. Instead of fixing the pension problem, the auto execs paid out the money to stockholders.
If you take Rick Wagoners salary as reported above by Dave and assume that he works 16 hours a day, every day (a huge assumption), he made almost $2,700/hr. This is 38 times higher than the $70/hour.
Another question is whether or not management salaries/benefits/retirement is included in that $70 figure.
Before we consider crushing hard-working union workers and their families and denying them a living wage you might want to consider the following excesses as the true reason for GM’s predicament, at least the extent of their predicament. Note the subprime motrgage references, and the 49% ownership of GMAC by GM and ,(Dave), explain to me how this is the fault of the “over-payed’ workers.
GMAC seeks bailout
General Motors’ finance arm seeks capital infusion from Treasury as it files to become bank holding company.
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By Chris Isidore, CNNMoney.com senior writer
Last Updated: November 20, 2008: 12:29 PM ET
AMERICA’S MONEY CRISIS
* Week ahead: Hoping for Thanksgiving cheer
* Two California thrifts shut down
* Three banks in California, Georgia fail
* Regulators grease bank sales
* Bank stocks lose ground again
NEW YORK (CNNMoney.com) — GMAC Financial Services announced Thursday that it is seeking government assistance, trying to access the $700 billion set aside for banks that its parent General Motors has so far been denied.
GMAC also announced that it has submitted an application to the Federal Reserve to become a bank holding company. Under the Troubled Asset Relief Program (TARP), Treasury has invested $158.5 billion in 23 banks in an effort to stabilize the financial system.
GMAC did not say how much money it is seeking.
A company spokeswoman said the money would be strictly for GMAC, and not be passed along to GM (GM, Fortune 500), which still owns 49% of the finance firm.
The CEOs of GM, Ford Motor (F, Fortune 500) and Chrysler LLC spent two days on Capitol Hill this week seeking $25 billion in loans from TARP to solve a looming cash crisis that could lead to bankruptcy filings for GM and Chrysler later this year or early next year.
So far Treasury and the Bush administration have opposed the idea, despite a push from Democratic leaders in Congress.
The Bush administration and some top congressional Republicans said they are open to making other federal funds available to the automakers.
Making TARP funds available to GMAC could give a lift to General Motors by making credit more available for potential car buyers and dealers.
General Motors sales plunged 45% in October, largely because of tight credit for buyers. GMAC announced its lack of capital was forcing it to only make loans to buyers who had credit scores of 700 or greater.
“This should allow us to provide greater access to credit for our customers,” said the spokeswoman, Toni Simonetti.
GMAC, once a profit-generating life raft for GM, has had its own problems in the past year due to problems in financial and automotive markets. It reported a $2.5 billion loss in the third quarter, bringing its losses in the past five quarters to $7.9 billion.
In 2006, GM sold 51% of GMAC to private-equity firm Cerberus Capital Management in an effort to unburden the finance arm from GM’s low credit ratings. GM’s junk status forced GMAC to pay higher rates to raise capital. In addition, the sale of the stake to Cerberus gave GM a much-needed $14 billion.
GMAC had moved away from a focus on auto finance and by 2005, mortgage lending and insurance accounted for 57% of its income.
In 2005, before the housing bubble burst, GMAC had originated $25.3 billion in subprime mortgages, making it the 11th largest firm in that field, according to rankings from trade publication Inside Mortgage Finance.
In 2006, subprime lending slipped 16%, but GMAC made a big push into so-called Alt. A loans, those made to borrowers who did not provide full documentation of their income. That year, GMAC became the No. 3 lender in that field.
As the housing and mortgage markets crumbled, results turned south for GMAC as well. At the time of the Nov. 30, 2006 closing of the sale to Cerberus, GM had to refund about $1 billion to GMAC to restore capital that had evaporated during the eight months it took to close the deal. And the firm has lost money in six of the seven quarters since the closing. To top of page
First Published: November 20, 2008: 8:13 AM ET
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Cassandra and anon have a good point. This was a systemic failure, from the regulators all the way to the shareholders. Nobody was reigning in the system. I guess as long as everyone’s making money there’s no reason to change anything. It really shouldn’t matter anymore who gets blamed for what, we’re all in it together now. I’d certainly like to see the people who got us into this mess punished but we have to make fixing the system our top priority because there are real consequences happening right now, which are just exacerbated by the lack of leadership from the Bush administration.
“Before we consider crushing hard-working union workers and their families and denying them a living wage”
No one is even talking about auto workers making less money.
“consider the following excesses as the true reason for GM’s predicament, at least the extent of their predicament.”
It wasn’t a “predicament” or an “excess” when workers were engaged in profit sharing while GMAC was a cash cow.
“how this is the fault of the ‘over-payed’ workers.”
You of course mean overpaid, something I’ve never claimed.
And the “extent of their predicament” is that their competition has a $2,000 head start on them in building a profitable car.
The honesty and accuracy in that comment, John, is right on the level with the phone polling you so vociferously criticized all fall.
The only reason that the competition has this so-called $2000 head start (and I would not be surprised to find this number wildly over-inflated too) is that the local competition is too new to have built up a retiree pool. And, frankly, if the Big 3 had been setting aside funds for their obligations instead of using them to prop up stock prices, fund low-cost loans or really big car discounts then their predicament would not be so dire. All three of these car companies collected up costs towards these retirement costs and now they find themselves having to pay out from current revenues. Stupid.
Here is another tidbit. When Roger Smith left GM he was slotted to get $1 million a year in retirement. What did he do to deserve this large amount.
GM lost almost 10% in market share during the 80’s and 90’s during his tenure.
Trust me, the auto execs have entered in to agreements for which they had no intention of keeping. The latest was the health care trust fund which will be defunct before it got started.
At this point it will take bankruptcy ( restructuring) to revive the auto industry.
Take a look at what happened to the airline industry during 202-2005 and you will see what is coming down the pike for auto workers.
“The only reason that the competition has this so-called $2000 head start (and I would not be surprised to find this number wildly over-inflated too) is that the local competition is too new to have built up a retiree pool.”
Yeah, but nobody cares about that when they’re deciding between car models. That’s the point. Not specifically that workers make too much or that executives make too much or that they have a platinum health plan. They’re uncompetitive, and that’s why they are where they are. Until they can find a way to close that gap, they’re going to have a problem. Unless they create the iPhone of cars, of course.
They are uncompetitive, though, for reasons of their own making. If they had been setting aside the costs they were accruing for retiree payouts but still had a deathly competitive gap, that would be an entirely different conversation.
I don’t entirely agree with your comment, but there can be no doubt that the blame lies both with GM management and their partners at the UAW. The focus now is saving the industry either by reorganizing the Big 3 through bankruptcy or creating hundreds of new automakers to compete and innovate and employ those workers.
Well, what there is no doubt of is that for capitalism to work like it should, companies should be ready to deliver on what they say they can deliver on. Whether that is a car people want to drive or shareholder value or on retirement commitments made to the folks who make your cars. The folks responsible for abdicating this business of capitalism are not the ones on the factory floor.
What is true, though, is that the price for all of this shortsightedness is going to be the folks on the factory floor AND American taxpayers. Management and shareholders will be protected as much as possible. There isn’t going to be a bankruptcy reorganization because there are certainly no DIP funds in this credit market. Unless the government steps in to provide this loan. Hundred of new auto makers won’t happen, either, for the same credit reasons. Whatever funds these companies will get — and they will get them — will be used to finance massive downsizing and to maintain whatever shareholder value they can keep.
“What is true, though, is that the price for all of this shortsightedness is going to be the folks on the factory floor AND American taxpayers. ”
It doesn’t have to be that way. A prepackaged restructuring with government loan guarantees should limit the damage.
“There isn’t going to be a bankruptcy reorganization because there are certainly no DIP funds in this credit market. Unless the government steps in to provide this loan.’
The government should use the $50 billion to guarantee the loans instead of bailing out the Big 3.
“Well, what there is no doubt of is that for capitalism to work like it should, companies should be ready to deliver on what they say they can deliver on.”
For the purposes of discussion, what exactly is it that they said they’d deliver on?
A prepack with loan guarantees finances much of the downsizing. If GM alone is hemorrhaging 2B a month (and they’ve been through a few voluntary restructuring and downsizing events already), and even these cars are not moving, GM is going to be very foolish indeed to just try to operate as previously. They will need to shed a great deal of plant, dealerships and staff to even get to a place to figure out how to produce cars that will be profitable here. And much of the retirement promises made to those already retired are likely to go by the wayside.
For the purposes of discussion, what exactly is it that they said they’d deliver on?
For car makers? Reliable vehicles that consumers would want to buy, for one; value to shareholders; payment of the wages and retirement commitments made to the people who make the cars. And they’ve quite failed at all 3 right now, I’d say.
“And they’ve quite failed at all 3 right now, I’d say.”
So what is the value in artificially keeping them going?
I’m not an advocate of keeping them going, especially. Altho I really see the economic upheaval of letting them go.
I’m reading what tea leaves I think I can read and I think that means they’ll get their money. If they are smart (and that is certainly debatable), they will use those funds to drastically reorganize themselves. And if I were GM, I’d go back to Congress and tell them that their union obligations to retirees need to be transferred to the PBGC. Which they’ll get one way or another, which effectively nationalizes one more industry’s retirement obligations.
Meaning — for those watching closely –that the car companies can be competitive if the government pays retirement benefits like the countries these firms are competing with do.
Well, I would think the PBGC is technically already on the hook to the tune of about $25 billion in an insurance capacity.
If I’m not mistaken, the UAW was going to take over the management of the pension obligations in the near future anyway, right?
Also, there’s a difference in what they receive now and what they’d receive after restructuring. They have a REALLY good deal right now.
One thing that rarely gets discussed- there is no reason why health care costs need to be nearly this high. There are so many people taking all sorts of pills that don’t need to be taking them. For example you have elderly people taking so many pills and they don’t even know which is which. The pharmaceutical industry is too powerful, turn on the TV and every other commercial is for another drug. Medical malpractice insurance is too high as well. I feel this is just common sense, whatever party you belong to.
Amen, anonymous.
@FSP — the PBGC is overbooked, but I don’t know the number. One of the good things that BushCo did try to do was to make companies start really funding their future pension commitments — a thing that many firms are trying to get relief from now.
The UAW took up the majority of the health care obligations of the Big 3, there are still the promised pension payouts.
As far as a good deal goes — GM is losing 2B a month and says they are out of operating cash at the end of December. Their portion of 25B won’t go very far, if they think they just want to try to keep operating through the downturn. Every deal possible is a bad one.