Another GOP talking point dismantled
What a surprise, UAW workers don’t make $73 an hour. Who knew…
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.
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.
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.em>
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.
I can’t believe they actually had to debunk this idiocy. Only Republican commentators believed that autoworkers made $73/hr.
The NYT is a little late to this Talking Point smackdown.
The issue is the legacy costs. The retirees pensions and very generous benefits. It is the same issue that is killing state government.
The funny quote was the “big three sell their cars that are equivlant to japanese companies…” How many japanese companies make Hummers, Yukons, Expeditions, Mustangs, Corvettes, Challengers, Cadillacs, and all the other vehicles that for 50 years Americans have been buying.
very generous benefits
interesting choice of words Arthur. It was the standard for decades. NOW it’s generous.
I love our new ownership society.
cas,
it bore repeating… 🙂
The fact remains that the companies are paying these costs and therefore have become uncompetitive. So why bail them out? Why not erase them and let the creative destruction put 50 new, more competitive companies in their place?
The problem isn’t the profit margin, the problem is declining sales of shitty cars and gas guzzlers.
“Why not erase them and let the creative destruction put 50 new, more competitive companies in their place?”
Because automobile companies don’t work like that. They’re incredibly capital-intensive, which is why most foreign automakers are subsidized by their governments. But don’t let me get in the way of your stunted GOP “economic principles,” or, as they’re known by the rest of the population, “talking points.”
The fact remains that the companies are paying these costs and therefore have become uncompetitive. So why bail them out? Why not erase them and let the creative destruction put 50 new, more competitive companies in their place?
ahhhh I get it, the pick and choose free market economic system.
sweet!
“How many japanese companies make Hummers, Yukons, Expeditions, Mustangs, Corvettes, Challengers, Cadillacs, and all the other vehicles that for 50 years Americans have been buying.”
The Japanese have been making similar cars — they have to call them something else, obviously — for nearly as long as American companies have made them. The exception was the huge gas guzzlers.
You know why the Japanese don’t make or sell them? Because, unlike in the U.S., oil prices in Japan aren’t subsidized by the military threats that we use to hold the Saudis in thrall, and the Japanese (like Europeans) pay high taxes on gas to keep it that way. It’s a lot like the “cheap” food at fast-food joints, which is inexpensive because of subsidies that you pay for through taxes instead of cost at purchase point.
“Because automobile companies don’t work like that.”
I disagree. The greatest leaps in automotive innovation were made in the early 20th, when there were literally hundreds of car companies.
Let me rephrase. I don’t disagree with your contentions about the expense of a new car company, but with the premise that the Big 3 is all we can have because of that reason.
Let’s screw the retirees, that’ll make everything better!
UI, I think that’s the plan.
The fact remains that the companies are paying these costs and therefore have become uncompetitive
This is not quite correct. All of these companies built in retiree benefits when they priced their cars. The funds that they had already captured for this purpose (no one simply leaves out promised benefits to their labor burden) via the sales of those old cars built by the now retirees never got set aside for this purpose. So now, the Big 3 find themselves having to pay out on the money they promises, but never planned for.
These firms did recover these funds. These funds are certainly not adequate for the medical expenses, but since the UAW took back that obligation, the companies don’t have that anymore.
The bottom line is that these retiree costs are not new incurred labor costs — they are costs already captured, accounted for (and certainly all of the tax benefits taken over the years). The Big 3 are now hamstrung by the fact that they never set that money aside properly. You can’t add that additional burden to current labor, because that means that they are double counting.
The fact remains that the companies are paying these costs and therefore have become uncompetitive.
It is downright comical how people will use a single reason with absolute authority that fits their political ideology to explain a complex issue. The statement itself is only partially true and discounts numerous other factors, like absolving management of any responsibility when it comes to their failure to design and build innovative, fuel efficient, hybrid autos.
New example of above statement:
The fact remains that the companies CEO’s refused to build hybrids and therefore have become uncompetitive.
The kept building big cars. Is that the workers fault too? It neglects to mention CEOs making millions a year to run companies into the ground. Of course, executive pay, parachutes, lifetime health benefits for hundreds of execs at the Big 3 would not be mentioned.
New example:
The fact remains that these execs are making hundreds of millions, parachutes and lifetime health benefits and therefore their companies have become uncompetitive.
Woa. That doesn’t fit the republican world view that workers are bad and execs are good, that unions destroy companies but execs do not, that workers’ pay should be limited and exec pay should not. Like I said, comical belief system.
If the guv is going to subsidize car making it should ONLY be in emerging markets, as exemplified in the below links. It should NOT be susidizing bloated Detroit fossil-combustion-engine-clinging dinosaurs.
http://www.teslamotors.com/
http://www.hydrogencarsnow.com/
It would sure cost a lot less and more bang for the buck. This is where the billions need to be invested, and should be part of Obama’s purported plans to massively invest in a clean energy economy.
We should not be subsidizing fossil-fuel centric competitors, whatsoever, Big Three or whoever. Damn the narrow short-term consequences because they do not outweigh the broad long-term consequences of perpetuating mass-production of technologically-retarded transportation technologies.
I hope government largesse for any automakers isn’t qualified only for lumbering near-insolvent reactive corporate sloths, festering under oil and organized-labor-driven business models.
The idea of the 5-6 year throwaway car is dead. Problem is Detroit doesn’t know it yet, and can do little to adapt to making cars that quickly incorporate new technology and last a long time….like they once did.
In the 50’s and 60’s cars underwent literally year to year total redesigns, and were built by the 100’s of 1000’s.
After decades of shelving real innovation, flexibility, and technological foresight it finally needs to be over for Detroit. Krugman has it right.
The most heavily unionized airline in the country-Southwest. The least unionized of the legacy carriers-Delta.
Time in bankruptcy. Southwest-None
Delta two years
At one point our management sais it was in trouble because of “greedy pilots”. We could have worked for free and the company would not have made money. At the same time management put their retirements in a bankruptcy proof accounts.
The best deal for the auto industry is to file for a pre packaged bankruptcy with debtor financing guaranteed by the Feds.
Too bad a group of investors can’t get the financing to open a new hybrid or electric car company in Newark. Where is DeLorean when we need him? 🙂
You dont need a DeLorean…You need an Iacoccoa.
Forget about investors opening a car facility at the old Chrysler plant. The University of Delaware is making a proposal to but the property for additional sports facilities.
Go Hens!
and the state of delaware get’s no tax revenue!
go hens