Nov. 24, 2008
Autoworkers Making $70 An Hour? Not Really
New Republic: Debunking The Myth Of The Exceedingly Well Paid U.S. Autoworker
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UAW President Ron Gettelfinger (AP)
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Japan's Job Security Promise
Job security is a cultural tradition for the Japanese, making employees in the U.S. working for foreign auto companies feel protected. Barry Petersen reports.
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In-Depth
Q&A: Big Three Bailout?
Why Detroit's automakers might get a rescue package
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, $28 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 friday, 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 ones 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.
By Jonathan Cohn
Reprinted with permission from The New Republic
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See all 66 CommentsWhere as minimum wage is $10.
They require non-union members pay union dues and not allowed to vote. There are several injustices that unions agreements force upon the american public.
Also, the American Honda/Toyota/Volkswagen/etc folks are doing just fine financially whereas the big 3 have to go whinning to DC. Why is that?
Mismanagement is the root cause and until said "management" provides a clear, attainable plan for correction of the mess they have created then assistance should not be provided.
A MODERN PARABLE . . PART 1
A Japanese company (Toyota) and an American company (Ford) decided to have a rowing race on the Missouri River . Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.
Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team''s management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents, and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the ''Rowing Team Quality First Program,'' with meetings, dinners, and free pens for the rower. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and bonuses.
The next year the Japanese won by two miles.
Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year''s racing team was out-sourced to India .
The End.
Here''''s something else to think about:
Ford has spent the last thirty years moving all its factories out of the US , claiming they can''t make money paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter''s results:
TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.
Ford folks are still scratching their heads.
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IF THIS WEREN''T TRUE, IT MIGHT BE FUNNY !
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[Posted by Hitoyou1 at 02:52 PM : Nov 24, 2008]
us autoworkers are not making $70/hr. did you read the story? it''s all spelled out above with letters and spaces strategically placed to convey meaning.
the uaw workers wage is $28/hr ... compared to the average of $24/hr for a non union worker for toyota, honda, etc.
all the other ''per capita'' charges relate to compensation and benefits being paid to retirees ... for which the japanese have very few within their us worker ranks ... and the us manufacturers have hundereds of thousands after being in business for nearly a hundred years.
big 3 and uaw just agreed to shift the burden for retiree benefits to the union last year ... and off the back of the manufacturers.
this is why the american auto manufacturers are not currently competitive w/ the japanese.
Nice to see some first class journalism.
Ultimately, however, it still comes down to another fact. Detroit makes products that are inferior and yet still grossly overprices. It would not matter if the unions agreed to work for free for the next two years. As long as issues with product quality and price remain, Detroit *is* going to go out of business.
Like spinproof already said: "The best cure for the American Automobile Industry is to make cars people want to buy. " and I agree with that.
They''ve lost market share, they have too many dealers, they have too many brands and too many models, and they have fought fuel-efficiency for years.
They should make top dollar only for top performance
[Posted by Hitoyou1 at 02:52 PM : Nov 24, 2008]
us autoworkers are not making $70/hr. did you read the story? it''''s all spelled out above with letters and spaces strategically placed to convey meaning.
the uaw workers wage is $28/hr ... compared to the average of $24/hr for a non union worker for toyota, honda, etc.
all the other ''''per capita'''' charges relate to compensation and benefits being paid to retirees ... for which the japanese have very few within their us worker ranks ... and the us manufacturers have hundereds of thousands after being in business for nearly a hundred years.
big 3 and uaw just agreed to shift the burden for retiree benefits to the union last year ... and off the back of the manufacturers.
this is why the american auto manufacturers are not currently competitive w/ the japanese.
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Posted by bobnjersey at 03:34 PM : Nov 24, 2008
Do you belive every thing some paid reporter wrights/ I hope not. You seam to be smarter then that.
They just want to see American workers driven down.
They are happy to make stuff up to that end.
Too bad.
"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. "
Which is it? First the writer claims the UAW workers make a mere pittance over the Toy-Honda workers. In the past, UAW workers made boatloads of cash, with benefits, overtime, retroactive increases; now that time''s over, it was good while it lasted.
Interesting analysis in assigning the $70/hr number to legacy costs - but that''s still a problem that the UAW and car manufacturers allowed to happen all on their own. Why should my tax money be used to correct their shortsightedness? If they didn''t see this problem developing over the last few DECADES, how much confidence is this supposed to instill in me regarding their abilities to right the ship with my tax money? Sorry Cohen, you may have explained the problem in more detail, but done nothing to make me any more confident in giving the car companies my money.
For thos of you that don''t want any of your tax dollars going toward a LOAN, that''s fine. Just be ready to pay higher local, city and federal taxes. You are going to have to help recoup all the money those goverments loose when the Big 3 close up their factories. Are you ready for that? I guess people just don''t get it?
(do the math...)
Delphi''s stock price went from $17-20/share down to $.024.
Those guys certainly earned their money, didn''t they?
Bashing the UAW for making sure their members were paid a very nice middle class wage may make nice headlines, but the real culprits always has been upper management.
Does anyone really believe that if costs are less the prices of cars will go down. Think of all the prices increases attributed to the high price of gasoline and diesel fuel. The increased prices of food and deliveries remain even though the cost of fuel has halved from its high. It would be the same with auto worker wages and benefits.
Get the facts... I guess I would to if I got land for FREE or for such a minimal price that the Big 3 could only dream about. Did you know that they get HUGE tax breaks and pay no state and local taxes for up to 10 years sometimes. I thought we won WWII??
Is driving a car more important then eating?
Every time I see a news clip of auto workers on TV, it''s someone with a big gut and a double chin.. obviously the work isn''t as hard as some lead us to believe.
Bottom line, if you make more then $20/hour.. I DON''T FEEL SORRY FOR YOU!!!!!
have the big three file bankruptcy.
disband the UAW
have the government assume all pension debt.
have the government impose a surcharge on ALL vehicles sold in the US
both foreign and domestic
that way the old workers all get all their benefits,
the new workers get a new deal
and the American automotive market playing field becomes level
everyone wins!!!
except the UAW
...F___ them
Posted by bloogirl
Ok, so you learn how to use tools to put a car together, but the fact still remains that a person doesn''t go to school to learn that "skill". ANYBODY can learn that skill, especially someone with only an 8th grade education, and they learn it on the job. So, this person deserves to make as much as a someone with a college degree? The misconception shared by people like this is that hard, manual labor deserves a high salary. No, I don''t think so, and neither do these companies. That''s why a lot of them end up moving their operations to Mexico or India, where people are happy to just be working. Then the overpaid "ditch-diggers" act shocked and surprised when their company makes the move. Maybe these people should have taken a course in economics with their salary to realize that the gravy train would soon end.
Unions are obsolete. The are a numerous labor laws now that simply don''t allow companies to abuse their workers. Unions are what they are....a legalized form of Mafia with their hands in everyone''s pockets. The management at these companies are people trying to do the best job they can, with the situations they are into by unions. If anything wreaks of socialism, unions would be it. Everyone gets a raise at the same time (through contract negotiations), no matter how hard or how little you work. What this creates is the type of mentality that came about in the old USSR. People were paid the same no matter how hard or how little they worked, "so what''s the point in working hard?". Then the quality suffers and the company goes down the drain. In Japan, they don''t have that problem. Why? No unions.
The following historic links are for your information.
UAW OFFICIALS BETRAY AUTO WORKERS [2007]...
http://unionreview.com/insights-analysis-uaw-betrays-autoworkers
VICTOR REUTHER SPEECH 50TH ANNIVERSARY OF THE UAW FLINT RALLY [1987]...
http://westfallmike.tripod.com/Page12.htm
MIKE WESTFALL SPEECH 50TH ANNIVERSARY OF THE UAW FLINT RALLY [1987]...
http://westfallmike.tripod.com/Page11.htm
HISTORIC UAW LEADER SPEAKS OUT FOR RETIREES AND WORKERS [2007]%u2026
http://michaelwestfall.tripod.com/id110.html
EASTERN ECONOMIC MANUFACTURING SPEECH [1985] %u2026
http://westfallmike.tripod.com/Page14.htm
ROGER & ME %u2013FLINT CONTROVERSY [1990]%u2026
http://westfallmike.tripod.com/Page10.htm
ARCHIVES AND ADDITIONAL INFORMATION [1976-2008]%u2026
http://www.umflint.edu/library/archives/westfall.htm
http://michaelwestfall.tripod.com/id50.html
http://westfallmike.tripod.com/
http://www.monroelabor.org/links.html
Ummmmmm President Bush did not lie, he used the same intelligence that the libotards GAVE him. Guess this is part of the change promised too. Forget what you said if it does not fit your purpose.
I just love the not-my-president elect saying fiscal restraint but we will have to spend another 700 billion... OOOppppsssssiii guess you wont get that tax cut, and OH Yeah I forgot to tell you ...... your tax rate just doubled. Dont you just love change!!!
Posted by teachabc1
Actually, going to college does entitle a person to make more than a manual laborer, if they''re good at what they do. That''s what we go for, a better life and a real career. When I went to college I didn''t get drunk every night because I wasn''t studying to be a stock broker. I feel bad for you because you''re a teacher and you deserve better pay and teachers shouldn''t require a union to get what they need. That''s a shame. I still feel that most unions are ruining this country.
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