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Auto Bailout Ignores Excessive Labor Costs

Discussion in 'Political Zone' started by trickblue, Nov 25, 2008.

  1. trickblue

    trickblue Old Testament... Zone Supporter

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    Auto Bailout Ignores Excessive Labor Costs
    by James Sherk

    Without government intervention, one or more of the Big Three automobile manufacturers--General Motors, Ford, and Chrysler--faces restructuring in bankruptcy. Bankruptcy would not be the end of the Big Three but a new beginning. Coming out of bankruptcy, the automakers would start fresh, free of the contractual obligations that have kept them uncompetitive. The United Auto Workers (UAW) and Detroit automakers want to avoid bankruptcy and are seeking a taxpayer bailout. Such a bailout, however, is not an acceptable alternative to bankruptcy because it would delay the restructuring the Big Three need to become competitive again.

    UAW workers earn $75 an hour in wages and benefits--almost triple the earnings of the average private sector worker. Detroit autoworkers have substantially more health, retirement, and paid time off benefits than most Americans. These benefits, and a JOBS bank that pays UAW workers nearly full wages to not work, have been a major force driving the Detroit automakers' current fiscal woes. Consequently, Congress should not force all Americans to pay for high wages and benefits for UAW workers.

    UAW Workers Highly Paid

    The Big Three automakers are asking taxpayers to bail out some of the most highly paid workers in America. Chart 1 shows the average hourly compensation (wages and benefits) earned by all private sector workers and for UAW represented workers at the Big Three. It also shows the hourly compensation at Japanese plants in the United States.

    [IMG]

    The average private sector worker earned $25.36 an hour in 2006--$17.91 an hour in cash wages and $7.45 an hour in benefits such as pensions, paid time off, and health insurance.[1] Autoworkers at Japanese plants located in the United States earn substantially more than this: between $42 and $48 an hour in wages and benefits, which amounts to over $80,000 a year in total compensation--hardly cheap labor.[2]

    The typical UAW worker at the Big Three earned between $71 and $76 an hour in 2006. This amount is triple the earnings of the typical worker in the private sector and $25 to $30 an hour more than American workers at Japanese auto plants. The average unionized worker at the Big Three earns over $130,000 a year in wages and benefits.[3]

    Generous Benefits

    Most of the Big Three's UAW workers' compensation comes as benefits, not cash. Table 1 breaks down the average hourly labor costs for a UAW worker at Chrysler in 2006. Ford and General Motors have similar compensation profiles.

    [IMG]

    Only 38 percent of the $75.81 an hour that Chrysler's UAW workers earned came as base wages. The rest came as benefits (though some of those benefits, such as overtime premiums and paid vacation days, are paid in cash). Health care costs are the most expensive benefit, accounting for over a quarter of total compensation.

    Gold-Plated Health Care


    Health care costs the Big Three so much because the UAW negotiated gold-plated health benefits that include medical, hospital, surgical, and prescription drug coverage. These benefits also cover durable medical equipment (e.g., hearing aids), dental benefits, and even Lasik eye surgery.[4] For all this, GM workers and retirees must pay monthly premiums of $10 for an individual and $21 for families.[5] As a result, UAW workers and retirees have some of the most comprehensive and least expensive health care in America.

    Competitive Disadvantage

    These gold-plated health care benefits put the Big Three, and especially GM, at a competitive disadvantage. For example, GM has three times as many retirees as active workers, and health care costs for both groups cost the company $4.6 billion in 2007. The UAW's lavish health benefits added $1,200 to the cost of each vehicle produced in the United States.

    The Japanese automakers, by contrast, provide standard health benefits to their American employees. Consequently, health care for active workers cost Toyota $215 per vehicle in 2006.[6]

    Every American buying an auto made in Detroit pays an extra $700 to $1,000 to support health benefits far more generous than most Americans receive.

    UAW employees also receive the following extraordinary provisions:

    • 30-and-Out contracts. UAW employees work under a 30-and-Out contract that allows them to retire with generous pension benefits after 30 years on the job, irrespective of age.
    • Seven weeks' vacation. A Chrysler worker with 15 years' tenure was entitled to 34.5 paid holidays and vacation days in 2006--seven weeks in paid time off.[7] This is three weeks more paid vacation than the average private sector worker with similar tenure.
    • Paid not to work. Under UAW contracts, workers whom the automakers let go when plants close are not laid off. Instead, after exhausting regular unemployment payments from the automakers and the government, they are transferred to a JOBS bank where they are paid nearly full wages to not work.
    A Step in the Right Direction

    These affluent wages and benefits prevent the Detroit automakers from successfully competing. The Detroit automakers and the UAW have known about this competitive disadvantage for decades, but the UAW resisted making any concessions until 2007--when bankruptcy became an impending reality.

    Under the 2007 contract, the Big Three and the UAW agreed to the following:

    • To transfer, starting in 2010, retiree health care obligations to a Voluntary Employee Benefits Association (VEBA) run by the UAW. The automakers agreed to collectively pay $60 billion into the VEBA, after which time the UAW would have full responsibility for providing retiree health benefits. This agreement takes the cost of providing health benefits off the Big Three's balance sheets.
    • To limit time in the JOBS bank to two years.
    • To require workers in the JOBS bank to accept new employment offers.
    • To create a two-tiered wage structure. Detroit automakers may now hire entry-level workers for "non-core" positions (those not directly involved in manufacturing automobiles) for roughly $26 an hour in wages and benefits. Although these entry-level workers may transfer to the higher paid vehicle assembly jobs as vacancies occur, they will never receive retiree health benefits.
    Too Little, Too Late

    GM estimates the new contract will eventually cut 70 percent of their labor cost gap with the Japanese manufacturers.[8] Average compensation will fall to $54 an hour once the contract takes full effect.It will, however, take years for the Big Three to realize these cost savings. The cost reductions affect only a minority of workers and occur gradually as current workers retire.

    The vast majority of UAW workers in Detroit today still earn $75 an hour, and the Detroit automakers must still find $60 billion to finance the VEBA. Detroit's labor costs will not fall as much or as rapidly enough as the Big Three need to restore their competitive position and remain solvent.

    Had the UAW made similar concessions in the early 1990s, it might have prevented the Big Three from falling into such dire economic straits. It did not, however, and the new contract is too little, too late to keep the Detroit automakers solvent.

    Taxpayers Should Not Bail Out the UAW

    By seeking a bailout, the UAW, along with the Detroit automakers, are asking taxpayers to help keep UAW earnings at $75 an hour when the typical American takes home a third that much. The Big Three also want Congress to use taxpayers' money to pay billions of dollars into the new health care VEBA, thereby funding health care benefits for UAW retirees that are far more generous than those provided by an already under-funded Medicare system.

    UAW workers understandably want to preserve the standard of living to which they have become accustomed, but that standard is not sustainable in a competitive economy. Congress should not tax all Americans in order to maintain UAW workers' affluent lifestyles.


    [1] Department of Labor, Bureau of Labor Statistics, "Employer Costs for Employee Compensation," Table 5: Private Industry Workers by Major Occupational Group, at http://www.bls.gov/NCS/ (November 18, 2008).

    [2] A worker earning $45 an hour for 35.5 hours a week throughout the year earns $83,070 a year.

    [3] Based on a 35.5 hour workweek, the average hourly hours worked at DaimlerChrysler in 2006. DaimlerChrysler Corporation, "Chrysler Labor Talks '07: Media Briefing Book," p. 38, at http://chryslerlabortalks07.com/Media_Briefing_Book.pdf (November 18, 2008).

    [4] United Auto Workers, 2003 Auto Contract Summaries, "UAW Delivers on Health Care Pledge," September 2003, at http://www.uaw.org/contracts/03/gm/gm03.cfm (November 18, 2008).

    [5] "Why the UAW-GM Deal Matters to You," Hospitals & Health Networks, November 2007, at http://www.hhnmag.com/hhnmag_app/jsp/articledisplay.jsp?
    dcrpath=HHNMAG/Article/data/11NOV2007/0711HHN_
    Dept_StoryBoard&domain=HHNMAG (November 18, 2008).

    [6] Alex Taylor, "Behind Ford's Scary $12.7 Billion Loss," Fortune, January 27, 2007, at http://money.cnn.com/2007/01/26/news/compan
    ies/pluggedin_taylor_ford.fortune/index.htm?postversion=2007012611 (November 18, 2008).

    [7] DaimlerChrysler Corporation, "Media Briefing Book," p. 40. Note that both figures exclude paid sick days.

    [8] Joseph Szczesny, "Big-Three Contracts Even the Playing Field--Eventually," Auto Observer, November 18, 2007, at http://www.autoobserver.com/2007/11/big-three-uaw-
    contracts-even-the-playing-field----eventually.html (November 18, 2008).


  2. sacase

    sacase Well-Known Member

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    Time for the UAW to go.
  3. ConcordCowboy

    ConcordCowboy Mr. Buckeye

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    That kind of stuff is just ridiculous.

    That's outrageous.

    And more ridiculous crap.

    Now I know the UAW did a great job when negotiating these contracts but this crap has to be changed...and is one of the reasons why they're in the trouble they're in in the first place.
  4. joseephuss

    joseephuss Well-Known Member

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    There is equal blame to go to the auto companies. The UAW pushed for these benefits and the companies agreed to them. It took two parties to get these policies enacted.
  5. sacase

    sacase Well-Known Member

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    The companies were kind of strong armed into them.

    Union = Legal Mafia
  6. iceberg

    iceberg detoxed Zone Supporter

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    i've said many times the unions are just not being reasonable. this proves it.

    let 'em go. they built this model, let it die.
  7. Route 66

    Route 66 Active Member

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    The extra $1,300 I paid for my GXP probably went towards somebody's facelift.:bang2:
  8. Viper

    Viper Active Member

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    I'm Union, a steelworker. Believe it or not, we actually do work very hard. Try shoveling sludge all day long. I make my money when I'm forced to work over. Nothing worse than getting ready to go home and the company telling you you can't. I work 7 afternoons with one day off than I switch to 7 days of daylight hours. Again I get one day off when I switch again to 7 midnights in a row. I than get four days off and repeat the procedure. I can't tell you how much switching schedules each week beats you down. Besides not being able to spend birthdays and holidays with my family, it's a good ole time.

    We have a zero tolerance for call offs, if we call off we get a letter. Five letters and we are fired, yes fired. We have zero sick days, but do have the normal holidays that everyone else has. As far as vacations, I get 3 weeks a year. When I have 30 years in, I'll get the 5 weeks. I not only work in one of the most dangerous jobs out there, statistics say my life if shortened because of the job I have.

    I'm curious, how much different is your pay and benefits to what I receive.
    I make 18 an hour, get time and a half for anything over 40 hours. My medical benefits are 80/20 split. When I do retire, I'll receive a little more than half of my pay. Which is subject to change every five years with a new contract.

    Basically, a union is a signed contract between me and the company. I fail to see how that is bad, many people have signed contracts with the company they work for. I'm middle class, probably on the lower end of middle class. I do think it's funny, the attack on middle class.

    Last year our company cleared a good profit. The workers received a 1200 dollar bonus. The executives cleared up to 15 million dollars in bonus. Yet us unions are killing the company...:lmao2:
  9. MilesAustinforMVP

    MilesAustinforMVP Benched

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    I think your post shows there are two sides to every coin. I think the best thing to do is for the government to provide single payer universal healthcare, which should take a lot of the financial burden off the big 3 and many other companies, big and small, that provide health benefits to their workers.
  10. sacase

    sacase Well-Known Member

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    Yeah and who is going to pay for that? You act like a magic medical coverage fairy will appear and grant everyone free healthcare.
  11. MilesAustinforMVP

    MilesAustinforMVP Benched

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    I hate to break it to you but Americans pay more per capita in healthcare expenses than almost every other first world nation, since everybody else in the first world has universal healthcare, but for some reason we can't.

    I know the conservatives put out the propaganda that the government is more inefficient than the private sector, but in this particular instance it is just not the case.
  12. Sasquatch

    Sasquatch Lost in the Woods

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    An alternative opinion:

    UAW President Ron Gettelfinger: Labor costs not the problem

    Ron Gettelfinger — 11/20/2008 5:29 am

    It's time to stand up for the Main Street economy.

    In the face of a global credit crisis and a worldwide economic downturn, U.S. auto sales have slowed to a crawl. As insecurity spreads throughout the economy, consumers are delaying major purchases -- and those who do visit auto showrooms are not finding credit available on reasonable terms.

    The domestic auto industry simply cannot succeed in today's unstable economic environment without immediate help from the federal government. And the costs of failure are unacceptable.

    This isn't just about three large Michigan-based companies and the 240,000 people who work for them, including 150,000 of our members. It's also about thousands of car dealerships that are anchor businesses in cities and towns across America. It's about thousands of small and medium-size businesses -- employing millions of workers -- that provide parts, logistics, research, engineering and other goods and services to Chrysler, Ford and General Motors. If a major domestic auto company were to fail, a significant number of supplier companies would also be in jeopardy. This would quickly affect all the companies that produce autos in the United States -- including Toyota, Honda and Nissan -- because many of them buy parts and services from the same group of suppliers.

    A major disruption in the auto supply chain would quickly curtail production at auto plants, whether domestic or foreign-owned, throughout the United States. The cost of failure at even a single U.S. automaker would be millions of lost jobs and hundreds of billions of dollars' worth of lost sales and revenue spread across all 50 states.

    In addition, more than a million retirees and dependents receive pension and health care benefits from Chrysler, Ford and GM. If these companies are unable to meet their obligations, the human toll on retirees and their families will be devastating. It's also possible that the failure of these companies could impose severe costs on the federal pension guaranty program and public health care programs.

    In the face of a looming economic catastrophe, it's disappointing to see some opinion writers indulge in old-fashioned Detroit-bashing -- especially since these observers seem to be writing about the domestic auto industry of the 1970s.

    It is not the actions of our members that have caused the crisis in today's auto industry; the crisis is being driven by economic factors that have nothing to do with labor costs or factory performance. To the contrary, our contracts have put our employers in a position to compete.

    The reality of today's auto industry is that union-made vehicles are winning quality awards and that union-represented factory workers are winning productivity awards. A Nov. 8 Washington Post editorial claimed that unionized auto manufacturers pay "wages and benefits that far exceed those of non-union competitors," but recent labor negotiations with Chrysler, Ford and GM addressed this alleged wage and benefit gap.

    Our 2007 labor negotiations with the companies transformed the domestic auto industry; when the agreements we reached have been fully implemented, they will largely or even completely eliminate the labor-cost gap between unionized auto plants and our nonunion competitors. One analyst has estimated that as a result of our contracts, GM will soon enjoy a labor-cost advantage over Toyota.

    The various demands for cuts in the wages and benefits of active and retired autoworkers as a condition of federal assistance are curious -- and extremely unbalanced. To my knowledge, no one has proposed cutting the compensation of everyday active or retired bankers, bond traders, and office or building personnel who work at AIG, Bear Stearns or the numerous banks that have received billions in federal aid. Why is it only autoworkers who are singled out for this dubious honor?

    Besides being unfair, government-mandated wage and benefit cuts make no economic sense. In the midst of the most severe recession in decades, the last thing we should do is take money out of the pockets of working families, since it is consumer spending that drives two-thirds of all U.S. economic activity.

    President-elect Barack Obama has described auto manufacturing as "the backbone of the American economy," and bipartisan efforts are under way in Congress to provide strategic assistance for this critical U.S. industry. It's a good deal for U.S. taxpayers -- because the alternative is lost jobs, closed businesses and shattered communities, which would impose severe human and economic costs on all of us for many years to come.

    Ron Gettelfinger is president of the United Auto Workers. This column first appeared in the Washington Post.

    Ron Gettelfinger — 11/20/2008 5:29 am

    UAW, GM say new pact makes labor costs competitive
    November 19, 2008 5:03 PM ET
    advertisement
    Associated Press

    DETROIT (AP) - The leaders of General Motors Corp. and the United Auto Workers union told Congress this week that a new union contract will virtually erase the labor cost gap between GM and foreign competitors with U.S. factories. That's not quite true, according to GM's own figures.

    Although the contract signed last year eliminates about two-thirds of the cost gap when its provisions take full effect in 2010, GM's labor costs will remain about $9 per hour, or 17 percent, higher than Toyota's, according to GM estimates.

    The labor costs, scrutinized by two congressional committees weighing U.S. automakers' request for $25 billion in government loans, were singled out by opponents as a reason why the Detroit Three can't be competitive with their Japanese rivals, mainly Toyota Motor Corp. and Honda Motor Co.

    GM CEO Rick Wagoner and UAW President Ron Gettelfinger told the Senate Banking Committee on Tuesday that the contract goes a long way toward eliminating the gap.

    "The gap in labor costs that had previously existed between the Detroit-based auto companies and the foreign transplant operations will be largely or completely eliminated by the end of the contracts," he said.

    Wagoner and Gettelfinger, along with Ford Motor Co. CEO Alan Mulally and Chrysler LLC's Bob Nardelli, reiterated their plea for aid before the House Financial Services Committee on Wednesday.

    Figuring out labor costs is tremendously complicated because the contract has many provisions that change based on U.S. auto sales and production rates. Also, GM is estimating costs for the Japanese automakers.

    But GM, which negotiated the four-year deal that serves as a template for UAW deals with Chrysler and Ford, says its total hourly labor costs dropped 6 percent this year from pre-contract levels, from $73.26 in 2006 to around $69 per hour. The new cost includes laborers' wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said.

    The total cost will drop to $62 per hour in 2010 when the linchpin of the contract — a UAW administered trust fund — starts paying retiree health care costs.

    But that's still $9 more than the $53 per hour that GM estimated Toyota now pays in the U.S., and the gap could be even wider. Toyota spokesman Mike Goss said the company's total labor costs at its older U.S. plants are around $48, with about $30 per hour in wages.

    The remaining difference largely is due to "legacy" costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said.

    "While legacy seems to be a dirty word of late, it also means we support hundreds of thousands of people via pensions, health care and good jobs," he said.

    There's also the "jobs bank," a feature of the UAW contract that drew fire from senators, in which workers get 95 percent of their base pay and all of their benefits if they are laid off or their plant is closed.

    In the past, workers could stay in the jobs bank forever unless they turn down two job offers within 50 miles of their factory. GM's new contract imposes a two-year time limit, and workers are out of the jobs bank if they turn down one job within 50 miles or four jobs anywhere in the country.

    GM has about 1,000 workers in the jobs bank now because it's been thinned out by early retirement and buyout offers. At its peak, the jobs bank had 7,000 to 8,000 people, Sapienza said.

    To be fair, Toyota also has paid workers whose plants were temporarily closed due to slow demand for their products. Employees attended training during the shutdown.

    In addition to jobs bank costs, GM also still pays for some union officials at each factory, and its workers get days off that aren't afforded many U.S. workers, such as Election Day.

    GM, which has been restructuring for about five years, had about 125,000 U.S. hourly employees in 2003 and expects to have 62,500 by the end of this year.

    Critics note that when Detroit automakers try to downsize, they either have to pay workers to stay in the jobs bank or give them buyout or early retirement offers. Some of the offers have been as high as $140,000.

    GM said it made those offers to save money by thinning its work force as sales declined. Most workers who left took early retirement, moving their costs out of GM's coffers and into its overfunded pension plan.

    GM's contract with the UAW does not require such offers, but they have been negotiated with the union.

    GM says it already is starting to see savings from the new contract because it has hired more than 1,000 workers who are paid $14 per hour, less than half the average UAW laborer's rate. Most, if not all, of those workers will be laid off, though, as GM cuts production because of the sales slump.

    The company, however, expects more long-term savings as it hires more lower-paid workers in the future.

    The union also agreed to work rule changes in 42 of GM's 61 factories allowing workers to do multiple jobs instead of one job under the old contracts. Other work rules, such as one requiring the company to pay skilled tradesmen whenever they hired an outside crew to do building repairs or other jobs, also were eliminated. GM also no longer has to pay UAW wages to people who clean the plant, the company said.

    "This year and every year going forward we will save a half a billion dollars" from the concessions, said Sapienza. "We still have work to do, but were aggressively becoming a leaner, stronger company."

    © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
  13. Route 66

    Route 66 Active Member

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    Sure the United Steelworkers are a union but they aren't the UAW.
  14. sacase

    sacase Well-Known Member

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    Just because the rest of the world is doing it doesn't mean its going to work for us. If the rest of the world jumped off a bridge would you? We are paying for enough crap right now I don't need to pay your medical costs if you fall down and go boom.

    What government entitity do you know that is efficient? You think they are magically going to be efficient? Asked retired military folks how tri-care is working out for them and how easy it is to use.
  15. MilesAustinforMVP

    MilesAustinforMVP Benched

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    I think you are posing the wrong question. It is not can the government work efficiently. But can it work MORE efficiently than the private sector.

    By the way my girlfriend works for the VA and she says that they get much better services than if they, or anyone else, went to a private hospital. At least that is the way it is for the Dallas VA.
  16. iceberg

    iceberg detoxed Zone Supporter

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    also - many people in other coutries don't have the same flexability that we do. not even close. i had to have a cornea transplant. i saw the doctor, scheduled the appointment, and got it done quickly.

    some people i work with from canada had the same problem and had to wait 8-12 months to get it done.

    there are good and bad points to *ALL* plans but you keep banging that drum as if it's a magic bottle and the answer to everything.
  17. iceberg

    iceberg detoxed Zone Supporter

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    great. now go name 3 instances where the gov is more efficient.
  18. ConcordCowboy

    ConcordCowboy Mr. Buckeye

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    Exactly.
  19. Viper

    Viper Active Member

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    gee, I've got two brothers-in-laws and a father-in-law that work for Ford. They are very similar to me.

    Wanna know how we make our big money? We make it when the company forces us to work 80-90 hours a week. Seriously, have you ever worked six months straight, no days off, 16 hours a day? All of it forced? I can't tell you how much it makes you feel like a zombie. Of course, the kids forget they have a father.
  20. MilesAustinforMVP

    MilesAustinforMVP Benched

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    Social security: only 1% of your money goes to overhead; if we were to privatize it 30% would go towards overhead

    Healthcare: Americans pay higher per capita than the Canadians do

    Military: Blackwater operations cost the government much more than military operations

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