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Friday, November 28, 2008

Auto Workers: $70/hour, $38/hour, or $28/hour?

Posted by Neil H. Buchanan

Much of the discussion about a possible rescue of the Big Three automakers has been colored by the claim that blue collar workers at those companies earn $70/hour.  The original (or, at least, the most prominent) source of this claim seems to have been a recent column in The New York Times by Andrew Ross Sorkin: "At G.M., as of 2007, the average worker was paid about $70 an hour, including health care and pension costs."

If this claim were true, it would mean that a 40-hour-per-week, 50-week-per-year worker earns $140,000 in annual gross income.  In a column in The New Republic, Jonathan Cohn asks rhetorically: "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?"  Cohn quickly answers his own question: "Well, here's one reason: The figure is wildly misleading."  He shows that GM's workers earned $28/hour in wages in 2007, plus about $10 in benefits.  He continues:

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."


Cohn concludes his article as follows:

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.


Personally, I take great interest in the auto industry.  I grew up in Toledo, Ohio, one of the many small cities that rises and falls with Detroit's fortunes.  The best policy response to the current crisis is, as Cohn says, a tough call.  As tax professors know better than most, however, getting the right answers is impossible if you are working with the wrong numbers (or if you don't understand the numbers you're working with).

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Comments

I think the $70 per hour number has been tossed around so much that people have confused labor burden with wages. I was under the impression that the Big 3 had an hourly labor burden of $70 an hour with a smaller than half portion of that attributable to current wages.

P.S.
I didn't realize we had so much in common! I'm from Detroit, went to law school in Toledo, and now am doing the Tax LLM at BU.

Posted by: Ryan | Nov 29, 2008 12:49:13 AM

Ryan's comment is my comment. The confusion has more to do with sloppy writing than sloppy accounting.

GM's wage and benefit liabilities are equal to around $70/hr for each employee. Those who make the mistake of assuming that each employee is actually receiving this amount in wage and benefits is not reading properly.

Posted by: Dan | Nov 29, 2008 8:35:17 PM

Hello from someone who spent a great deal of time in Toledo (mom was born there).

There is an old joke, the punchline of which is..

"And the controller said, what do you want the number to be?"

The $70+ number is a combination of current wages and benefits PLUS legacy costs divided by current work hours.

The misinformation in the media and from politicians in the past month has been astounding.

Apparently many reporters do not realize a major overhaul of labor costs is in progress, based on the 2007 contract, and phasing in over a few years. etc. etc.

Based on 30 years of informal surveys, very few reporters have ever taken an accounting course. For that matter, many lawyers have not taken an accounting course. Some are tax lawyers.........

Posted by: save_the_rustbelt | Nov 29, 2008 9:28:20 PM

Since automobiles cost such exorbitant prices it should be expected that the ones who make them get paid a decent salary. Otherwise what is the reason for the high price tag? Also, you put your life in the hands of your auto everytime you get behind the wheel. I would rather the worker be getting paid above minimum wage.
Lastly, that's marvel of unions. If you want a decent page with decent benefits, get a union job.

Posted by: Adam | Nov 30, 2008 12:40:01 AM

They claimed: it cost them $70/hour in compensation.
It turns out: it costs them $70/hour.

I'm the first person to point out when companies overreach their bounds, but this claim appears to be true. While it is fuzzy math, this is how all companies look at employees.

And here is the exact problem you run into when you form a union: By asking for amazing healthcare for all workers actually resulted in lower pay. Instead of earning more money they paid it directly to the healthcare/insurance companies or those who retired. What happens if the company goes bust before they retire? Bad time for a young union employee.

More importantly the original source (NYT) should be blasted for this. Badly researched claims hurt both sides heavily and continue to give journalists a sour reputation.

Posted by: Josh of Cubicle Ninjas | Nov 30, 2008 12:48:55 AM

Employees at the big three are compensated with funds today, while they are working, and (post-retirement) funds tomorrow while they are not working. It is misleading to only count hourly loaded salary as real earnings when the employee fairly expects receive benefits after retirement. Therefore they certainly earn more than $38/hour. If they or their direct dependents live to the average life-expectancy, this would be the equivalent of 35 years at 72% of their top compensation according to the current UAW contract that expires in 2010. If anything, $70/hr is too conservative, because it merely reflects the current outflow from contracts that were marginally less lucrative.


An agreement was struck with the assumption that employees would continue to receive compensation after retirement. It is only correct that they should be. The lesson may be that Unions extract short-term gains at the expense of long-term risk.

Legacy costs are real costs. The big three and the UAW agreed to assume these costs. Regardless of the reasons why they did so, the fully-loaded labor rate is relevant. After all, the fully-loaded labor rates of their competition --unencumbered by the burden of well compensated retirees, has made them significantly more competitive.

Posted by: Cambaers | Nov 30, 2008 2:52:25 AM

But the problem remains the same. The American companies got themselves into a bad financial situation by making commitments they could not keep. The point is that poor financial decisions got them into a mess. Will the Government now pay for these pensions?

Didn't the airlines have the same pension problem a few years back? Didn't they walk away from the pensions. Is this something viable for the car companies?

Posted by: anon | Nov 30, 2008 2:58:28 AM

Having worked in management in accounting for a unionized company, the cost of their benefit package is too low. You can't get a gold plated health care plan and a defined benefit pension for $10 an hour. we were paying a little over $20. Throw in Workmen's compensation, and unemployment benefits which can be high for union workers (I saw more insurance scams from those workers than from any where else I've worked), plus the employers portion of the taxes, and $50-$60 an hour really were our labor costs.

It's true that they aren't taking home $140,000 a year, but a lot of money is wasted, cause if you raised their salary and let them select their own benefits and took the money out of their paycheck the way normal benefits are paid to the rest of Americans, they would never select such expensive benefits. It's a tremendous waste of resources.

Posted by: Carl | Nov 30, 2008 3:02:23 AM

The 20+ years UAW workers do make $140,000/yr. Some of it is overtime pay.

Posted by: Roy Mustang | Nov 30, 2008 3:11:39 AM

And yes, the only one pulling figures out of thin air is Cohn. The UAW workers do make over $100K/year in cash.

Posted by: Roy Mustang | Nov 30, 2008 3:14:38 AM

And these newspapers wonder why they are going out of business?

Posted by: Ben | Nov 30, 2008 3:25:08 AM

It's amazing how easily confused or lazy people get when referring to these numbers. I've seen more than one person throw the $70 number around on CNBC. (People who ought to know better)

While it appears the Big 3 and UAW have finally gotten future wages on competitive footing, the other side of equation is-- even at $38 an hour, how many UAW workers are getting paid for sitting on their hands? Does the obligation to pay idle workers continue under the terms of the new contracts? If so, I don't see how they can ever be competitive. Anyone know?

Posted by: MDV | Nov 30, 2008 3:25:11 AM

Collective bargaining -
not collective responsibility?

This is "re-duplicative" of the same reasoning we are trapped in with "can't-afford-the-payments" property owners.

As long as the problem is framed that way there is no hope of an actual solution - only stopgap avoidance schemes, with each iteration creating more poverty and desperation.

Posted by: G.E. Taylor | Nov 30, 2008 5:30:53 AM

This is illuminating and I fear it is a microcosm of the larger problem we all face with social security and medicare which is too few workers left to support the retired beneficiaries. I'm surprised it has not been portrayed as more of a generational conflict. The longer it goes un-fixed the greater the likelyhood that it will become one with dire consequences.

Posted by: Ward | Nov 30, 2008 7:17:48 AM

That is the difference between burdened and un-burdened numbers for calculating cost per employee. Wages are the unburdened cost, without any benefits or overhead added in (such at staff to track pay, ensure federal guidelines and regulations are met, plus all sorts of other things like non-wage benefits and even such things as compensating for lost work time due to things like re-work of poorly QA'd pieces). Coming from the Federal side and having to find those numbers for my agency took some doing - no one wants to let it be known they have the actual keys to the kingdom. Finally it came down to a simple percentage generally applied across the agency (for use at high level work) that out of the burdened cost 35-38% was the burdened amount and you were then left with the remainder as actual pay. Notice this does not include calculations of work-time efficiency for work being done, just the burdened cost per hour of having someone at the agency. Efficiency is a whole other topic relating to productive work hours.

Simply put, the amount that the employer has to cover includes all of those wonderful costs that are 'invisible' to the employee (by and large) and yet necessary as overhead for the employer. At the place I worked the government picked up 40% of the healthcare costs, which were *not* reflected by the amount for a given plan. If you put in, say, $120/mo (fictitious figure) the government was putting up an amount equal to 2/3 of that or $80/mo. You don't see the $80/mo ever show up anywhere, and yet it is a necessary budgetary figure that must be tracked and paid for by the employer. That also goes for a host of other overhead, like the mentioned pension and retirement benefits, that add to the burdened rate of payout as it is a functional part of keeping someone employed. When you consider all the work done to keep productive employees employed, meet all obligations and ensure that all overhead health,safety and other guidelines are met, especially those written into contracts, then you get an idea of how that burdened cost can balloon very quickly. Every 'benefit' that is not directly attached to wages becomes burdened overhead. Wages are often the smallest part of the burdened cost... of course federal employees have a whole, separate agency to handle retirement and such, so agencies don't get that portion to figure out, and you can only find that true cost if you look at the entire government and the burdened cost per employee only at that level. I haven't asked for the keys to that kingdom, but they would be interesting to know.

Posted by: ajacksonian | Nov 30, 2008 7:33:08 AM

Yes, half of the cost of a UAW worker is in retiree benefits -- but why on earth should taxpayers be asked to cough up billions so that UAW retirees can preserve their better-than-Medicare coverage (much better coverage than most taxpayers will enjoy when they retire)?

And there are other remaining differences between the UAW and transplant workforces -- defined pension plans instead of 401k plans, the jobs bank, and (probably most important) the restrictive work rules that make Detroit labor less flexible than labor at the transplants. The idea that the UAW has already done everything is the line that Gettelfinger is selling, but I'm not buying.

Posted by: Slocum | Nov 30, 2008 7:36:47 AM

Interesting. I wonder what Congress' pay is by these standards? Still, bailouts (wealth redistribution), can only be justified if you [further] abandon the concept of capitalism and freedom.

Posted by: djr | Nov 30, 2008 7:39:24 AM

I get so mad when the "experts" tell us how "fair" union benefits are. Maybe the industry is getting a handle on the benefits package, as you say. The problem is the reirees package. That is rediculously expensive and totally unsustainable, as exemplified in the fact that the Auto companies can no longer afford to pay them. Now the UAW wants $25 Billion of our money to pay for health benefits for their 780,000 retires AND THEIR DEPENDANTS. That must be at least one and a half million people. Their health care plan is FOR LIFE. They don't go on Medicare at age 65 like the rest of us. I wonder why? Do you think maybe it's because they have a Rolls Royce health care plan, including vision, hearing and dental benefits? Again, it is for life! What company could possibly sustain that kind of package and still be profitable?

UAW RETIREES ARE CERTAINLY WELCOME TO KEEP THE RETIREMENT PACKAGE THEY CONTRACTED FOR. BUT THOSE CONTRACTS ASSUMED THAT THE AUTO INDUSTRY WOULD BE FUNDING IT. NOW THAT THEY WANT THE TAXPAYERS TO SUPPORT THE AUTO INDUSTRY/UAW, IT IS TIME FOR THEM TO HAVE THE SAME BENEFITS THE REST OF US HAVE - MEDICARE (OR SOMETHING EQUIVALENT).

After reading your arguments, I still don't feel a lot of sympathy for the auto industry. If they get the bailout, just keep it in the company where it can be profitable, and don't use it to sustain retiree benefits.


Posted by: anne cink | Nov 30, 2008 7:41:18 AM

Regardless Unions should be banned, what were once needed is only left for silly adults who act like children to leverage for an unfair advantage. I also don't see a problem with the 70$ figure either, maybe their benefits are are very good? Why is that not a valid concern when associated with cost per employee? Sometimes people take jobs for better benefits rather than hourly wages or salary, and in the end those benefits cost the employer money. You talk like that number is invalid because it's not in their take home wage.

The clear fact here is the big "3" don't deserve to stay in business, you can't ride the fail whale forever. By bailing these losers out we basically tell competitors that in America you can suck at your job and still win in the end. Why would other companies find value in competing in a market where you cannot overcome your competitor because the government just bails them out with fake money? The more and more we do this, what is the worth of our dollar going to become? Not only is the government using our so called "tax dollars" but they are lowering the value of our savings.

In the end I sometimes think we should get some grade school children to run things, because apparently our gov and CEO's cannot. The only thing CEO's are good for once they get the taste of millions / year is wasting that money on things far beyond reason. The real men in this country aren't the CEO's, nor the factory workers who complain how their job is going away, it's the people who continue to work hard, sacrifice and can succeed no matter what the obstacle all without crying about the hardships they face.

Posted by: jon | Nov 30, 2008 7:41:20 AM

Has anyone anywhere, at any time, ever seen anything that persuasively argued that the correct policy going forward is not to allow the Big Three to slide peacefully into Chapter 11?

The automakers are paying too much for the quality of cars they're getting. The rest is details.

Posted by: Jonathan | Nov 30, 2008 7:41:46 AM

I'm not from Detroit, I did not go to law school, and I am not a tax attorney. However, the baseless ignorance that many display as to how that figure was reached is laughable. The $70 figure also includes money and compensation being paid out to retirees. This has to be figured in as a labor expense since it is GM's responsibility to pay for it. They are paying out about $9 billion a year in health care costs to active employees and retired.

People are to wrapped around the axle on trying to prove or disprove the wage controversy that they are missing the overall point. Exorbitant labor costs whether retired or not are about half of the problem GM has been facing. The other is flawed product design not keeping up with CAFE standards and the American consumer.

Posted by: Mike | Nov 30, 2008 7:58:23 AM

(Sorry if this is an unnecessary re-post)

Mr. Buchanan:

Your arguments seem to be similar, in form if not in substance, to those put forward in defense of the "I-can't-keep-up-the-payments-on-my-residence" and the "My-financial-institution-is-failing-because-our-assets-are-losing-value" crowds.
(see, http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=312766781716725)

They and their enablers are too many or too big to fail. They insist that collective or individual bargaining can only be allowed to result in a gain --losses must be born by someone else.

Who will tell the truth to these thieves and embezzlers?

Posted by: G.E. Taylor | Nov 30, 2008 7:58:33 AM

"The number only gets to $70 an hour if you include the cost of benefits for retirees"

...and the only way you get to discount that number for active workers is if you assume they're all going to die immediately upon retirement, or never work long enough to get that money.

Note also that employee wage costs aren't just the gross amount per hour printed on their paychecks. Union workers also have a BIG additional overhead of effectively zero-production stewards and union officials that has to be considered when making these calculations. This is over and above the normal administrative cost incurred by the auto manufacturers for any employee.

Posted by: cirby | Nov 30, 2008 8:00:17 AM

I once worked at CAT (UAW Union), 30+ years ago. I was in a management training program which involved working in the plant to learn operations. The CAT attitude then was that unions "kept the workers off their back"!

However, in addition to the above and oft-mentioned wages, health care, etc. there were a number of other completely ridiculous benefits. These included a bonus of three weeks vacation (pay was 1/52nd of last years total pay and overtime); personal time of X-days per year; attendance bonus amounting to an hour per week accumulated FOR PUNCHING IN & OUT ON TIME! I once calculated I had a total of 11 weeks off, with pay annually.

Why are the automakers/CAT in trouble.....? Like you need more info?

Posted by: Duke DeLand | Nov 30, 2008 8:15:00 AM

I note that the older union generation is having the younger union generation take a lower income, and less benefits than it got. Kind of like America in general.

So, what is the political future where young people will make less and pay more.

I smell tax revolt.

Posted by: Paul | Nov 30, 2008 8:36:54 AM

@Cambaers

"Employees at the big three are compensated with funds today, while they are working, and (post-retirement) funds tomorrow while they are not working. It is misleading to only count hourly loaded salary as real earnings when the employee fairly expects receive benefits after retirement. Therefore they certainly earn more than $38/hour. If they or their direct dependents live to the average life-expectancy, this would be the equivalent of 35 years at 72% of their top compensation according to the current UAW contract that expires in 2010. If anything, $70/hr is too conservative, because it merely reflects the current outflow from contracts that were marginally less lucrative."

Precisely. Why not stop the spin? Why not stop manufacturing alternate realities to suit your ideological predispositions, Taxprof? What is important here? Isn't it the bottom line? Please, edify us all. Explain to us why, exactly, pension and health benefits that, according to the current contracts, the Big Three are obligated to pay, not just for currently retired workers, but for active workers once they, too have retired, should not be included in the bottom line. In fact, under the current contract, the Big Three can expect to pay nearly twice as much per new worker they hire as non-union producers such as Toyota over the average life of the worker.

That is the bottom line. Read the contracts, Taxprof, and then, please, explain to us why you are trying to bamboozle your readers.

Posted by: Helian | Nov 30, 2008 8:40:36 AM

Thanks to the UAW, this family will never again buy a car made by the Big 3. I refuse to fund UAW pensions and healthcare, and foreign makes are still superior in quality. We've owned cars by all 3 within the past 3 years - each with noticeable design flaws and downsides that many foreign makes rarely exhibit. Unions virtually guarantee lower quality. Paying for their benefits and political activities just adds insult to injury. Not anymore.

Posted by: Peg C. | Nov 30, 2008 8:50:17 AM

Just two comments--GM last year paid out $18 million for VIAGRA health benefits--!
Ford Oakville Ontario plant--Most workers rarely work over 3 months out of the year--shut-downs,sick leaves,tons of overtime to make the differance. Now comes the kicker--Canadian government policy on Unemployment insurance--just for the 3 automakers--any layoff,shutdown--Union worker gets full benefits--unlimited . Government allows Motor companies to top the salary to 92% of max wages--WITHOUT A CLAW BACK. Now if your an ordinary non- union worker stiff out of a job--any money other than received from the unemployment benefits gets taken off and if any other reason than layoffs--no unemployment benefits and 6 months max>If you quit your job--you get ZERO from your government--at FORD--you get $100,000 package---A royal sendofff :^(

Posted by: George in Toronto | Nov 30, 2008 8:56:13 AM

Does it really matter where the money is actually going ? Whether to group 'A' or to group 'B' it is NOT going into the pile which might enable the companies to survive.

Why should the taxpayer have to pony up cash for at least two years to keep incompetent and short-sighted corporate entities afloat ? Will the companies in 2011 pay back every dime with interest? Will they vow never to darken our financial doorstep again ? Will all the managers be subject to a performance review of their past behaviors and given the boot if they have been part of the problems ? Will the workplace 'rules' be completely relaxed so that maximum efficiency will be attained during the production process ? Will the companies be required to submit to monitoring of their future performance while they are busily taking money from the taxpayers ?

So many questions with one answer ------- Not a hope !!

These guys(managers & Union) want a bailout to save them from themselves, but they don't want to really change. Their performance at the recent hearings was all the proof that anyone should need.

This article implies that all will be well by 2010. The far more likely outcome is that by 2010, these corporate doofi will have already been back at least once for more cash, and will probably be at death's door once again.

Let them all go bankrupt and then restructure the 'legacy' payments so that the past is not a millstone around the neck of the present. Anything else is just flushing good money after bad.

Posted by: dougf | Nov 30, 2008 8:59:56 AM

I have an uncle who is retired from the big three. After reitrement he bought a bigger brand new house and owns a cabin up north which he drives to every weekend in the summer. My friends dad is retired from GM, he owns 2 homes, 1 in the northern part of Michigan and one in FLorida on the beach.

I live a fairly modest life. I live in a relatively small house in a neighborhood that has been declining in the last 5 years.

Why should me and my kids subsidize and bailout these life styles?

Posted by: TomT | Nov 30, 2008 9:10:00 AM

It really doesn't matter how you do the math. The bottom line is that all of that cost gets rolled into the price of a mediocre car that people don't want to buy at the price they need to charge to cover that cost. If the American public does not wish to voluntarily give them their money in exchange for their product, why should they be forced to give them their money in exchange for nothing?

Posted by: Stephen Macklin | Nov 30, 2008 9:11:03 AM

It's the product as much as the workers. India is on the way to building $2,500 cars. While I can buy a desktop computer for 1/10 of what it cost 10 years ago, car prices have spiraled upward to the point that I must spend over half a years income to get one now. Why is that? Because everyone wanted it that way. Unfortunately, as with the housing market the model of ever-increasing car luxury and the wages to go with it were never anything more than a Ponzi scheme. It was never possible for it to go on forever and the necessary readjustment on the part of workers, companies and consumers is going to be painful.

Posted by: Boyd | Nov 30, 2008 9:12:23 AM

I really have no idea so I am asking? Based on experience, what does a UAW member make? Could someone write in with an answer. Starting? 10 years in? with a reasonable amount of overtime?

The medium sized city I used to live in printed salaries of city employees every year. Several bus drivers were making well over $100,000 by putting in every hour of overtime they could get. So surprises can happen.

Posted by: Mark_0454 | Nov 30, 2008 9:24:03 AM

What's the debate Tax Prof?

"If this claim were true, it would mean that a 40-hour-per-week, 50-week-per-year worker earns $140,000 in annual gross income."

No - it means the cost of the employee's wages AND benefits for both current AND retired employees would equal 140,000 a year. Not so hard to figure out - GM has too many employees who no longer work and receive very good benefits. If the "big" 3 can't fix that problem, they'll never be able to make competitve product vs. the transplants.

Posted by: Tax Student | Nov 30, 2008 9:29:22 AM

The average wage for hourly workers at GM is $78.21 per hour, ACCORDING TO GM ITSELF. This figure includes pension obligations to the current employees and other post-employment benefits ("OPEB") payable to those employees. It DOES NOT include obligations to current retirees. GM's presentation to investors announcing its 2007 agreement with the UAW, filed with the SEC on October 15, 2007, can be found here: http://www.sec.gov/Archives/edgar/data/40730/000095012407005130/k19262exv10w3.htm See p. 23.

Under GM's 2007 labor agreement, wage reductions will begin in 2010, but only for NEW HIRES who are working in NON-CORE positions at GM. See pp. 22-24 of the link. The non-core positions appear to exclude all auto assembly positions and instead include things like "material movement." According to GM's own presentation, the average wage for EXISTING EMPLOYEES will remain at $78.21 per hour - and will not be reduced at all. See p. 23 of the link.

Since GM will be downsizing, it will likely be laying off workers, not hiring new ones. So, the reduced labor costs theoretically possible under the 2007 GM-UAW contract - which in all events apply only to "non-core" employees - are unlikely to materialize to any significant extent for many years.

While it may matter to an employee whether he or she is paid $78.21 in cash or in other benefits (including pension and OBEB), it is irrelevant to GM's costs and competitiveness - either way, it must pay or account for those costs.

Good policy must necessarily be based on accurate understanding of the facts. I hope that these facts help.

Posted by: Ken Nachbar | Nov 30, 2008 9:36:54 AM

They build in Canada cause Healthcare is free ;P

Posted by: Neil | Nov 30, 2008 10:56:29 AM

"Collective bargaining - not collective responsibility?"

No, the responsibility for this seems to fall on new hires - whose union has skillfully negotiated below average pay and benefits for them rather than cut into the bloated pensions of those who helped run the companies into the ground in the first place. Not a big surprise, given that the newer hires are a tiny minority.

THAT is a terribly damaging story, and (I suspect) the chief reason why the unions have not spent a great deal of effort publicizing the inaccuracy of the $70 figure.

Posted by: Mr L | Nov 30, 2008 11:05:19 AM

"The number only gets to $70 an hour if you include the cost of benefits for retirees"

...and the only way you get to discount that number for active workers is if you assume they're all going to die immediately upon retirement, or never work long enough to get that money.

G.E. Taylor, I do not think that is really accurate. This $70/hr benefit is the result of retirees and their families accrued over the last 40 years. These accrued retirees are dying at a faster rate than new ones are being added to the rolls, so this number will likely decrease.

Also, what reason do the auto companies have for including a cost like retiree benefits into their current hourly labor costs? Is this any more justified than factoring the cost of the factories or advertisement in their hourly worker rate? It is done solely for the purpose of inflating the number and making UAW worker sound greedy, but realistically what responsibility does a UAW worker have to make concessions to please an uninformed public?

Posted by: Cyrus | Nov 30, 2008 11:19:23 AM

Exactly what do these people do that makes them worth even $28/hr? This is a bolt hanger's union. There is very little they do that couldn't be learned by any competent worker in just a few days. There is no reason they should be paid a higher wage than the guy working for a manufacturer of refrigerators, or assembler of computers. The labor costs of car makers is only one extravagance that makes car prices exorbitant.

Posted by: Buford Gooch | Nov 30, 2008 11:30:06 AM

To: Cyrus: .....but realistically what responsibility does a UAW worker have to make concessions to please an uninformed public?....

What responsibility you ask? When the UAW and the auto industry ask us for OUR $25 BILLION to pay for those retirees' benefits (and how long before they ask for more?), then it is time for the UAW worker to "make concessions to please an uninformed (?!!!) public". How dare you smirk at us as if you are so entitled to your golden goose policies! You think these privileges are mandated just because you have a CONTRACT, even if the company that is supposed to pay the price is going bankrupt trying to do just that!

Posted by: anne cink | Nov 30, 2008 11:47:31 AM

The ~$70 figure is legit. The costs for retired union members (negotiated by the UAW) represents part of the labor costs paid by the Automakers. TNR can whine all it wants, but ~$70 is the right number to use.

Posted by: Brian | Nov 30, 2008 12:37:04 PM

Cohn needs to brush up on his finance/econ basics before typing out paragraphs of blather.

All in all this scenario looks pretty similar to what will happen to all of America with social security and medicare funding/spending in the coming years!

Posted by: Sagar | Nov 30, 2008 12:48:34 PM

Can viable car manufacturers be built out of the post Chapter 11 wreckage of Ford and General Motors? Assuming they can build reasonably good products that consumers want, what labor cost is sustainable?

I assume that GM and Ford need to move from a defined benefit model to a defined contribution model to survive. Pay higher wages, but replace pensions with 401k plans with and provide healthcare benefits for current enployees only. What union companies have successfully made this transition from defined benefits to defined contributions?

Posted by: George | Nov 30, 2008 1:05:23 PM

jimminy...I have a four year engineering degree, working in design of capital items, and I make 31/hr salary. I "really" don't care to listen to ppl bitch about how much UAW workers get paid. My dad retired from a plant on an early buyout and STILL takes in more on his pension than I do...and all he did was hang doors. Awesome, someone remind me why I went to college?

Posted by: | Nov 30, 2008 1:20:26 PM

Why are the automakers/CAT in trouble.....?

But CAT isn't in trouble -- it took on the UAW with a series of strikes that lasted most of the 1990's (on and off) and ended up with a sustainable cost structure. CAT has been a healthy, profitable company.

Posted by: Slocum | Nov 30, 2008 3:14:52 PM

Mr Buchanan: You seem to have missed the last part of Sorkin's quote: "$70 an hour, including health care and pension costs."

I do agree with your last statement: "getting the right answers is impossible if you are working with the wrong numbers (or if you don't understand the numbers you're working with)."

Posted by: Joe | Nov 30, 2008 4:08:31 PM

The money line in the whole article is "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 bottom line is this: why unionize if the pay will actually be worse AND many of the big three workers won't have a job at all.

There was a time for unions, that time has passed, now let's get rid of them in education too.

Posted by: GMP | Nov 30, 2008 5:03:54 PM

The article misses the point. I don't think anyone believe that CURRENT employees made $70.00 per hour. If you take the TOTAL COMPENSATION being paid ALL employees and FORMER employees and spouses and divide it over the number of cars sold, you may come up with that figure. When the Big Three are in competition with other companies without those costs, you get the differential in terms of TOTAL COMPENSATION (not wages). Since the companies have to pay this whether any cars or sold or not, it does not matter if the WAGE costs for CURRENT employees are $28.00 per hour or the same as other manufacturers. The only way these costs are sustainable is in a market in which the BIG THREE have no competition and Chevrolets costs $40,000.00, which the consumer HAS to pay.

Posted by: Joseph McNulty | Nov 30, 2008 8:12:04 PM

In 1979 I was watching television. In a sob story about UAW members who were threatened unless Chrysler got a $1 billion bailout, we were treated to the misery that would ensue for assembly line workers unless Chrysler were saved. They went over all the terrible things that would happen to a "typical" worker in an effort to generate sympathy. Why, this family of four might lose their five bedroom house, their vacation home at the lake, their four cars, their boat and all the necessities of life.

Since that time I've had little if any sympathy for the poor UAW workers and the parasites in the media, whether the network news then or the New Republic now. I don't know Mr. Cohn, but if he writes for TNR, he's either a liar or a left wing propagandist, probably both. GM workers might not get $70+/hr, but they cost GM that amount. The UAW has killed the US auto industry. We can keep it on life support forever I suppose. But it's dead. The sooner we realize it, the less it will cost.

Posted by: Ken Hahn | Nov 30, 2008 8:26:49 PM

Right now most auto components are made in non union sweat shops throughout rural midwest which do not pay their workers living wages or any benefits. The auto contracts are two tiered meaning younger workers do not have the wages or benefits coming to them after retirement. And even that is not enough!! Those complaining about the unions need to take their own pay cuts and quit whining. Who has the right to decide what these people are worth? After all sleaze bag Paulson was given several hundred MILLION to run a bunch of finance scams at Goldman Sachs and now wants sevre trillion handed to his banker buddies after they ran their companies in the ground. I wish I had the union the lawyers or accountants have where the state enforces anti competetive certification requirements to keep wages up. The economy will not heal till it sheds a large chunk of the dead weight including lawyers, accountants and especially salesmen who lie for a living and are nothing but parasites.

Posted by: brs | Nov 30, 2008 11:55:06 PM

The real problem is the cost of selling things in this country. It drives up the price of everything by several times with no benefit to society. Salesmen can make a six figure income with no education by lying for a living. They produce nothing and are only parasites who drive up the cost of everything. The economy will not become healthy till we make it more rewarding to be a producer than a salesman.

Posted by: brs | Dec 1, 2008 12:02:57 AM

Regardless of if the $70 number is right or not, if we assume the $38 number ($28 wages and $10 in benefits) is right, these union workers, on average , are getting about $80000 a year in wages equivalent to what someone who had to fund their own 401k would be getting. That's $80000 per person!! The average family income in this country (which typically includes two workers) is about $45000, and the average hourly compensation (wages + other) in manufacturing is $31.50. So these guys are making about 25% more than the average manufacturing worker in the US, but they work for companies that have been getting smaller and smaller and with less and less profit (or more and more loss) for about the past decade. So in fact they should be getting about the same or less than average. And most of those workers have a high school diploma and some additional training. Thats a VERY good wage for basically no education and a job, on average, that requires little skill.

As for the "get paid after you've been laid off" bullshit - whoever agreed to that contract should be shot!

The reality is that the Unions and their workers have screwed themselves by asking for (and getting) too much, and now they have the audacity to come back and ask us to bail them out after they have bled the coffers dry? make no mistake, the execs share the blame too, but the UAW and the workers share at least 50%.

Posted by: Andrew | Dec 2, 2008 5:45:14 PM

with all the talk of a bailout i wonder why no one has asked the most obvious question.why dont the car companies,management,union,retirees et.al. bail themselves out?the uaw claims over 700,000 thousand active and retired members.surely management has a few hundred thousand recipients of auto money largess.these are all people who have worked hard for their pensions,pay,and benefits.if every one of these people kicked in one thousand dollarsto a fund to sustain the industry then there would'nt be a need for a bailout.a thousand dollars is not a lot to ask from people,especially retirees who are usually pretty comfortable.in time that thousand dollars would come back to the donors in the form of increased benefits or just in the form of not cancelling benefits.and, as money makes the world go round,the government should force the banks to provide loans to anyone who requests a loan for that purpose,at 5percent.with that move the unions and auto companies will take the lead in showing the world that the usa will take care of its own problems.there is bound to be a lot of screaming from the parties involved but they dug their own grave and they can dig their way out.this is just a proposal that can be kicked around but it is a start if the automobile people,all of them,seriously want to keep the industry going for themselves and their children and their children's children.obviously,the fat cats who made so much over the years should be required to kick in more but this is just a suggestion to kick around and modify or add to if need be. as a gesture of solidarity with the auto industry,i will pledge the first one thousand dollars if the industry takes up my suggestion.may god bless the management and workers of the auto industry and may god bless america.

Posted by: bill wall | Dec 13, 2008 8:39:42 PM

Speaking as an auto worker and child of an auto worker I am blown away at the careless way in which you all seem to throw numbers around. I have watched in disbelief as people have called us lazy and overpaid when the workers I know have earned every penny of their wage. My wage is $32.85 and hour of which I pay in taxes enough to support another whole family who are living on social assistance each week. There is also something you may not have thought about and that is these workers (though they may be making what you deem to be too much money) pay for that income with their health, and in some cases (like my father) their lives.
And I'm getting very tired of sitting here reading your misguided opinions about auto workers being paid for sitting on their hands. I'd wish for each of you who shares that opinion to come spend a month in the shoes of these lazy auto workers and see if you can hold a candle. Its very easy to point fingers from behind the desk you sit at so high and mighty in your doughy bodies nodding knowingly to each other about what the fate of the auto industry should be.
Its not the worker on those lines with the bulging discs in his back who caused the problem. These workers are the legs these companies stand on and it would be economically irresponsible to ask him to shoulder the brunt of this loss. Little people with low wages do not contribute to a faltering economy because they cannot. You do not cut the legs a company stands on and expect it to survive instead you cut the fat from the top.
I actually sat here shaking my head about some complete lies written here regarding auto workers getting x days off with pay and any bonus given for coming to work each day. I have been in this industry for 23 years and have never once known of one person who has been given a bonus for coming to work each day or has been paid for a single day off sick unless that person was management. If it weren't so sad it would be almost be laughable.
We do not lead extravagant lives, in fact at the end of the day I go home to cook dinner for my children then perhaps go watch their game (if they have one) then try to clean my house and do lunches and laundry and fall into bed so the next day I can be ready to do it all over again. We're no different than anyone else so why all the hate?
When you're talking about my 70 dollars an hour wage it makes me sick wishing it were $70 and not the $32.85 it is. I doubt there will even be a pension there for me when its my turn to retire.
And for all of you big talkers who want to see the big three fail I almost hope you get what you ask for because you short sightedness has prevented you from seeing that the ramifications of that failure would be A total economic failure of the whole country resulting in you going down with them in the not to distant future. Then you can see first hand what its like to be kicked when you're down for doing nothing more than trying to earn an honest living.

Posted by: KH | Dec 14, 2008 7:27:22 PM