$73 an Hour

$73 an Hour
That figure repeated on television and in newspapers as the average pay of a Big Three autoworker has become a big symbol in the fight
over what should happen to Detroit. To critics, it is a neat encapsulation of everything thats wrong with bloated car companies and their entitled workers.
To the Big Threes defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroits decline. Weve heard this garbage about 73 bucks an hour, Senator Bob Casey, a Pennsylvania Democrat, said last week. Its a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what were doing here.
So what is the reality behind the number? Detroits defenders are right that the number is basically wrong. Big Three workers arent making anything close to $73 an hour (which would translate to about $150,000 a year).
But the defenders are not right to suggest, as many have, that Detroit has solved its wage problem. General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country. Last years concessions by the United Automobile Workers, which mostly apply to new workers, will not change that anytime soon.
And yet the main problem facing Detroit, overwhelmingly, is not the pay gap. Thats unfortunate because fixing the pay gap would be fairly straightforward.
The real problem is that many people dont want to buy the cars that Detroit makes. Fixing this problem wont be nearly so easy.
The success of any bailout is probably going to come down to Washingtons willingness to acknowledge as much.
Lets start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.
The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isnt made up. But it is the combination of three very different categories.
The first category is simply cash payments, which is what many people imagine when they hear the word compensation. It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. Thats why $73 is sometimes $70 or $77.)
The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they dont show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.
Add the two together, and you get the true hourly compensation of Detroits unionized work force: roughly $55 an hour. Its a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Hondas or Toyotas (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.
The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix dividing those costs by the total hours of the current work force, to get a figure of $15 or so and end up at roughly $70 an hour.
The crucial point, though, is this $15 isnt mainly a reflection of how generous the retiree benefits are. Its a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. Youd never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the $73/hour pay of Detroits workers with the up to $48/hour pay of workers at the Japanese companies.
These retirees make up arguably Detroits best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies as opposed to all of society must shoulder much of the burden of paying for retirement.
So heres a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. Thats roughly the gap between the Big Threes retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour the same as at Honda and Toyota.
Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.
Thats because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.
My own familys story isnt especially unusual. For decades, my grandparents bought American and only American. In their apartment, they still have a framed photo of the 1933 Oldsmobile that my grandfathers family drove when he was a teenager. In the photo, his father stands proudly on the cars running board.
By the 1970s, though, my grandfather became so sick of the problems with his American cars that he vowed never to buy another one. He hasnt.
Detroits defenders, from top executives on down, insist that they have finally learned their lesson. They say a comeback is just around the corner. But they said the same thing at the start of this decade and the start of the last one and the one before that. All the while, their market share has kept on falling.
There is good reason to keep G.M. and Chrysler from collapsing in 2009. (Ford is in slightly better shape.) The economy is in the worst recession in a generation. You can think of the Detroit bailout as a relatively cost-effective form of stimulus. Its often cheaper to keep workers in their jobs than to create new jobs.
But Congress and the Obama administration shouldnt fool themselves into thinking that they can preserve the Big Three in anything like their current form. Very soon, they need to shrink to a size that reflects the American publics collective judgment about the quality of their products.
Its a sad story, in many ways. But it cant really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.
http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?pagewanted=1&hp
Millwright Ron
www.unionmillwright.com
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On Fri, 12 Dec 2008 08:50:49 -0800 (PST), Millwright Ron

Sorry that the party is over and that the punch bowl is being taken away. Join the real world.
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Just subdivide your Mc Mansion into multifamily housing and suck up some title 8 housing money. Maybe you can met a few people you have been screwing over for years.
No need to thank me for the advice,
W
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wrote:

BUT....
We all get a new rice bowl with the factory logo, a neat hat, and lifetime discounts on bicycle tires.
The Third World is US!
-- Ed Huntress
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On Fri, 12 Dec 2008 18:14:19 -0500, "Ed Huntress"

===============The news on most of the auto blogs is that the Chrysler vendors are rapidly moving to supplying parts only on a COD basis.
Several of the blogs have Chrysler purchasing management refusing, but they ain't getting the parts either.
A review of some of the comments by our Congressional gasbags and Kamakazies/suicide bombers indicate they expect the vendors to "do their part."
As many of the vendors have been driven to the brink of bankruptcy, and in many cases are now working at cost, in addition to providing zero interest loans through the "90 days same as cash" Detroit vendor payment plans, it is unclear exactly what they are supposed to do.
The Detroit car companies would do well to remember that ANY three creditors can file a bankruptcy petition with the court in addition to the company itself, and the location can be critical, as some jurisdictions are much more "business oriented" than others.
I look for a Sunday B/K filing, ala Lehman Brothers, late at night. Chrysler/GM/GMAC/REsCap are all "joined at the hip," and when one goes they all go.
It will be interesting [in the sense of watching a train wreck] to see how the CDS [credit default swaps] playout, and what happens to the banks when they must write down their GM debt to zero in accordance with mark to market.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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wrote:

COD inthis environment is mot at all George. Merry Whatever.
J
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On Fri, 12 Dec 2008 17:08:58 -0800, "John R. Carroll"

===========In one sense yes it is moot, but it may well force Chrysler into bankruptcy before they had planned. Also note that the status of the Chrysler vendors is rapidly dropping.
The failure of a single critical [sole source] supplier to provide components, whether due to COD issues or B/K will put Detroit out of business just as much as a B/K filing by one of the car companies. All three companies are extensively interconnected through their supplier base, and GM/Chrysler are "joined at the hip" through not only through their joint ownership of GMAC but the large involvement in Delphi [currently in Chapter 11] by Cerberus.
That this is occurring at all is yet another manifestation of the large amounts of "bad blood" that has been generated over the years between Detroit management, and everyone with which they have had dealings, from their suppliers and employees to their dealers and governmental units in which they operate.
American Axle is another critical area, and is just coming off a long and bitter strike, mainly over wage rates. The employees were less than pleased about a 10$-15$ / hour wage cut to "keep the company competative" after it was discovered American Axles corporate CEO Richard Dauch made at least $60 million over the last five years.
It is interesting that the VP for Procurement at Chrysler just resigned for "reasons of health."
==========Chrysler's supplier issues expand Top procurement exec to retire for health reasons
BY TIM HIGGINS FREE PRESS BUSINESS WRITER December 13, 2008
The health of Chrysler's network of parts suppliers is "increasingly at risk" with the number of companies on its watch list for potential problems increasing by 25% within the past three weeks, the company said Friday.
The revelation came as Chrysler's top procurement executive, who oversees purchases from suppliers, announced his retirement from the company. John Campi, who had a long working relationship with Chrysler CEO Bob Nardelli, joined the automaker in January 2008 as executive vice president of procurement.
Campi "has elected to leave Chrysler for health-related reasons," Chrysler said in a statement. <snip> --------- for complete article click on http://www.freep.com/article/20081213/BUSINESS01/812130311
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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<snip>

He's very sensitive to acute lead poisoning and needs to avoid it. d8-)
-- Ed Huntress
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wrote:

To be fair, the boss is only costing the employees $1.60/hour each.
I'm sure he's value for money, don't know whether it's good or bad value though...
Mark Rand RTFM
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The question is whether he's worth as much as 200 employees. I've spent a lot of time at American Axle over the years, and I've never seen any evidence of it.
-- Ed Huntress
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On Sat, 13 Dec 2008 15:15:09 -0500, "Ed Huntress"

===========Chrysler vendor demand for COD has spread north of the border. Includes a major oil company and a utility.
As the posting from one of our Canadian readers reminds us, the problems of the Detroit 3 affect large areas of Canada also.
============Suppliers demand cash from troubled Chrysler
BARRIE MCKENNA AND GREG KEENAN
From Saturday's Globe and Mail
December 12, 2008 at 8:39 PM EST
WASHINGTON/TORONTO A major oil company and a utility are demanding cash up front from ailing Chrysler LLC, offering a glimpse of the threat posed by a collapse of the North American auto supply chain.
Executives at Chrysler, which is considered the most vulnerable of the Detroit Three, refused yesterday to identify the two suppliers.
The biggest risk we have is our suppliers coming and saying I want to be paid on delivery,' Chrysler chief financial officer Ron Kolka explained.
We can't do that. The math just doesn't work. ---------------------- http://business.theglobeandmail.com/servlet/story/RTGAM.20081212.wGMJanuary1212/BNStory/Business/?page=rss&id=RTGAM.20081212.wGMJanuary1212
If Detroint is losing money every day, how does the math work any better with a 45 days same as cash payment plan?
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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wrote:

Sure. When I was at Wasino we sold a lot of production machines to car-parts manufacturers. More were in Canada than in the US. One tier-one Canadian vendor had 24 plants in Canada and one in the US.
-- Ed Huntress
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wrote:

Haha! Does that mean they expect them to dig a hole and jump in? I think some of them are ready for it. <g>

Detroit destroyed many of them, and they destroyed the vendor relationships they had before Lopez (Jose Ignacio Lopez de Arriortua) raped and pillaged in the '80s. That was Detroit's response to foreign competition -- bleed the vendors dry.

I'm beginning to wish I had taken my uncle up on his offer to give me his 40' boat. I could live on it, and it's a straight shot from here to the Bahamian Outer Islands...
-- Ed Huntress
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Ed Huntress wrote:

Aw heck, Ed, you can come with us - although the boat is only 38 feet.
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wrote:

I'll keep it in mind. I was good on the foredeck when I was in my 20s....'could go right up the mast in a bosun's chair, too. Now, I'd be happy to consult and advise. d8-)
-- Ed Huntress
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Ed Huntress wrote:

LOL! I do know what you mean!
But you have to bring your own girl(s).
:)
I want to go to Antigua for race week some time pretty soon. Before I get too old to consult and advise...
Richard
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E

That sounds like a plan. Hope you like to eat fish. There is a nice little bar on Great Inaguana and the food at the Morton salt hotel/boarding house was always good. The Green turtle soup was excellent.
John
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I could live on fish. We used to eat it three times a week or more when I was fishing a lot.

I love green turtle soup. 'Haven't had it for 40 years. Maybe I should start packing, before the whole economy goes south. <g>
-- Ed Huntress
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Ed Huntress wrote:

IF you are ever at the airport in Nassau, Bahamas and want a good lunch you have to go to where the employees eat around the back of the main terminal, much better food and lower prices. Something like Creole cooking.
John
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I hope I remember that if it should come to pass. <g> It's funny you should mention that, because I once ate in a little restaurant next to the Christiansted airport, one that was frequented by the locals, and had the best goat stew I ever ate in the Caribbean.
If the damned little goats weren't bleating around right out back, and if they didn't look so cute (these are very small goats, black-and-white), I could have enjoyed it more.
-- Ed Huntress
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