The Return of the $70 per Hour Meme 17 comments
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You might expect it from right-leaning commentators like Will Wilkinson. You wouldn't expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn't expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs.
It's not true.
The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.
Now that GM's healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you're going to end up with a very large hourly rate. But it won't mean anything, unless you're trying to be deceptive.
Disclosure: No positions.
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This article has 17 comments:
Anyway, Phillip is right: you HAVE to count the costs to GM of its retiree commitments. GM will no doubt be supplying the cash for that "UAW-run trust" so we'll have to read the associated 10-Ks to know what the final cost of all this will be, but I think you have it backwards: you are trying to be deceptive if you want to ignore the present-day costs of GM's retirement programs.
On Nov 19 11:36 AM Mike In Syracuse wrote:
> I agree with Phillipp10, who seems to be the victim of some kind
> of automated post-spammer that left 9 bogus comments on his post.
>
>
> Anyway, Phillip is right: you HAVE to count the costs to GM of its
> retiree commitments. GM will no doubt be supplying the cash for that
> "UAW-run trust" so we'll have to read the associated 10-Ks to know
> what the final cost of all this will be, but I think you have it
> backwards: you are trying to be deceptive if you want to ignore the
> present-day costs of GM's retirement programs.
Our country does not need that right now.
As for quality, check the numbers. GM has been on par with the foriegn makers for several years. For economy, again check the numbers, no one sells more cars that get 30 miles per gallon or better than GM.
Why do you want to let a company that has stood by its workers, its country, and its retirees as well as GM has go under?? It seems that more people would support GM, and call on more companys to have the kind of loyalty and support for thier workers that GM has.
I just don't get it. GM has done so much for so many in this country, but yet most of you would like to see it go under. Why??
On Nov 19 11:24 AM Phillipp10 wrote:
> But have to include the costs of the retirees. Every other industry
> does. Since my company has no pension and no healthcare coverage
> in retirement, our costs are much lower, around 52 and hour. The
> Big 3 made a big mistake many years ago offering pensions, healthcare
> in retirement along with 30 rears service and out. This means a person
> starting work at GM at age 20 could retire at age 50 and draw pension
> and healthcare till age 80 plus. Come on, this $73 IS a REAL number
> and the employees working for GM do benefit from these generous benefits.
> What excerabed the situation was the decline nembers of present day
> employees that must support the large group of retirees. I say let
> them go BK and re-negociate all contracts including retirees.
On Nov 19 11:48 AM CM in MA wrote:
> We, that is the collective minds in the U.S., seem to have forgotten
> that labor is a cost. This is not surprising since we've now spent
> decades convincing ourselves otherwise. That said, dividing costs
> by hours worked provides no information not least because the number
> calculated doesn't measure anything in terms of output. Does anyone
> remember when we used to think in terms of production in this country?
> Dividing costs by anything other than units of production makes no
> sense and provides no actionable information for management.
The "GM/Ford" party line: Give us 2 months worth of bailout and we'll make wonderful things happen, including a (no details provided) turnaround/change. Note - GM is burning $5B a month and believes they would get $10 to $12B of the requested $25B bailout.
The "no Bailout" party line: US automakers have too many dealers, too many employee-related costs, too many municipality-linked bonds for non-used factories, etc. A bailout equals life-support to delay (only briefly) the imminent death.
The middle ground is not being talked about:
*why not force Chapter 11 for an automaker asking for a bailout
*with US-backed bailout dollars for more than enough to make a turn around (might be more than $25B - more like $50B)
*with a requirement to reduce GM's brands from 8 to something like 3 or less (Toyota has 3, Honda has 2)
*with the goal of undoing the complexities around too many dealers,
* with a goal of dealing with current labor rates for current workers, where appropriate,
*with the goal of making entitlement adjustments for retirees with 30 years tenure at the ripe age of 48 to 55 (who really, truly, get no sympathy from anyone who works anywhere else)
With the goal of protecting the retirees who are in the 60 to 65+ age range and have limited employment options.
At the end of the day, an obligation is a liability. The fact that GM and others have continued to rack up obligations far in excess of their ability to earn is a failure of management from the 1980's and forward. Let's face it, the industry realized that their days were numbered in the 80's. In the 23 years since 1985, it should have been clear to ALL retirees that their pension entitlements could be at risk. We let Enron fail and their employees lost their retirement. We let hundreds of major employers and 10's of thousands of small employers fail every year. The fact that GM, Ford, and Chrystler are failing spectacularly does not mean that their retirees deserve better treatment than all the other folks who do not have personal control of their retirement.
I realize that this amounts to heresy, but it's a very difficult proposition to imagine that the retirees who are taking a monthly payment are free from having to have had considered the likelihood of a default from the Big 3 over the last 20 years. If folks haven't adjusted their savings, taken lump sums and invested elsewhere, or added to their employability, it's a big mistake. And, it's a mistake that the future taxpayers should not have to pay for (entirely).
Note - I'm not "for" a sweeping reduction to all current retirees to take their pension to nothing. I am definitely advocating (in addition to the other changes mentioned above, like adjusting the dealer networks, closing non-producing factories, etc) that the retirees of a certain age range (under 55, let's say) should get a haircut on their pension for some percentage - say 20% or maybe even 40%. I also believe current workers need to get a massive change in pension entitlements. There's no reason another 30 year worker should retire at age 50 from a failing company.
Note that the current lenders would be taking something like an 80% or larger loss on the money they allowed GM to borrow.
Note that the OWNERS have already taken a 90% or more loss on the capital contributed.
Note that the under 30 crowd made the recent election happen. This is not a group that wants to see an aging, doddering, mis-managed company take $25+ Billion of tax money (that they will pay (due to the deficit it will be more like $50B) if it ever gets paid back). I think the "Net Generation" will not stand for anything that looks like the bad actors getting a free lunch or even reduced fee lunch. The employees and retirees, unfortunately and collectively (probably not at all individually) are part of the problem. Management is much more a part of the problem, but unfortunately, we can only fire them once.
By the way - Congress should have the shame to recognize that legislators are part of the problem. As the recent oil price surge showed, it doesn't take a mandate for fuel-efficient vehicles to change what consumers buy. It simply takes expensive gas. Congress could, ironically, establish a gas tax that makes gasoline something like $3.50 (phased in over period of time, like $0.25 cents increase a quarter) with the goal of using that money to pay for the automaker bailout. This increase in gas price (like a price floor) will cause consumers to change buying habits and GM/Ford/Chrystler to change their vehicle line up. Abolishing the overly-complex fuel-efficiency requirements would also allow for the foreign-made high efficiency cars to be imported by the automakers, should they choose to do so.
Too longwinded, I know, but this is a complicated issue where everyone ultimately loses - taxpayers, employees, retirees, shareholders, debt holders, everyone.
On Nov 19 01:27 PM Aliveinamerica wrote:
> Obviously, you like GM has not investigated Activities Based Costing
> (ABC) Labor, especially here is a valuable cost driver for making
> management decisions, especially with a per worker hour cost of $70/hour.
> All labor costs, direct labor and accumulated labor (pensions) should
> be included in this calculation. Move into modern cost analysis which
> is much more accurate than standard costing methods.
On Nov 19 01:05 PM ChemEn3 wrote:
> Why is everyone so upset that GM has a retiree obligation?? Why
> are people upset that GM pays thier employees well?? Wouldn't each
> of you like to have a secure retirement? Wouldn't each of you like
> to be paid for what you do? What is so bad about a company that
> values thier retirees, that values thier people, and that has for
> many, many years??!!
>
> As for quality, check the numbers. GM has been on par with the foriegn
> makers for several years. For economy, again check the numbers,
> no one sells more cars that get 30 miles per gallon or better than
> GM.
>
> Why do you want to let a company that has stood by its workers, its
> country, and its retirees as well as GM has go under?? It seems
> that more people would support GM, and call on more companys to have
> the kind of loyalty and support for thier workers that GM has.
>
>
> I just don't get it. GM has done so much for so many in this country,
> but yet most of you would like to see it go under. Why??
We as a nation are just beginning to realize that domination in the industrial sector on a global basis is not for ever. Structural changes in many sectors is taking place - at a rapid pace.This is "economic evolution". There is no way to stop it - just adjust to it- painful as it may be, this is reality.
Reactionary government involvement can only momentarily stop the bleeding- pro-active responsible government can perhaps prepare us and support a direction for the next 20 years to make our nation once competitive.
in place average wage starts around $14 pr hr
I'm not, but it does bother me that GM can't make enough profit to pay them well and now they expect ME to pay them well instead.
"Wouldn't each of you like to have a secure retirement?" - ChemEn3
Sure, but I don't expect you to pay for it via taxes, the collection of which is enforced via jail time if you object strenuously.
"Wouldn't each of you like to be paid for what you do?" - ChemEn3
Sure, but I also understand that if my employer doesn't make a profit my job won't last and I'll have to find a new one. And yes, I know what that's like, I've been laid off twice myself and spent months looking for a new job with no income and no health benefits. Each time I found a new job I had to move half way across the country. It sucks, but I didn't expect the taxpayer to make my life revert to pre-employment standards.
"What is so bad about a company that values thier retirees, that values thier people, and that has for many, many years??!! " - ChemEn3
Nothing. What is bad is that they expect my tax dollars to pay for the 'value' they perceive but can't pay out of operating cash flows.
The question for GM bailout supporters need to answer is why GM and Ford deserve to survive abysmal market performance which has left them deeply in debt when they have no viable plan to recover except to borrow more from taxpayers? They've had at least 20 years to 'recover' and have only managed to dig the hole deeper.
I watched some of the congressional hearing yesterday and what was missing (and correctly asked) was do you have plans for the bailout money and answer was disappointing. Senior management change is really needed and this can only come about with major change.
What will happen is similar to AIG, once in your in and money needs to keep pouring in.