Assume that the graph here is accurate, and the majority of the difference between what foreign auto companies pay for labor is the costs of retiree benefits.
The question- who does everyone think is going to pay for these retiree’s health care if the auto companies go under or the unions throw them under the bus and give up on their benefits? And you can’t just say the pensioners, because as far as they are concerned, they already DID pay for their future health care costs when they took lower wages for thirty years in exchange for benefits.
Or have we just not gotten THAT far in the discussion yet?
(Also, this graph is from Ford, which I understand is in the best shape of the Big Three. Does anyone have a similar graph for GM and Chrysler?)
satby
In the Republican eyes people should never be able to retire anyway unless they worked on Wall Street. So those union slackers can just go be greeters at Walmart when they get old, like the rest of us.
Rick Taylor
Haven’t you heard, John? When we allow workers to invest part of their social security retirement in the stock market, the higher rate of return will. . . . oh damn.
Bob In Pacifica
Three million more greeters. They should all be given pompoms to shake for when the customers, whoever’s left with any money, comes through the door.
Rick Taylor
I can’t remember where, but I remember reading that the American auto industry has a much larger retired labor force to support, having been around longer.
SpotWeld
I wonder what the ratio of employees to retirees for an American auto company vs. it’s Japanese counterpart.
James
It is my understanding that by law companies must put aside funds for retirement in real time (or actually within 90 days). Thus, that $16 dollar "legacy cost" shouldn’t be "counted" at all as a cost because GM has already put the money aside (invested it) *while the employee was working.* In other words, it shouldn’t be a cost of doing business at all NOW if they have been complying with the law all along.
Someone, please correct me if I have this wrong.
James
Also, isn’t it ODD to have US Senators negotiating wage and benefit levels with the employees of private companies? These Southern Senators were actually NEGOTIATING WAGE LEVELS with the UAW leadership in a back room while they were filibustering the bill. Is that outrageous? Unheard of? What. The. Fuck?
Angry United Auto Workers members lash out at Southern senators
Just think about that for a minute. That kind of interference is on the level of Terry Schiavo interference. US Senators from "right to work" states with foreign auto plants trying to NEGOTIATE WAGE AND BENEFIT LEVELS with workers of private companies doing business IN OTHER STATES. That totally blows me away.
zoe kentucky
So much for all their Joe the Plumber rhetoric.
The GOP isn’t against unions because unions often support dems (because dems support unions), they are opposed to the fundamental idea of workers having any power to negotiate anything in the workplace. The GOP is making it clear that they are the party of management– they don’t want to have to listen to talk of livable wages, safe working conditions, adequate benefits and so on. According to them, if you don’t like the conditions at your workplace you should work somewhere else.
Ideally, there would be no unions because our labor laws would make them unnecessary. However, the GOP isn’t in favor of that either. Screw the working class, let’s play politics with millions of blue collar jobs to score political points among their fellow union haters. If that is all they’re going to do over the next few years we’ll see how that plays out. I think they’re misjudging the public’s sentiments about unions and middle class wages.
J. Michael Neal
Ah, the joys of FAS 106. Sure, a company is supposed to recognize its pension liabilities, and fund its plan. However, there were a lot of qualifications built in that allowed them to delay recognition. They also were able to use exceedingly optimistic assumptions about returns on investments.
All of this meant that the car companies underfunded their pension and health plans for years. They used the money to pay dividends. They are now stuck with the burden of making up all of those shortfalls. Having the money they distributed would come in mighty handy about now.
The Grand Panjandrum
@Rick Taylor:
Here. Ezra linked to it in his post.
@SpotWeld: See above linked article. Leonhardt doesn’t give a specific answer but he does note that US automakers have been in business since 1903 and that the Japanese didn’t start making cars here until the 70’s.
ATinNM
Here is the better analysis.
As usual the Automotive companies are lying and the conservatives and neo-liberals are spread ‘The Word.’
Further,
The plight of the US automotive industry has more to do with management’s — the people who are responsible for a firm’s long term profitability and health, after all — stuck-in-the-mud operation. See Who Killed the Electric Car and the lengthy product cycle outlined in the The Machine That Changed the World.
The Other Steve
Rather than Japan, compare pay rates to Germany.
Mr Furious
From the original article:
So, if we further cut other benefits and pay and brought the number all the way from $71 down to Toyota’s $49 obligation, instead of $53, it’d be, what? An extra $930 instead of $800?
American car companies are NOT failing simply because a comparable vehicle costs an extra $16/mo. over the course of a car loan or lease. It’s the vehicles themselves, or more likely, the reputations of the vehicles.
If all things were equal, I’d suspect many people would happily pay a small amount extra to buy American. It’s something else.
Eunoia
You ask "who does everyone think is going to pay for these retiree’s health….?"
Er, um, A.I.G ??? ;-)
ATinNM
@ATinNM:
Blast.
The paragraph starting "In addition to regular hourly pay …" should have been blockquoted.
Bill H
GM and Chrysler are pretty much the same, because a contract is negotiated with one automaker, and then contracts with the other two are based on that one. Which one is the negotiated one rotates.
The problem isn’t actually wages, which goes to show you how idiotic these legislators actually are. The problem revolves around "work rules." One is that workers get paid at 95% while they are laid off, another is that automakers cannot close certain plants… There are quite a few.
I am pro-union, in that I strongly favor collective bargaining. I am a little less certain about some of the "work rules" thing. Sure, there should be bargaining about hours, overtime rules, ergonomic issues and the like. I get a little bit less sure when it gets into things that affect the company’s ability to manage the business, like whether or not it is able to shut an unprofitable plant.
MLE
I’ve seen this graph before, but wondered where the Japanese numbers came from and if biases are built-in. Also from Ford? Wouldn’t an (artificially) low Japanese number apply pressure to unions?
Andy K
The graph demonstrates the differences in wages and benefits of autoworkers in the US.
IIRC, the German automakers who build cars in the States have been doing so longer than their Japanese counterparts. I think then, that those who work at a VW plant in the US probably make a bit more than those in the Japanese-owned US plants.
Deborah
Thanks to JM Neil for answering my question as well…Which gets to my whole hesitation here. I supported bailing out AIG, and they went to a spa. Every senior person who okayed that should have been out the next day. But we evidently don’t have any oversight in place that’s empowered to do that. Calling someone the "car czar" seems to similarly avoid any effective firing of top stupid people. How do we address all those execs saying "Sure we failed to learn from the events of the past 30, 40 years–until a year ago! We had like totally learnt our lesson and were turning around when Kazam! the economy wasn’t good." Yes, you need some people who understand how everything works and don’t have to reinvent the wheel, but where’s the part where we get rid of people making clearly will-blow-up-in-the-future plans like not funding the retirement benefits? What happened to that retooling money they got under Clinton?
Stephanie
Complain about the unions all you want. Management negotiated with the unions and jointly set and approved the terms of the contract. If Management can’t negotiate better terms for the company, then they should’ve been fired. Once again, Management can’t manage their way out of a paper bag over at the auto companies. Strategy, which Management sets, has been dead wrong for over 20 years; they can’t seem to direct engineering to build decent cars; they show up in Washington begging for money without a plan; and they can’t negotiate contracts with workers that keep them out of the red. Repubs blaming workers for this mess is pure politics. Let’s put the blame where it really belongs, with Management.
jon
I hope the next time a Republican Senator grandstands before a police or fire union, someone shoves him off the stage.
demimondian
@Bill H: The problem has nothing whatsoever to do with "work rules". It has to do with two things, retiree health costs and underfunded pension expenses. The companies worked against "socialized medicine" for years (when they viewed adequate health care as a means to recruit workers) and chose to pay out money in dividends which should have been funding the pension plans. (And, by the by, pushed very hard to make sure that there was no oversight of their pecuniations.)
Should the union have been more aggressive about driving the companies to fund the pension benefits? Yes. However, in the end, that’s a management decision, for which management should take responsibility.
TheHatOnMyCat
Also, healthcare costs rise like a rocket, and at the same time, retirees live longer. That plus various funding shenanigans the companies engage in creates a situation in which the scheme only works nicely when there is smooth and moderate inflation, sales growth, investment returns, retiree health, healthcare costs, retiree attrition, and so forth. As luck would have it, we aren’t having those nice things.
Then you add some years of stiff competition on a non-level playing field, and then throw in a sudden complete collapse of sales and credit, and ……
The Grand Panjandrum
@Bill H:
Interesting point. And it looks like Mickey’s goat is out of town so he has this about work rules:
Read the entire piece. He isn’t defending work rules, he is simply saying it is part of the problem. I agree with his basic premise.
Fern
Looks to me like this whole mess is in large part the result of the US refusing to have single-payer public health like, you know, civilized countries. Just makes no sense from an international competitiveness point of view that employers should be expected to cover the health care costs of retirees – though in the absence of any alternative is guess there is not a lot of choice.
Doctor Science
Is my gut wrong in thinking that one reason Ford is in better shape than the other two is that Ford is run by aristocrats, not plutocrats?
That is, there are people named Ford running Ford. They are in it for the long haul: they’re not going to leave if things go sour for a quarter. They haven’t just committed their careers, they’ve commited their family.
I wonder if the UAW would have agreed to wage parity with Toyota, etc., if managment had agreed to structure managment’s payments like the Japanese do — i.e. with no-one making more than about 12 times what the lowest-level guys make.
wvng
John. Senator Stanbenau had an impassioned speech during the "negotiations" where she specifically addressed the issue of gov’t $$ to pay for the pensions should the big 3 collapse. Seems to me the number was around $150b.
The repugs don’t care. This is not about money, as others have ably noted above. It’s about busting unions.
JGabriel
On an OT – but finance related – note, Atrios flags this from NY Daily:
Suddenly, not feeling so much sympathy for Madoff’s investors…
.
Rosali
Who will provide for health care? Medicare.
It looks like that’s the argument that the auto companies will make. The EEOC already put in place regulations that said that companies can change retirees’ health plans when they become eligible for Medicare at age 65. The Supreme Court gave the regulations a stamp of approval in March 2008.
The car makers will just argue that the over65 retirees already have health care through Medicare and that the car makers should be allowed to shuffle funds to pay for other stuff. How the auto companies wrangle their way out of employee rights that have been promised and vested is a different question and this doesn’t address the future solvency of Medicare.
PeakVT
IIRC, the German automakers who build cars in the States have been doing so longer than their Japanese counterparts. I think then, that those who work at a VW plant in the US probably make a bit more than those in the Japanese-owned US plants.
Other way around. VW hasn’t had a plant here for decades and is only now planning a new one – most US-market Jettas and New Beetles are built in Mexico. Honda, on the other hand, has operated it’s Marysville plant continuously since 1982. BMW and Daimler opened their plants in 1996 and 1997 respectively.
Is my gut wrong in thinking that one reason Ford is in better shape than the other two is that Ford is run by aristocrats, not plutocrats?
Ford has always been bigger than Chrysler and more focused than GM, which has too many brands. But the main reason is that the Ford family took their hands off a few years ago and brought in Mulally, an outsider. In contrast, Wagoner is a lifer who has improved things, but not enough.
thefncrow
@SpotWeld: NPR has an analysis of GM vs Toyota. One of the comparisons is of their North American workforce, including retirees, as of 2005.
Toyota has 1,600 retirees, 21,000 production workers, and 17,000 white-collar employees. For each retiree, they have 23.75 current employees.
GM has 460,000 retirees, 108,000 production workers, and 36,000 white collar employees. For each current employee, they have 3.19 retirees.
The Grand Panjandrum
@Rosali:
It seems to me a simple to solution to several challenges, including the auto maker bailout, would be to remove the words "age 65 and over" from the current Medicare law. Bingo. Instant healthcare for all.
If any industry deserves to die it is the health insurance industry. Its executive ranks are filled with a bunch of hideous bean counting creatures who deserve nothing but our scorn. Let them eat cake.
TheHatOnMyCat
The Frist family is on the line and would like your phone number …..
CIRCVS MAXIMVS MMVIII
I think they just want to see soup lines for all those who have less than they do. Grover Norquist’s dream come true.
Juan del Llano
The same person who’s going to pay for my health care (63 years old, no insurance for the last five years)… Mr. Nobody! Welcome to the USA, UAW, where everyone is free to die on the street.
I just checked out the Medicare situation, BTW, on behalf of my wife, who turns 65 in February. WHAT A CROCK! All you folks too young to care should be forewarned: it’s a nearly incomprehensible mess. Furthermore, one pays for the benefits, such as they are. It isn’t free. A quick look at when Medicare hospitalization benefits run out will also show you how easy it is to have insurance (even from the government) and still go completely, utterly broke from the bills. Dental? Hearing aids?? Eyeglasses??? Assisted living or nursing home care???? Not covered in the slightest.
We haven’t really come so far in the last 1,000 years, after all. It still comes down to "stay healthy or die."
Notorious P.A.T.
That’s an interesting thought. I don’t have a very high opinion of William Ford’s managerial abilities but if he is in it for the good of the company that’s better than just being a corporate raider.
kay
I think Republicans made a political miscalculation. They had to frame this as "Detroit", to make it work, politically.
But that simply isn’t true. I live in the rural rust belt. Our County median income is 32k. The collateral suppliers to the auto industry, the workers, don’t make 32 dollars an hour. They make 9. They make 15. They’re also (essentially) local businesses.
That’s ignoring the small business dependent on the workers whomake 9 and 12 and 15 dollars an hour. They’re next to fail.
My County went 65% for Bush, in 2004. We narrowed the margin considerably in 2008, but it still went McCain/Palin.
It’s grim, and it’s not just UAW.
Notorious P.A.T.
I can agree with THAT. Imagine making money from watching people die.
Fr33d0m
I vote for including executive salary in that chart.
CIRCVS MAXIMVS MMVIII
I wonder if Martha Stewart fell for this one.
wvng
Hey John, here’s a brief mental health break. Cat on a slide.
Mike
That comparison is simple, straightforward, and dishonest as hell. "Legacy costs" are a fixed amount that have nothing to do with hourly wages. Say that as part of a recovery plan, Ford decides to concentrate only on its most profitable models, and lays off half its workers. You’d expect it to be better off, right? Nope, that "hourly cost" would double to $32: the same fixed cost divided by half as many man-hours.
Take that item away and the comparison is $55 to $49. Not so glaring a discrepancy, is it?
Rosali
Or who else invested. Conservative radio commentator Rush Limbaugh said on the air Friday that Madoff was his neighbor in Palm Beach.
How much you want to bet that some of the (formerly) rich people fleeced in this Ponzi scheme will be filing suit arguing that there should have been more government oversight?
Church Lady
Why I do believe that the retirees health benefits would be paid the same way just about every other retiree under the sun receives their health coverage – Medicare, compliments of Uncle Sam.
emptywheel
@J. Michael Neal: Actually, this is not true wrt GM.
Unlike Exxon, they are all paid up on their pension fund.
emptywheel
@Mr Furious: That’s not realistic, though.
First of all, that $800 is the current number, which has been brought down of late.
But that doesn’t account for the fact that GM has had much smaller profit margins than the Japanese for some time. That puts a premium on profitability for them, which is why they have continued to emphasize trucks, which have much bigger profit margins.
And that’s all considering ONLY US-assembled cars, not Japanese-assembled v. American-assembled. For those cars that are assembled in Japan (like the Fit and, for another half year at least, the Prius), Japan isn’t paying a lot of the benes that they are paying for the cars they assemble in this country.
J. Michael Neal
There are also people named Ford running the Detroit Lions. How’s that working out?
J. Michael Neal
@emptywheel:
But not the health care fund, which is the specific subject of FAS 106.
The only reason they are caught up on the pension fund is because they recently took out huge loans to fund retiree benefits in advance of transferring the programs to the UAW when the new CBA kicks in. GM is still paying out that money, it’s just that they are sending it to different creditors.
emptywheel
@Doctor Science: Yeah, you’re wrong. First of all, some of the GM families are still closely associated with the company (Debbie Dingell, for example, comes from one of GM’s founding families).
But the guy in charge of Ford right now–Alan Mulally–is as much a plutocrat as Wagoner, who runs GM.
The biggest difference is that when Mulally was brought in 2 years ago, he mortgaged EVERYTHING to implement a reorganization. They have made the company more efficient globally, done a better job of getting their excellent European cars into the production line for the US, and brought up quality to match the Japanese.
Now waht you don’t see reported in the press is that Wagoner did something similar a year ago. THe difference is twofold. 1) Wagoner didn’t make the same gutsy gamble, so he didn’t get the same credit ahead of time to complete the reorg. So they’re hit with the gas/credit crunch at a time when they’re still paying big money for the reorg. (One thing that’s hitting all these companies is the big VEBA payment to the union next year, to offload the retiree healthcare costs, and GM is paying billions to close unprofitable dealers.) and 2) Wagoner has not been as aggressive about getting Euro-designed cars (like the Opel or the Meriva) into the US pipeline.
I will say this, though: GM is MORE competitive than Ford globally. If it can make it through this period it shoudl be able to turn around more quickly bc it has better investments in places like CHina and Brazil, where markets are (or at least were) growing quickly.
emptywheel
@Rosali: Medicare won’t cover it.
Remember that the assembly employees, most of them not being college graduates, often start at 18. So if they work for 30 years and then retire at 48, they’ve got 17 years before they’re eligible for Medicare.
Rosali
Agree. Which is why I was only addressing the healthcare of the over 65 retirees.
Andy K
@PeakVT
Thanks for the correction. Didn’t realize that the VW presence in PA had disappeared 20 years ago.
Andy K
If the World League ever reappeared, I’m sure the Fords would do well with a franchise in Europe. They sell a lot of cars over there- that’s why they aren’t in the same straits as GM and Chrysler are now.
Bill H
So paying workers 95% of their wages when they are not working is not a problem? That sort of thing does not contribute to an unprofitable status of your operation? Being prevented from closing a plant when it is operating at a loss or when the item it is producing is no longer required is not a problem in maintaining profitability?
I do not think I want to hire you to run my company.
Bill H
Depends on the work rules. Those which say, "the management of the company can no longer manage the company because the union is going to manage it instead by setting work rules" are a perversion of the process. Deciding that a plant cannot be closed is a management decision, not a work rule.
J. Michael Neal
It depends. What concessions did the UAW make in order to get these policies? You can’t look at this sort of thing in a vacuum. Without giving these policies, GM would have had to offer higher wages to secure an agreement. There’s no way to know how much.
It’s the same thing with the retiree benefits. At the time, it looked like a good trade off.
demimondian
@Bill H: Yes.
Look, dude, I’ve been in negotiations for purchase where the acquired organization demanded staff be retained after the acquisition. It’s not necessarily an unreasonable demand, even if the acquisition target is currently operating at a loss. We were free to say "yes" or "no", or come back with another suggestion to meet the concerns (e.g. enriched severance for folks who got fired.)
If that kind of discussion can take place between management teams, why shouldn’t a union be able to negotiate for the same terms?
Mr Furious
@emptywheel: ‘Wheel, you’re missing my point. I’m saying that blaming the failure on the cost of workers is a crock of shit. What you say about profitability of models might be true, but it’s still not why they are failing. All that tells me is the SUVs are too expensive, and the other cars are priced too low.
If the average domestic car was equal in quality, reliability, style and everything else—or at least perceived as such—they’d be competitive and profitable. I’m saying that an $800 price difference on $25,000 purchase is NOT significant cause for the failure of these companies.
Common Sense
@Rosali:
Exactly.
The progression is obvious.
Elderly people lose their employer insurance,
They join Medicare in order to live,
Medicare rises,
Limbaugh has an easy target for "evidence" of the Socialist onslaught of Obama — "Look at the stratospheric cost of Medicare in this country!"
TenguPhule
Silly John, the GOP knows that Blue States will pay for it and turn red in outrage over lazy former union workers sucking on the public tits.
Doctor Science
emptywheel etc: Thanks for the correction, as you could tell I didn’t really know what had made Ford different from the other two. From a consumer POV, all I knew was that Ford has been much more likely to make cars we’ve wanted to buy.
protected static
Also, that 95% pay while out of work was the concession management made to the UAW to automate plants with robots. They figured that the increase in productivity would more than offset the cost of paying people to not work – and for a couple of decades it was.
Hyperion
a couple of things….
first, i posted a link to that graph in TWO previous threads! in one of those threads, i also complimented JC on reading the comments. hmm… ;=)
second, as for what "they" are going to do with the retirees and their benefits, it’s obvious: throw them under the bus, or truck, or SUV, whatever they got.
binzerator
@J. Michael Neal:
How does this differ from a ponzi scheme?
binzerator
@MLE:
The numbers to me look too convenient. Consider them from a marketers point of view. They price an item at $1.99 because it is psychologically much lower in price than $2.00, much more than the literal single cent decrease.
So we have Ford claiming their cost is $71 and the same Ford saying their foreign competitor is $49.
What would the psychological impact be if the numbers were $69 and $51? The actual dollar difference is tiny, the psychological impression large. They’ve got a lot of incentive to represent those spreads the way the do, and since we have no way to verify it, it is low-risk too.
I just know Ford fudged that number over the $70 threshold and downplayed Toyota’s below the $50 dollar threshold. It’s worth a lot more than $4 per worker for them to do so.
eric k
The majority of the right (primarily Republicans of course, but plenty of Conservative Dems as well) are in denial that the economic policy of the last 30 years is a complete failure.
The problem isn’t that auto-workers make too much money, the problem is that the vast majority of middle class workers make too little and can’t afford to buy cars. GM and Chrysler are in the most trouble since they were the weakest to begin with, but even Toyota is worried. Real wages have been stagnant or declining for at least 30 years. We’ve hidden the affect through looser credit and various bubbles, the latest of course being turning houses into ATMs. Sure it is easy to say people shouldn’t have spent more than they made, but the dirty secret is the economy is dependant on people consuming at the levels they have been. If the economy hadn’t been growing at the rate it did the rich would have been a lot less rich as well. Sure the Rod Dreyer’s of the world who want us lead simpler lives churning our own butter and so on would have been happy, but I doubt the vast majority of the country would have been happy with a much smaller economy.
The argument for our vast gap between rich and poor and somewhat free market economics and so on is supposed to be that it works better in the long run. Free trade hurts some people in the short run but eventually the overall GDP grows. But the problem is in order for the GDP growth to happen people need to consume, which requires everyone, give the mega rich more money and they just save it. To way oversimplify take a population of 100, in scenario 1 their total income is 100 million, distributed as 1 million each. In scenario 2 their total income is 120 million, distributed as 100 million to 1 guy and 20 million split between the other 99. In our system scenario 2 is considered better because the GDP is higher. Sure for this year, but what happens after 10 years of this? The only way for guy 1 to make any money off his investments is for the other 99 people to buy stuff, which they increasingly can’t do.
Personal Designation
I like this chart better:
Personal Designation
Aye carumba!