I like David Leonhardt’s column this morning in the Times, debunking the $73 figure widely thrown around as what the average Big Three employee rakes in an hour.
It’s used as a bludgeon by anti-labor forces to say that unions have led to the downfall of Detroit. Now, I’ll be the first to admit they’re hardly blameless (ever heard of the Jobs Bank?), but management—by the folks that made the real money—isn’t either: You can’t make junk cars year after year and expect to stay in business, no matter what your labor costs are.
Here’s how it breaks down, according to Leonhardt: The average autoworker makes $40 an hour in take-home pay. That’s $83,000 a year, which is very good money (especially when the average house price in Detroit is $20,000), but as far as I can tell, that number includes executives and white-collar employees, too. So union employees make less than that.
The benefits are where the sting really comes in. They add another $15 an hour, an amount that Detroit’s overseas competitors don’t have to match because their governments provide health care and other benefits.
Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.
But Detroit also has another $18 an hour in retiree-benefit costs, which is a killer. Still, Leonhardt calculates that if that were wiped away and the $10-an-hour pay differential with Japanese companies disappeared, it would save $800 per car. Leonhardt is right to point out that it’s not a massive number, but he’s wrong to downplay its importance.
Here’s why via some back-of-the-napkin math: GM, for instance, sold 9.4 million cars last year. Multiply that by $800 a car and that’s $7.5 billion in extra revenue (and, presumably, 100 percent profit). It’s operating loss last year was $4.4 billion. You do the math.
Still, he’s right to point out that the essential Detroit problem is that people don’t want its cars badly enough. And good for him for giving us a clear explanation of the compensation structure so we can have a debate based on reality.
good info,
i am copying and pasting to bring home talking points, everyone talks about how much money the workers make at the detriot 3 but no one is talking about how we dont want to by american cars anymore
Posted by ian on Wed 10 Dec 2008 at 10:56 AM
Not trying to be picky, but I don't think many auto workers are living in those $20,000 homes. The majority of the auto employees live in Detroit suburbs. The $20,000 homes I've seen in Detroit are vacant or inhabited by residents without a steady income.
Posted by T. Shepherd on Wed 10 Dec 2008 at 11:53 AM
When you say, "especially when the average house price in Detroit is $20,000" - that's a joke, right? You don't really think auto workers all live in Detroit.
Posted by Aaron on Wed 10 Dec 2008 at 01:44 PM
Mr Chuitum,
I would usually bow before to the knowledge of an individual like you, who obviously has so many years in the automobile industry, when you take it upon yourself to speak so authoritatively on what ails Detroit and what is and is not “anti-Union” propaganda. But as someone who spent nearly a decade for working for Ford (I was a production engineer at the Hegewisch plant), before moving onto greener pastures, I thought I would weigh in on what could be the worst, most ignorant, most ill informed article on this subject I have had the displease of reading for quite some time.
I like David Leonhardt’s column this morning in the Times, debunking the $73 figure widely thrown around as what the average Big Three employee rakes in an hour.
Did you actually take the time to read the article? Just because the average person (and jackass Sentors like Casey) might get confused between the terms “compensation” and “salary” does not mean that it costs automakers, on average, $73 for every hour a union employee works. Leonhard article is an excellent explanation of where the $73 figure comes from and aside from debunking it, strengthens it a great deal.
You can’t make junk cars year after year and expect to stay in business, no matter what your labor costs are.
You are aware that by nearly ever imaginable metric used to measure quality and reliability, the “quality gap” that was so prevalent 25-30 years ago is now gone? Just this year Mercury ranked in the top five and three Japanese auto makers ranked in the bottom six? Ford did better in 2007 than any other manufacturer, foreign or domestic. While Detroit may not be producing what’s selling, there is no question that overall product quality is no longer an issue.
That’s $83,000 a year, which is very good money (especially when the average house price in Detroit is $20,000), but as far as I can tell, that number includes executives and white-collar employees, too. So union employees make less than that.
Did you ever bother to think that most UAW employees work outside of Michigan (let alone Detroit) and those who do still work in “Detroit” don’t actually live there? Secondly does the term “but as far as I can tell” mean that you really didn’t bother to look into this information? The $40 is for hourly employees only, does include additional overtime wages and does not include any salaried employees.
The benefits are where the sting really comes in. They add another $15 an hour, an amount that Detroit’s overseas competitors don’t have to match because their governments provide health care and other benefits.
The comparisons for labor rates are for US based plants and workers, and last I checked the Japanese government does not allow US employees of Japanese companies to use Japan’s national health care system. As far as I can tell, you didn’t seem to look too deeply into this either.
Still, he’s right to point out that the essential Detroit problem is that people don’t want its cars badly enough. And good for him for giving us a clear explanation of the compensation structure so we can have a debate based on reality.
Production can be scaled back if no one want what you are selling (saving on material costs), but according to the current UAW contracts the auto makers still have to pay the employees around 90% of their full time wages (and benefits) when they are idled. Even if a factory closes completely, it can be years until all obligations to employees, are fulfilled. That cost is also built into the cost of every component of every vehicle built in other UAW supplier plants.
The conclusion that you and all the other UAW shills wont come to, even though all the information leads right to it, is that the union contracts providing for higher than average wages, premium health care, income security and the associated retiree benefits is what make the production costs of the big three so much higher than their non-union domestic competitors.
The Big Three could certainly get market financing for a bailout, but only if they have the ability to scrap their current pension obligations and tell the UAW that they are going to have to suck it up and take some big cuts. The Japanese, Koreans and Germans make cars here and make money. The Big Three make cars in China, Europe, Mexico, Brazil and Australia and make money. The Big Three cant seem to make money making cars in the US and the only difference is the UAW.
I hope this is some kind of volunteer position at Columbia … I’d hate to think someone pays you to write this kind of horse shit.
Posted by Dave Kowalski on Wed 10 Dec 2008 at 02:00 PM
To all,
Sorry for my lame attempt at a half-joke on Detroit housing prices. I do know that most "Detroit" autoworkers don't actually live in the Detroit area.
To Mr. Kowalski,
Thanks for offering your inside perspective on this. No, I've never worked in the auto industry and I don't think anybody mistakes me for an authority on the subject (did I ever claim that?). My point is it was good for a journalist to dissect the $73 an hour figure that's been out there--mostly from the anti-union crowd--and show what it meant.
I'm hardly shilling for the unions when I write that "I’ll be the first to admit they’re hardly blameless (ever heard of the Jobs Bank?)". Clearly, they are part of the problem here.
But as Leonhardt demonstrates, the average employee working today receives $55 an hour in compensation--still a lot of money, but no $73. The rest is for benefits for past employees.
As for your point here:
The comparisons for labor rates are for US based plants and workers, and last I checked the Japanese government does not allow US employees of Japanese companies to use Japan’s national health care system. As far as I can tell, you didn’t seem to look too deeply into this either.
Touché.
And I'm fully aware that the quality gap is largely gone in tests (though a lot of people would disagree). But it was there for decades and is now why Detroit has to charge $2,500 or so less than a foreign automaker does for a similar car. "Making junk cars years after year" as I wrote in my post, devastated the brand images of the American automakers.
And I don't think you read all the way through my post--I made clear that a change that brought these wages in line with what the Japanese pay in American plants would be a significant boost for the Big Three, something I disagreed with the Times about.
Posted by Ryan Chittum on Wed 10 Dec 2008 at 04:11 PM
Wait a minute, since when are the $18 an hour retirement costs to be excluded from an analysis of the per-employee compensation? This figure is part of the negotiated contract and is a part of the employee's ultimate compensation. Sorry, but it's Leonhardt who is being disinenuous and misleading. Do you believe most workers would disregard $18 an hour in retirement contributions as an asset, and blow it off in negotiations? I didn't think so.
Posted by Mark Richard on Wed 10 Dec 2008 at 04:57 PM
This is a fascinating dialogue. There can be little doubt about which ax Mr. Kowalski has chosen to grind, but I, for one, am glad that someone is paying Mr. Chittum to write as he does. The topic begs for examination, in view of the commitment that our Congress is preparing to make on behalf of American taxpayers, and that process is not served by reducing matters to the simplistic, angry partisanship that so often characterizes public dialog concerning such issues.
I suspect we would also do well to consider less tangible issues than labor compensation, and perhaps none suggests itself so readily as the insular culture that seems to characterize top management in all of American “Big Business,” and in this case that of Detroit.
It has been widely reported that Rick Wagoner's trip to Detroit via company jet cost GM $20,000; we have also been told that Wagoner also takes the jet to his home in Seattle each weekend. Without quibbling over the frequency of those visits—or the clearly greater costs—is the sense of entitlement that pervades that level of corporate management to persist under public financing?
In the sixties Detroit introduced the sculpted, styled headlight to replace the simple, round one that had, at the time, cost $5–6 to replace. And we were told that the buying public “demanded” such changes. Detroit was silent about the $300 or more that it cost to replace that new headlight, something I doubt very much we demanded. Nor did we demand the inefficient light transmission that the new headlight introduced.
Clearly, such styling changes, couched in terms of consumer demands and expectations, are rather the cotton-candy offerings of marketing and competition considerations. The considerable effort devoted to creating the “image” of an automobile, along with the enormously expensive and exhaustively-repeated styling changes, are, I dare to venture, similarly motivated and most certainly not the requirements of a discerning, keenly involved public.
It is with some irony that I note GM's currently heavy advertising of their Hummers and Cadillac Escalades; faced with excessive inventory of these costly white elephants, GM would have us believe that the condition resulted from the fickleness of public tastes rather than their experiment in what could be sold to an obliging public. Wagoner, in his recent testimony before Congress, has seen fit to lay GM's financial dilemma at the feet of changing consumers tastes. It would speak encouragingly of Detroit's management if they would acknowledge the role of poor, insulated management decisions at the highest direction, rather than attempting to dodge the bullet which is rightfully headed in their direction.
And it may well be that that the direct costs of labor in auto manufacturing may be a relatively molecular consideration that we would do well to look beyond in what seems our inevitable venture into public finance of the industry.
Posted by Joel Stookey on Wed 10 Dec 2008 at 08:24 PM
Sorry for my lame attempt at a half-joke on Detroit housing prices. I do know that most "Detroit" autoworkers don't actually live in the Detroit area.
A little career advice.
Make a decision, do you want to be a comedian or a journalist …. You can’t be both and trying only brings you to the level of the assholes over at Gawker. Act seriously if you expect serious people to treat you like a professional, act like a child if that’s how you want to be treated. To a critical and judgmental reading public, there is no bridge.
,
Thanks for offering your inside perspective on this. No, I've never worked in the auto industry and I don't think anybody mistakes me for an authority on the subject (did I ever claim that?).
You don’t have to be an authority, just do your homework. Don’t parrot what someone else thinks unless you cad add something of substance to it, which you didn’t.
My point is it was good for a journalist to dissect the $73 an hour figure that's been out there--mostly from the anti-union crowd--and show what it meant.
Facts don’t take sides. The $73 an hour figure came from a study done by Mark Perry, a professor at the University of Michigan. Have you looked at the study to see where he gets his figures from and why he lumps certain expenditures together? Didn’t think so and that’s lazy.
But as Leonhardt demonstrates, the average employee working today receives $55 an hour in compensation--still a lot of money, but no $73. The rest is for benefits for past employees.
Regardless of where this expense is accounted for, it has to be accounted for somewhere. Hourly labor rates are just as good place to lump this expense as anywhere else. You want to argue that retiree benefits should not be included in the overall labor rates, that’s fine but it is a labor related expense and has to be accounted for in the margin sheets somewhere. As the commenter above noted, this is a labor cost because this compensation was negotiated in a labor contract.
Touché.
Its not meant to be a “zing” .. do your homework on a subject or DON’T WRITE ABOUT IT! Credibility is not bequeathed through a title. You have to earn it, and years of banked good credibility can be spent on one bad decision.
And I'm fully aware that the quality gap is largely gone in tests (though a lot of people would disagree).
Once again, facts have no bias. An objective metric that can be repeated is worth countless personal opinions, and people who disagree based solely on anecdotal or personal experiences are just that: personal opinion. And if you agree that the gap is gone, why use it to buttress your argument?
And for that matter, why did Leonhardt use it as an argument that the poor quality of the Big Three’s products is at the heart of its financial woes.
But it was there for decades and is now why Detroit has to charge $2,500 or so less than a foreign automaker does for a similar car. "Making junk cars years after year" as I wrote in my post, devastated the brand images of the American automakers.
It was there for decades but also ended decades ago. It is not 1970 or 1980 or even 1990. It is a continuing myth that has perpetuated itself largely through good marketing.
And I don't think you read all the way through my post--I made clear that a change that brought these wages in line with what the Japanese pay in American plants would be a significant boost for the Big Three, something I disagreed with the Times about.
A significant boost is still not enough to gain back the market share that has eroded over the past 40 years. In order for the Big Three to make up the ground they lost, if they even can, they need to be better than the competition. In the car business you go big or go home. There is no room left for carmakers who are number 3 or four, they will be gobbled up eventually.
One last piece of advice: write fewer, higher quality, more extensively researched articles. Quality always beats quantity. You would do your readers a better service by writing one great article a week instead of several poor articles in the same time period.
The internet has enabled "average" people like me to shred lazy, incompetent or just plain stupid journalists. You do your vocation no favor by falling into that trap.
Posted by Dave Kowalski on Wed 10 Dec 2008 at 08:25 PM
Mr. Kowalski has an axe to grind. I doubt he's done yet.
He has a point about domestic automakers catching up... they've made huge strides in short-term quality. For that matter, they've made significant strides in longer-term quality. But somebody who makes the unqualified statement, "that by nearly ever imaginable metric used to measure quality and reliability, the “quality gap” that was so prevalent 25-30 years ago is now gone", has no business scolding somebody else over taking on issues they don't understand. I wish it were so, but it's not. And I don't just have to look at, for example, Consumer Reports. I hear it from engineers who work for the Big Three, designing the cars and trying to catch up.
It's quite correct to point to the difference between wages and labor costs. Kowalski's arguing with a straw man, there. Nobody's disputing the overall cost of labor. People are correctly disputing the ignorant (and perhaps sometimes intentional) conflation of labor cost with wages, to falsely suggest that a typical factory worker for the Big Three pulls down about $150K/year.
There's no question but that the Big Three have suffered from having to discount their vehicles, as compared to perhaps particularly Honda and Toyota. A vehicle may have a similar sticker price, but you could well be paying $2,000 less for the Big Three product after dealer discounts and manufacturer's incentives.Separately, Edmunds.com said on May 1 that incentives hit an estimated $4,247 per vehicle in April for Chrysler LLC, up from $3,835 a year earlier. That was the highest of the Detroit 3 manufacturers. Ford Motor Co. was next, at $3,044, up from $2,972; General Motors incentives were $2,803, down from $3,248, Edmunds said.
Incentives were much lower for the biggest Japanese brands, which have benefited from a turn to more fuel-efficient vehicles. Edmunds estimated April incentives for Nissan North America Inc. at $1,953, up from $1,890 a year earlier; American Honda Motor Co. Inc. at $1,076, down from $1,439; Toyota Motor Sales U.S.A. Inc. was at $714, down from $880. Facts don’t take sides, right?
Posted by Aaron on Thu 11 Dec 2008 at 12:28 AM
(It would be nice if you would turn on the blockquotes tag. Or if you provided a list of the html tags that can be used to format comments. Thanks.)
The following was a quote of the linked article:
Separately, Edmunds.com said on May 1 that incentives hit an estimated $4,247 per vehicle in April for Chrysler LLC, up from $3,835 a year earlier. That was the highest of the Detroit 3 manufacturers. Ford Motor Co. was next, at $3,044, up from $2,972; General Motors incentives were $2,803, down from $3,248, Edmunds said.
Incentives were much lower for the biggest Japanese brands, which have benefited from a turn to more fuel-efficient vehicles. Edmunds estimated April incentives for Nissan North America Inc. at $1,953, up from $1,890 a year earlier; American Honda Motor Co. Inc. at $1,076, down from $1,439; Toyota Motor Sales U.S.A. Inc. was at $714, down from $880.
Posted by Aaron on Thu 11 Dec 2008 at 12:31 AM
I have a brother who is a trama nurse with 6 years of college he gets paid about 45.00 hour these car assemblers are lucky to have a high school deploma. 79% workers(not managers) have no college what so ever!! How can they justify an average with benefits $73.00 hour and thats average some make more than that an hour. I would not buy a american car Go Toyota!
Posted by bernard on Fri 19 Dec 2008 at 06:01 PM