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Browsing Posts published in July, 2015

What Autoworkers Are Paid vs What Auto Media Says We Are Paid

Darin Gilley

July 29, 2015

 

 

Corporate propaganda is the best way to describe an article by Keith Naughton of Bloomberg News.  “Ford seeks to shake stigma of Detroit’s most generous automaker” is written in the voice of the investor class while hoping no one checks their math to convey a message that automakers in general and Ford in particular are “beset’ by high labor costs.  Unfortunately, I checked their math and this article will show that labor costs are a very small portion of the cost of an automobile.

Let’s focus on the part of the article under the heading Contract context…

Ford ended up with Detroit’s most expensive labor contract because it didn’t seek bankruptcy protection back in 2009 like GM and Chrysler. Those companies have since been allowed to hire as many so-called second-tier workers as they want starting at “entry-level” pay of $15.78-an-hour, while only a limited slice of Ford’s workforce can be paid less than the top-end $28.50 rate.

Back in the dark days of 2007, the union agreed to the two-tier system, with less-expensive benefits and lower pay, to try to end losses at the Detroit Three. During the government-sponsored bankruptcies of GM and Chrysler in 2009, those companies were given the freedom to hire an unlimited number of workers at the lower wage. Only Ford still has a cap that requires a maximum of 28 percent of its labor force receive the lower pay.

Ford hit that threshold early this year, which triggered a clause requiring some of the entry-level workers’ pay be bumped up to $28.50, the rate veteran workers receive, from $19.28, the top end of the second-tier wage scale. The company said it has given that hefty raise to more than 800 workers since February.

As a result, Ford’s average U.S. labor cost, including benefits, is about $57 an hour, $10 more than at the U.S. operations of Fiat Chrysler or Toyota Motor Corp., according to CAR, based in Ann Arbor, Michigan. Chrysler has hired 15,050 workers since 2011, leaving 45 percent of its workforce earning the lower wage.

GM, which has hired 9,100 workers since 2011, has seen less benefit and has average U.S. labor costs of $55 an hour, according to CAR. Fewer than 25 percent of its workers have the lower wage.

Let’s address the issues one at a time.

First, the cap on the number of Tier 2 workers at Ford is 20% not 28%.  Probably a typo, bad but we all make mistakes.

Second, and more problematic is the statement that a pay increase of $9.22 for 800 workers out of a workforce of 50,000 results in an average hourly labor cost of $57 an hour.

This figure was obtained from the Center for Automotive Research (CAR).  Much like the debunked figure of $75 an hour put out by General Motors prior to the 2007 negotiations this figure includes benefits paid to retirees and retirement benefits to be paid to Traditional workers that will become non-existent over time as current Tier 2 workers will likely never receive retiree health care.  While a Defined Benefit Pension is on the table this round of negotiations current Tier 2 workers will not receive this benefit.  As such, active labor costs should reflect this fact.

Here’s a look at the actual paycheck and total compensation costs of a newly hired Tier 2 worker and at a Traditional pay rate with Tier 2 benefits…

 

Projected production of vehicles in 8 hours                330

Cost of each vehicle                                            $25,000

Value of vehicles produced per shift              $8,250,000 (8.25mil).

These are the costs to GM of an hourly employee (Wages and Benefits)

 

$15.78   New hire and Temp hourly wage

.63   PSP contribution equal to 4% of wages

$1.00   PSP contribution per straight time hour

30   Hourly cost of Flexible Spending Account – $600 p/yr

$6.78   Actual 2014 Hourly Cost of Fam. Health Ins.(1,085p/mo)

$1.21   GM portion of Social Security and Medicare (FICA)

      .36   Hourly cost of Term Life, Disability,Tuition reimb.

$26.06   Total Hourly Compensation of a Tier 2 worker

 

$26.06    Tier 2 hourly compensation

X       8    Hours per shift

$208.48  Total compensation per shift of a Tier 2 employee

$208.48     Total compensation per shift of a Tier 2 employee

  X 1000     Employees per shift

$208,480   Hourly Labor Cost Per Shift

 

$208,480 (wages) divided by $8,250,000 = 2.5% 

 

What if a Tier 2 employee earned $28.00 per hour but without the Pension or Retiree Healthcare of Traditional Employees? Let’s call this worker TWT2 as earning a Traditional Wage w/Tier 2 benefits.

 

$28.00  Hourly wage

1.12  PSP contribution equal to 4% of wages

$ 1.00  PSP contribution per straight time hour

.30  Flexible Spending Account – $600 per year

$6.78  Hourly cost of Family Health Insurance (1,085 p/mo)

$2.14  GM portion of Social Security and Medicare (FICA)

      .36  Hourly cost of Term Life, Disability, Tuition reimb.

$39.70 Total Hourly Compensation of a TWT2 worker.

 

$39.70     TWT2 Hourly Compensation

X        8     Hours per shift

$317.60    Total Compensation per shift of a TWT2 employee

 

$317.60    Total Compensation per shift of a TWT2 employee

X   1000    Employees per shift

$317,600  Hourly Labor Cost Per Shift

 

$317,660 (wages) divided by $8,250,000 = 3.8%

 

Please keep in mind that the industry standard for labor costs prior to the recession was between 7-8% according to Steven Rattner, Chairman of the Auto Task Force, also known as the “car czar.”  This figure can be found on page 308 of his book “Overhaul.”  It should also be noted that Single employee’s total compensation will be less that the listed figures due to a smaller Flexible Spending Account and lower health insurance costs.

 

What this article, and most of the reporting on this years negotiation is missing or avoids pointing out is the active labor costs.  The active labor costs are those received by people actually building the product.  These costs will be below the industry standard even if Traditional wages are paid.

 

This is easily illustrated by using the Center for Automotive Research (CAR) hourly labor costs for other automakers, which do not include retiree health care and pension amounts in their total labor cost figure.  With the exception of Chrysler these automakers never provided retiree health care or defined benefit pensions to their U.S. workers.

 

CAR – Ford Labor Costs    $57

CAR – GM Labor Costs      $55

Actual Tier 2 Labor Costs          $26

TWT2 Labor Costs                     $39

 

CAR – Toyota                      $55

CAR -  Chrysler                    $52

CAR -  Honda                       $50

CAR – Nissan                       $47

CAR – Hyundai                     $44

CAR – VW                            $38

 

Obviously, a $39 per hour Total Labor Cost for a Traditional Wage Tier 2 benefits worker is at the bottom end of the labor scale for active employees. Unemployment and Workers Compensation costs are not included but these should be a small percentage of Total Labor Costs.  This figure would allow for enhanced PSP/401k benefits, COLA or increased profit sharing, and other benefits to be included and still remain “competitive” in terms of labor costs.

 

As negotiations progress on a new UAW-D3 contract notice which stories include the inflated CAR figure for labor costs, which include the legacy costs of retiree healthcare and pensions much of which should have already been funded and which informed authors use the actual labor costs involved in building a vehicle.

 

In the last few days automakers have reported their 2nd quarter 2015 financial results.  Despite being “beset” by high labor costs Ford and General Motors reported record quarterly profits of $1.9 and $2.8 billion respectively.

 

Honest reporting on the state of the industry would note that Executives, Management, and Shareholders have all returned to pre-crisis levels of compensation.  The people actually building the products that produce the profits have not.

 

By paying Traditional wages with enhanced benefits the company wins by avoiding having retirement legacy costs on their balance sheet and maintaining a competitive labor rate.  Workers win by earning a middle class wage.  America wins by seeing its investment in these firms repaid with stable communities, a growing middle class, more small businesses, a stronger Social Security system, and a reward for the risk of bailing out these automakers.

 

 

 

 

 

From Economist Dean Baker…

 Economist Dean Baker, a co-director of the Center for Economic and Policy Research, issued the following statement about the 2015 Social Security trustees report:

“The 2015 Social Security trustees report again points to the importance of broadly based wage growth to the finances of the Social Security system. The 2015 report shows that the combined Old Age and Survivors Fund and Disability Insurance Fund will first face a shortfall in 2033, one year later than projected in the 2014 report. Taken separately, the Disability Insurance fund is projected to face a shortfall at some point in 2016.”

“The combined projected shortfall for the two programs is 2.68 percent of payroll over its 75-year planning horizon. This is down from a projected shortfall of 2.83 percent of payroll in the 2014 report. This improvement stems from a number of small changes in assumptions that more than offset the negative impact of adding a year of large projected deficits (2089) in place of a year of surpluses (2014).

“Wage growth is the key to the program’s solvency for two reasons. The first is that the upward redistribution of wage income over the last three decades has played a large role in the projected shortfall. As income has been transferred from ordinary workers to those at the top of the wage distribution, a larger share of wage income has escaped taxation. When the Greenspan Commission set the cap for taxable wages in 1983, it covered 90 percent of wage income. Currently the cap only covers around 82 percent of wage income. If the cap had continued to cover 90 percent of wage income, the projected shortfall would be roughly 40 percent less than it is now.

“The other reason why broadly based wage growth is key to the program’s continuing solvency is that the burden of possible future tax increases would be much less consequential if most workers will share in the gains of economic growth. The Social Security trustees project that real wages will rise by more than 34 percent over the next two decades. (They are projected to rise by another 30 percent over the following two decades.) Even if the payroll tax is increased by three percentage points, it would take back less than one-tenth of the projected rise in before-tax wages if wage growth is evenly shared. On the other hand, if most of the gains from growth continue to go to those at the top end of the distribution, any tax increase will be a major burden.

“The weakness of the economy, in addition to the upward redistribution of income, has been the major factor in the immediate problems facing the disability insurance (DI) fund. The lower than projected wage growth, coupled with a large drop in employment associated with the collapse of the housing bubble, has lowered the revenue of the DI fund by more than $160 billion over the seven years compared with the projections that had been made before the downturn. While the DI program was projected to face problems even before the recession, had growth continued as projected it would have been able to pay full scheduled benefits until 2025.

“While many politicians have tried to imply there is some fundamental problem with the structure of the DI program, it is clear that full funding can be maintained with minor fixes, such as reallocating revenue from the Old-Age and Survivors Insurance program. The financial health of both programs as they are now designed will depend on the prospect for maintaining high levels of employment and wage growth.

“It is worth noting that in spite of the impact of the Great Recession on the revenues of both Social Security and Medicare, the finances of the two programs taken together have improved enormously in the Obama presidency, primarily due to the lower projected rate of increase of health care costs. In 2008, the combined shortfall for the two programs over their 75-year planning horizon was equal to 2.21 percentage points of GDP. The combined shortfall for the 75-year planning horizon in the 2015 report is just 1.26 percentage points of GDP. This improvement comes in spite of the fact that the 2015 projections include 7 additional years of large projected deficits (2083-2089).

“It is remarkable that this improvement in the projected finances of these programs has not received more attention. It would be politically difficult to enact a combination of revenue increases and benefit cuts that would achieve a comparable improvement.”

Here’s the Eagles “Wasted Time”

This week’s audio netcast: Another police encounter with an African-American results in death, and regular commentator Fred Rotondaro examines “the radionothingness” that leads to somebody dying. Author Richard Heinberg says fracking may become less of an issue because its cost to energy companies is more than the return. And Bill Press interviews Peter Kornbluh about relations with Cuba.

My daily visit to the mailbox yielded my first ever Legislative Survey from State Senator Dave Schatz.  Here’s the cover sheet…

IMG_20150727_143800

 

 

Notice his use of the term “unbiased.”  Let’s examine one issue the Senator asked about and determine is he is indeed unbiased or has used the old ‘”slanted to get the answer I want” approach to the survey.  My rephrasing of the question more accurately reflects the true question.

 

 

 

No one in this country is required to join a union as a condition of employment.  In Free Bargaining states like Missouri workers are required to pay a percentage of the normal dues rate to cover the costs of their representation by a union.  In a Right-to-Work states someone may collect all the benefits of a Collective Bargaining Agreement and enjoy representation on the floor without paying for it or freeloading on the back of their co-workers.  Much like the person that takes items from a store without paying for it, the costs are passed on to the rest of us.

IMG_20150727_143232

In Mr. Schatz’s world we could ask the question this way…

Should a person in need of having a cable installed be required to pay for the installation and services of a company such as Schatz Cable Company?

I bet he believes that people should pay for services provided!

Finally, the mainstream press in the form of Meet The Press had Bernie Sanders on this morning.  Regular readers of this blog know I don’t normallyFeeltheBern watch this vehicle of the corporate voice but I took the time since they were featuring Mr. Sanders.  That said, Chuck Todd who once said he couldn’t ask hard questions because guests wouldn’t come back to the show was not his usual pandering self while interviewing Sanders.

Chuck Todd did what Chuck Todd does on today’s Meet The Press. He attempted to drive a false narrative favorable to the one the plutocracy wants served. Bernie Sanders did whatBernie Sanders does. He bombastically prevented his words from being twisted. He refused to play nice by deferring to a false narrative or even letting it get into the ethos unchallenged.

Todd’s role as corporate mouthpiece should be expected if we follow the money.  It was also a reason he didn’t ask Bernie about TPA, TPP, TAA or any other of the alphabet soup of Free Trade lingo.  One look at the advertisers for this program will tell you why.  In one break the spots were paid for by a defense contractor, pharmaceutical company, and investment firm.  Any more questions?

campaign_finance_graphic

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