As the bail out of The Big 3 has been discussed the past few weeks, much has been made about the unsustainable cost structures that they have. Depending upon the report you see, Detroit’s automakers pay somewhere around 60% more per labor hour than their domesticated foreign competitors. The UAW President, Ron Give-U-the-finger, will quickly contend that Detroit is only paying a dollar or so more than their competitors. The truth is that both statistics are accurate. How can that be?
When UAW Ron gives you a labor rate, he wants to talk only about the wages that are actually paid to workers that are assembling cars today. While that is a labor rate, it’s not the one that is used by accountants in determining costs. The labor that is 60% higher includes not only the costs of the people on the line today but also includes the costs of providing retirement benefits for folks who worked that line year and year ago.
Mark Steyn provides some information of how challenging the Big 3’s labor issue is in a column from Friday:
General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small money-losing auto subsidiary. The UAW is AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people.
Holy upside down, Batman! It’s not hard to understand why the Big 3 have profitability issues when they are paying for 10 employees for every 1 they have working!
Now to be fair, GM, Ford and Chrysler each negotiated contracts that provided for this level of benefit. The UAW retirees are getting no more or less than what was agreed to in those contracts. My point here is not to argue what should be done about those agreements, just to let you know they are there.
In 1960 there were 5 workers for every individual who was receiving Social Security. Today, that ratio is around 3.3 to 1. Most analysis of the solvency of Social Security suggest that in the future we will see 2 workers supporting 1 retiree. Anyone noticing a trend?
Many people are upset with the Detroit Big 3. They are upset about the bail out. They are upset that the auto makers have had an unsustainable cost structure for years and have either moved slowly or done nothing about it.
It’s funny how many in Congress and the general public are quick to point to the Big 3 executives and brow beat them for not anticipating their problems and dealing with them. Yes, many people willing to point the finger at someone else but when it comes to dealing with a similar problem that they control or are impacted by…..say Social Security, they are perfectly willing to turn their head and look the other way.
If you think the bail out of Detroit’s retiree’s is a problem, you ain’t seen nothing yet!
