[Amc-list] Fw: Fw: Interesting article

[Don <don_nsx@xxxxxxxxxxxx>]

I know its longwinded, but it does clear up some misconceptions that are 
rampant.
Don


>> December 10, 2008
>> Economic Scene
>>
>>
>>   $73 an Hour: Adding It Up
>>
>> By DAVID LEONHARDT 
>> <http://topics.nytimes.com/top/reference/timestopics/people/l/david_leonhardt/index.html?inline=nyt-per>
>>
>> Seventy-three dollars an hour.
>>
>> That figure — repeated on television and in newspapers as the average pay 
>> of a Big Three autoworker — has become a big symbol in the fight over 
>> what should happen to Detroit. To critics, it is a neat encapsulation of 
>> everything that’s wrong with bloated car companies and their entitled 
>> workers.
>>
>> To the Big Three’s defenders, meanwhile, the number has become proof 
>> positive that autoworkers are being unfairly blamed for Detroit’s 
>> decline. “We’ve heard this garbage about 73 bucks an hour,” Senator Bob 
>> Casey 
>> <http://topics.nytimes.com/top/reference/timestopics/people/c/robert_p_casey_jr/index.html?inline=nyt-per>, 
>> a Pennsylvania Democrat, said last week. “It’s a total lie. I think some 
>> people have perpetrated that deliberately, in a calculated way, to 
>> mislead the American people about what we’re doing here.”
>>
>> So what is the reality behind the number? Detroit’s defenders are right 
>> that the number is basically wrong. Big Three workers aren’t making 
>> anything close to $73 an hour (which would translate to about $150,000 a 
>> year).
>>
>> But the defenders are not right to suggest, as many have, that Detroit 
>> has solved its wage problem. General Motors 
>> <http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org>, 
>> Ford 
>> <http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html?inline=nyt-org> 
>> and Chrysler 
>> <http://topics.nytimes.com/top/news/business/companies/chrysler_llc/index.html?inline=nyt-org> 
>> workers make significantly more than their counterparts at Toyota 
>> <http://topics.nytimes.com/top/news/business/companies/toyota_motor_corporation/index.html?inline=nyt-org>, 
>> Honda 
>> <http://topics.nytimes.com/top/news/business/companies/honda-motor-co-ltd/index.html?inline=nyt-org> 
>> and Nissan plants in this country. Last year’s concessions by the United 
>> Automobile Workers 
>> <http://topics.nytimes.com/top/reference/timestopics/organizations/u/united_automobile_workers/index.html?inline=nyt-org>, 
>> which mostly apply to new workers, will not change that anytime soon.
>>
>> And yet the main problem facing Detroit, overwhelmingly, is not the pay 
>> gap. That’s unfortunate because fixing the pay gap would be fairly 
>> straightforward.
>>
>> The real problem is that many people don’t want to buy the cars that 
>> Detroit makes. Fixing this problem won’t be nearly so easy.
>>
>> The success of any bailout is probably going to come down to Washington’s 
>> willingness to acknowledge as much.
>>
>> Let’s start with the numbers. The $73-an-hour figure comes from the car 
>> companies themselves. As part of their public relations strategy during 
>> labor negotiations, the companies put out various charts and reports 
>> explaining what they paid their workers. Wall Street analysts have done 
>> similar calculations.
>>
>> The calculations show, accurately enough, that for every hour a unionized 
>> worker puts in, one of the Big Three really does spend about $73 on 
>> compensation. So the number isn’t made up. But it is the combination of 
>> three very different categories.
>>
>> The first category is simply cash payments, which is what many people 
>> imagine when they hear the word “compensation.” It includes wages, 
>> overtime and vacation pay, and comes to about $40 an hour. (The numbers 
>> vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)
>>
>> The second category is fringe benefits, like health insurance and 
>> pensions. These benefits have real value, even if they don’t show up on a 
>> weekly paycheck. At the Big Three, the benefits amount to $15 an hour or 
>> so.
>>
>> 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.
>>
>> The third category is the cost of benefits for retirees. These are 
>> essentially fixed costs that have no relation to how many vehicles the 
>> companies make. But they are a real cost, so the companies add them into 
>> the mix — dividing those costs by the total hours of the current work 
>> force, to get a figure of $15 or so — and end up at roughly $70 an hour.
>>
>> The crucial point, though, is this $15 isn’t mainly a reflection of how 
>> generous the retiree benefits are. It’s a reflection of how many retirees 
>> there are. The Big Three built up a huge pool of retirees long before 
>> Honda and Toyota opened plants in this country. You’d never know this by 
>> looking at the graphic 
>> <http://mediamatters.org/items/200812040005?f=s_search> behind Wolf 
>> Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s 
>> workers with the “up to $48/hour” pay of workers at the Japanese 
>> companies.
>>
>> These retirees make up arguably Detroit’s best case for a bailout. The 
>> Big Three and the U.A.W. had the bad luck of helping to create the middle 
>> class in a country where individual companies — as opposed to all of 
>> society — must shoulder 
>> <http://www.newyorker.com/archive/2006/08/28/060828fa_fact> much of the 
>> burden of paying for retirement.
>>
>> So here’s a little experiment. Imagine that a Congressional bailout 
>> effectively pays for $10 an hour of the retiree benefits. That’s roughly 
>> the gap between the Big Three’s retiree costs and those of the 
>> Japanese-owned plants in this country. Imagine, also, that the U.A.W. 
>> agrees to reduce pay and benefits for current workers to $45 an hour — 
>> the same as at Honda and Toyota.
>>
>> Do you know how much that would reduce the cost of producing a Big Three 
>> vehicle? Only about $800.
>>
>> That’s because labor costs, for all the attention they have been 
>> receiving, make up only about 10 percent of the cost of making a vehicle. 
>> An extra $800 per vehicle would certainly help Detroit, but the Big Three 
>> already often sell their cars for about $2,500 less than equivalent cars 
>> from Japanese companies, analysts at the International Motor Vehicle 
>> Program say. Even so, many Americans no longer want to own the cars being 
>> made by General Motors, Ford and Chrysler.
>>
>> My own family’s story isn’t especially unusual. For decades, my 
>> grandparents bought American and only American. In their apartment, they 
>> still have a framed photo of the 1933 Oldsmobile that my grandfather’s 
>> family drove when he was a teenager. In the photo, his father stands 
>> proudly on the car’s running board.
>>
>> By the 1970s, though, my grandfather became so sick of the problems with 
>> his American cars that he vowed never to buy another one. He hasn’t.
>>
>> Detroit’s defenders, from top executives on down, insist 
>> <http://www.nytimes.com/2008/12/09/business/09manage.html?_r=1&scp=1&sq=boblutz&st=cse> 
>> that they have finally learned their lesson. They say a comeback is just 
>> around the corner. But they said the same thing 
>> <http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU> 
>> at the start of this decade — and the start of the last one and the one 
>> before that. All the while, their market share has kept on falling. 
>> <http://www.nytimes.com/2008/12/03/business/03sales.html>
>>
>> There is good reason to keep G.M. 
>> <http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org> 
>> and Chrysler from collapsing in 2009. (Ford is in slightly better shape.) 
>> The economy is in the worst recession in a generation. You can think of 
>> the Detroit bailout as a relatively cost-effective form of stimulus. It’s 
>> often cheaper to keep workers in their jobs than to create new jobs.
>>
>> But Congress and the Obama administration shouldn’t fool themselves into 
>> thinking that they can preserve the Big Three in anything like their 
>> current form. Very soon, they need to shrink to a size that reflects the 
>> American public’s collective judgment about the quality of their 
>> products.
>>
>> It’s a sad story, in many ways. But it can’t really be undone at this 
>> point. If we had wanted to preserve the Big Three, we would have bought 
>> more of their cars.
>>
>>
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