Auto Worker Salaries

A report from the conservative Heritage Foundation, opposing the auto industry bailout, said that members of the United Auto Workers union "earn $75 an hour in wages and benefits – almost triple the earnings of the average private sector worker." Later in the report, it’s phrased this way: "The vast majority of UAW workers in Detroit today still earn $75 an hour."

 

That figure has caught hold with some conservatives, and it seeps into media coverage from time to time as well. A few examples: At a Nov. 19 House Financial Services Committee hearing on a possible bailout for the auto industry, Alabama Republican Rep. Spencer Bachus said, "Even with recent changes, the average hourly wage at General Motors is still $75 an hour. …" Two of his GOP colleagues on the panel made similar statements. And in a Nov. 18 column in the New York Times, business reporter Andrew Ross Sorkin wrote, "At GM, as of 2007, the average worker was paid about $70 an hour, including health care and pension costs."

The problem is, that’s just not true. The automakers say that the average wage earned by its unionized workers is about $29 per hour. So how does that climb to more than $70? Add in benefits: life insurance, health care, pension and so on. But not just the benefits that the current workers actually receive – after all, it’s pretty rare for the value of a benefits package to add up to more than wages paid, even with a really, really good health plan in place. What’s causing the number to balloon is the cost of providing benefits to tens of thousands of retired auto workers and their surviving spouses.

The automakers arrived at the $70+ figure by adding up all the costs associated with providing wages and benefits to current and retired workers and dividing the total by the number of hours worked by current employees.

The result is the per-hour labor cost to the automakers, which is very different from "pay" or "wages" or even "wages and benefits" earned by their workers. As David Leonhardt pointed out in the New York Times (countering, in a sense, the earlier piece by Sorkin), the average GM, Ford and Chrysler worker receives compensation – wages, bonuses, overtime and paid time off – of about $40 an hour. Add in benefits such as health insurance and pensions and you get to about $55. Another $15 or so in benefits to retirees (known as "legacy costs") brings the number to roughly $70.

That last figure accounts for the biggest difference between labor costs of the Big Two and a Half and those of the "transplants," as foreign carmakers with manufacturing facilities on U.S. soil are called. Ford, in material it submitted to Congress for hearings this month (see "Congressional Submission Appendix (PPT)"), estimated the transplants’ legacy costs at about $3 per hour, a number that has less to do with the level of benefits paid than it does with the fact that the transplants don’t have many retirees yet, according to economist Kristin Dziczek of the Center for Automotive Research.

The Ford chart also estimates that, as a result of a historic 2007 labor agreement with the UAW, the legacy costs of the U.S. automakers are expected to fall – to about $3 per hour. That’s because the deal calls for a new voluntary employee beneficiary association (or VEBA), a seldom-used 100-year-old tax loophole. A VEBA is a tax-exempt trust that can be used to fund almost any sort of employee benefit, but they are most commonly used to pay for health care expenses.

In an innovative twist, the UAW and Detroit negotiated a VEBA to cover the health care expenses of retired autoworkers. Under the terms of the agreement, GM, Ford and Chrysler were to contribute $30 billion, $13 billion and $9 billion, respectively, to a trust fund to be managed by the union. The UAW would then use the income from the VEBA to cover retiree medical expenses. The agreement would protect retirees’ health care benefits in the event of company bankruptcy, while allowing the automakers to shed the bulk of their legacy costs.

When the new agreement is fully implemented, which should happen in 2010, the U.S. automakers would still bear labor costs of about $9 per hour more than Toyota, but that’s far better than the current gap. The 2007 agreement also calls for a new two-tier wage structure and other concessions from workers.

As for whether Toyota workers earn more than employees of U.S. domestic automakers: In 2006, at Toyota’s Georgetown, Ky., plant, workers averaged more in base pay and bonuses than UAW members at Ford, General Motors and Daimler Chrysler, according to the Detroit Free Press. The difference was due to profit-sharing bonuses; Detroit’s workers aren’t getting many of those these days because, well, there’s really nothing to share. The transplants don’t give out much data, however, so it’s hard to tell if this pattern is continuing or even if it applied to all Toyota plants in 2006.

A final note on all this: Labor costs only account for about 10 percent of the cost of producing a vehicle. And it’s not the cost of American cars that people complain about; they’re already often thousands of dollars less than their Japanese counterparts. Whatever changes may be made in the carmakers’ labor agreements, we’re convinced, and the recent hearings show, that there are much bigger problems in Detroit.

– Viveca Novak and Joe Miller