Thread: $73 an Hour
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Millwright Ron[_2_] Millwright Ron[_2_] is offline
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Default $73 an Hour

$73 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, 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

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, Ford and Chrysler workers
make significantly more than their counterparts at Toyota, Honda and
Nissan plants in this country. Last year’s concessions by the United
Automobile Workers, 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

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

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 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 much of the burden of paying for

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

Detroit’s defenders, from top executives on down, insist that they
have finally learned their lesson. They say a comeback is just around
the corner. But they said the same thing 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.

There is good reason to keep G.M. 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.

Millwright Ron