2007 October 13 Saturday
UAW Wages And Benefits In Decline

The United Auto Workers have peaked in the value of their wages and benefits and new hires will get paid less.

The next generation of United Auto Workers will receive lower pay and benefits than their predecessors, judging by the contracts reached or ratified this week.

If there's a big pattern in the current round of auto-industry bargaining, that's it.

Officially, pay cuts aren't part of the deals. But the launch of a two-tier system, offering many new hires lower wages, raises the curtain on an era when overall pay will be lower.

In benefits, a new contract ratified by UAW workers this week allows General Motors to contribute to a cash-balance retirement plan for new entry-level workers, rather than providing a guaranteed pension.

Meanwhile, in deals cut this year and in 2005, union workers and retirees will be shouldering more of the rising costs for healthcare, and the companies less.

Given the higher labor costs that the Big (but shrinking) Three are saddled with it is amazing they've survived this long. The hourly labor cost gap is enormous.

GM, Ford Motor Co. and Chrysler LLC headed into contract talks with about $25 an hour more in labor costs than Toyota, Honda Motor Co. and Nissan Motor Co., according to industry estimates.

About $13 an hour of this gap can be attributed to retiree pension and health benefits, which could be dramatically reduced by the proposed VEBA trust fund for health care.

The new UAW agreement with GM will eventually put GM's labor costs close to Toyota's current labor costs but still higher.

The new deal would put GM “right on top” of Toyota within a few years, said Rod Lache, an analyst with Deutsche Bank. It could reduce GM’s labor costs from $70 an hour to about $50 an hour, Lache estimates. Toyota’s labor cost is about $47 an hour. “It’s a big, big closing of the gap,” he said.

Even as GM and Chrysler secure deals with the UAW that will close much of the labor cost gap Toyota and Honda are looking to open that gap right back up again.

The internal report suggested tying Toyota production wages and benefits to the surrounding region for plants, instead of trying to keep up with the pay scale of the overall U.S. auto industry — one traditionally set by UAW contracts.

Honda appears to be following a similar strategy. When its new plant in Greensburg, Ind., opens next year, Honda plans to start production workers at $14.84 an hour with an automatic $3.71-an-hour raise in 2009, according to report by the Indianapolis Star. The average wage rate for production workers at GM, Ford and Chrysler is about $28 an hour.

So Honda is starting new workers at a way lower rate than the hourly wage of the Big (but shrinking) Three. Plus, the UAW workers have many more benefits.

Honda finds ways to keep UAW members out of their labor force.

ANDERSON, Ind. -- When Honda Motor Co. announced last year that it was building a new plant amid the farms of southeastern Indiana, Hoosiers cheered. Then Honda announced in August that only people living in 20 of the state's 92 counties could apply for jobs -- a move that excluded most of the state's thousands of unionized laid-off auto workers.

Look for the US auto makers to shift more manufacturing abroad. Granted, the current UAW agreements restrict how many plants they can close. But they can't win back market share without getting their labor costs even lower.

Share |      By Randall Parker at 2007 October 13 08:30 PM  Economics Labor


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