GM: Each union worker costs $130,000 Posted by: mcq
on Thursday, March 23, 2006
Yeow. And you wonder why Detroit is having such fun trying to compete with non-unionized auto makers?
GM's unionized workers earn an average $27 an hour, $56,000 a year without overtime. Benefits increase the hourly average to $73.
I hate to belabor a point, but I will. See the post below about unskilled labor. Now, consider the choice of an employer who can pay one laborer $7 and nothing more and another who he must pay $7 plus benefits. Which is he going to choose to hire? So what does he do then? He cost shifts the benefit cost to whom?
Anyway, back to GM and the buyouts it is proposing. The reason?
GM has been struggling, reporting a loss of $10.6 billion in 2005. Its sales in the USA, its largest market, have been falling, and it is saddled with high labor costs.
The payoff:
David Cole, chairman of the Center for Automotive Research, says buyouts can be an effective way for an automaker to cut costs.
He says it costs U.S. automakers $130,000 a year on average for each active union employee, whether they are working or not. If someone retires early and takes a buyout, the cost drops to $50,000 a year. Once that person is old enough for Social Security and Medicare, the cost drops to about $20,000 a year.
“You can pay someone $80,000 to retire and get payback on that within a year,” Cole says.
A no-brainer when you look at the numbers, isn't it? Of course it doesn't solve the high cost of labor. $130,000 per employee is a huge cost, and obviously the most effective way of cutting that cost is to have less of them.
That cost, of course, is built into the cars GM makes. Without them could it more effectively compete with non-union foreign automakers?
Probably. But that's not going to happen, is it? Well, at least not yet. Back to my theory about disasters, catastrophes and human nature.
However in GA, they're building a Kia plant. Say what you will about Kia, but given their sales, someone is finding them to be very acceptable modes of transportation, especially for the price. And they should have an excellent labor pool to draw from in the Atlanta area. Ford and GM are each closing down their assembly plants here.
The question is, will Kia want workers who were or are members of the UAW in their plant? It is plain to see, based on the price of their vehicles, that Kia workers are not costing the company $130,000 a year.
It is plain to see, based on the price of their vehicles, that Kia workers are not costing the company $130,000 a year.
C’mon McQ. KIAs now sold in the US are all built in Korea where production costs are much lower, making this an apples and oranges comparison. Of course the cars themselves are more toward the econobox end of the spectrum, which is reflected in those prices. That’s not to say they aren’t great values.
However, recent history with Hyundai may indicate the future. The new Sonata, produced just across the line from you in Alabama, has had some serious upgrades that make them competitive with the Honda Accord according to Edmunds. The new pricing for that model certainly reflects this. Mind you, this is the same company that started out with the Excel econo-rustbox just 20 years ago. I suspect that "going upmarket" was essential to justify the increased labor costs in the US. Look for KIA to do the same in coming years.
Ultimately, I expect the workers, unions and KIA (and Hyundai, Toyota, Honda, etc.) to continue duking it out in the coming years to determine exactly what sort of worker-union-company relationship should exist. It is safe to say that the old UAW-Big 3 passive/hostile relationship is now a dead letter.
And, of course, you think their marketing plan is to come here, hire Americans and charge a whole lot more for their cars?
I think their plan involves some sensitive political considerations along the lines of dodging potential import quotas. That was certainly a consideration for Toyota and Honda "insourcing" much of their NA sales production in decades past. I am not saying this is their only consideration, just a major one along with setting up country specific operations to serve larger markets, reducing transport costs, freeing up SoKo production capacity to serve China, etc.
And, when KIA hits way more than 1.3% penetration in Europe expect them to do similar there. Oh, wait...
It may go upscale, but I’d be willing to bet it won’t have $130,000 employees doing it.
No disagreement here. I do think that the UAW will still be jockeying for a position at the tables at KIA, Hyundai et. al. However, the juicy days of the $130,000 employee are definitely over.
Hyundai has a plant south of Montgomery, AL. I’m not sure if it is unionized, but Alabama is a right to work state :). Honda has a plant between Birmingham, AL and Atlanta, GA; and I think that one is unionized. The Mercedes plant between Tuscaloosa, AL and Birmingham, AL is unionized. Delphi, Johnson Controls, and other auto plant suppliers have plants scattered about the state of AL. I don’t think these plants have the same worker costs that the old Olds plant near Atlanta had simply because the newer plants get younger workers on balance and the older workers get bought out when the older plants close. I can tell you that these plants were all bombarded with applicants when they opened or expanded.
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Comment by GORDON FRIGGIN GEKKO — 4/1/2006 @ 2:58 pm
