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A plan?

A-Train asked me today how I see the plan helping people (while avoiding answering my own question to him on how he would try to fix the problems facing our nation today).

I see the plan creating jobs by putting people to work building and updating necessary infrastructure and investing in our energy future, instead of costing jobs by doing nothing. I see the plan helping to maintain my property value by keeping people who are on the edge in their homes, instead of lowering my property value when my neighbors are foreclosed upon.

Keep in mind that the mortgage plan is for those who have ONE mortgage, and whose loan-to-property values are in the 90-105% range; not for those who have a $500K mortgage on a $250K house.

A flawed plan is better than no plan … but it appears that this plan will have safeguards built in. As the President indicated in his speech tonight:

[This is] a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and re-finance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values — Americans who will now be able to take advantage of the lower interest rates that this plan has already helped bring about. In fact, the average family who re-finances today can save nearly $2,000 per year on their mortgage.

While President Obama is not cutting non-war spending for 2010; he does plan to cut war spending in Iraq; offsetting increased spending in one area with cuts in another, and ultimate plans to halve the deficit by the end of his first (and hopefully not only) term in office.

Some people also seem to blame a lot of the economy’s problems on union labor, specifically, the United Auto Workers.

Union labor is not in and of itself a bad thing; in fact, the UAW has made many concessions over the past 20 years. In fact, it is not union labor that is killing the auto industry, but the thousands of useless middle managers.

  • At General Motors, the average hourly wage for a union employee is $28/hour.
  • Toyota Georgetown (Kentucky) pays $27 to $30/hour for non-union labor.
  • Adding in GM benefits, the current employees cost about $51/hour.
  • At Toyota, they cost about $55/hour including benefits.

And yet, Toyota isn’t struggling to quite the same extent as GM despite paying its workers more. You can’t blame the UAW for that.

On the other hand, GM’s CEO makes 14 times as much as his Toyota counterpart … perhaps a big chunk of GM’s problems are at the top of the salary chain rather than at the bottom of the wage chain.

GM also has 32,000 salaried employees (but only 62,000 hourly employees). How many companies have a 1:2 management/labor ratio? Certainly not financial services, and you can’t blame the UAW for the excessive numbers of salaried management employees.

GM is also paying pensions to their 365,000 retired employees (about half of which were salaried management workers) as opposed to their 62,000 active hourly workers). Of course, since GM’s market share has dropped from 60% 20 years ago to less than 25% today, you can see why they have more former employees than current employees. This is also a huge drain on their resources; caused not by the unions, but GM’s loss of revenue and market share due to competition and poor management. If GM focussed on developing new, innovative cars that people want, they might not be in this situation … and you can’t blame that on the UAW either.

In fact, in 2007, the UAW negotiated a historic deal that will allow the Big Three to contribute a one-time cost and subsequently allow the union to run the health care benefits program of retired autoworkers. That will allow the Big 3 companies to wipe out their health care obligations to retirees, relieving them of that drain on their resources.

In addition, the UAW made concessions agreeing to a two-tiered pay system such that new (second-tier) hires will start at about $14 an hour. When the ratio of new, second-tier workers reaches about 20 percent of the overall work force, the difference between labor costs at the Big Three and the transplant auto companies like Toyota will nearly disappear.

2 Comments on "A plan?"

  1. Avg. per Hour(US 2006):
    GM 1 Ford 2 Chrysler 3 Toyota 4 Honda 4

    1. Wage $39.68 $28.88 $29.15 $24 $24
    2. Benefits $33.58 $41.63 $46.71 $24 $24
    3. Total $73.26 $70.51 $75.86 $48 $48

    • Source?


      In the case of GM (cited by Bachus), the wage for a traditional line worker is actually $29.49 an hour, according to GM spokesman Tony Sapienza. That comes to an annual salary of around $61,300. Comfortable, sure, but a far cry from $156,000.

      According to Kristin Dziczek of the Center for Automotive Research, which tracks these things, the typical hourly wage for union employees at the Big Three is about $28 an hour. Wages at the nonunion transplant companies range from $14.60 to $28 an hour, she said. Wages vary even among different plants of the same companies, depending on regional wage standards. For example, Toyota pays $27 to $30 an hour at its plant in Kentucky, but just $20 an hour at a Mississippi plant.

      “You can’t just say that a transplant wage is this and that the Detroit Big Three is that,” Dziczek said.

      Let’s factor in benefits.

      According to Dziczek, in addition to making about $28 an hour, Big Three autoworkers gets benefits worth about $23. Add in overtime, vacation pay shift bonuses, health insurance, pension payments and other compensation, and it comes to about $62 an hour in labor cost per active employee. The cost for wages and benefits at transplant companies is about $40 to $55 an hour.

      “They’re not terribly far off,” Dziczek said.

      But Bachus and other congressmen who have cited similar hourly numbers didn’t just pluck them out of thin air. What they are citing is an “all-in” labor cost for hourly wage employees. That “all-in” cost includes all pay and benefits to current employees. But here’s the kicker: It also includes health benefits paid to retired workers.

      Consider this: At the end of 2007, GM had 365,000 retired hourly employees, as opposed to 62,000 active hourly employees.

      “We are a 100-year-old company,” said Sapienza. “We have significant obligations to retirees. We have stuck by our commitment. It does pose a competitive disadvantage.”

      Among all the Big Three, Dziczek said, there are four retirees for every current worker.

      Paying health benefits to those workers is a huge obligation that the transplant companies just don’t have, as they just haven’t been around long enough to have that many retirees. All of the transplants have many more workers than retirees, she said.

      So while the cost of retiree benefits is not part of the compensation for active employees, it is a labor cost borne by the automakers. And so auto companies calculate the entire expense of hourly employees — including retirees — and then divide that whole sum by the number of current employees. For GM, that comes to $69 an hour, according to Sapienza. Other figures from the Big Three have put that figure just north of $70 an hour. That’s where Bachus got his number.

      And, as mentioned in the post, the UAW has actually proposed taking the cost of carrying the healthcare benefits for the retired employees … which which bring GM’s costs in-line with those of the transplant companies.

      You should compare apples to apples, not apples to oranges …

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