Ford is tooling up for what is likely to be a tough UAW contract negotiation in light of its return to hefty profits. And in hopes of shifting the conversation from its strong financial performance, Ford is highlighting the fact that it still pays $8 more per hour than its competition. Of course, there has been improvement, as Ford notes at its fordahead.com website
Ford’s average hourly cost per employee for wages and benefits in the U.S. reached about $75 per hour in 2007, prior to the negotiation of a new national contract. By negotiating an agreement with the UAW that year, and by adding modifications in 2009, we were able to substantially improve the competitiveness of our labor costs. Had we not reached this agreement, our average hourly wage rate would have remained simply unsustainable — and utterly uncompetitive — and Ford would not be in a position to create new jobs or bring new work into our U.S. plants.
But Ford has only itself to blame for some of those higher labor costs, as some $2/hour of its labor cost disadvantage is a result of its record-high profit-sharing checks, according to the DetNews. And, says Ford, once new “second tier” hires enter the Ford workforce, it expects wages rates to drop to parity with the transplants. In short, Ford is making the case to stay the course, working through existing contract changes to get to parity with the transplants. But given the fact that Ford is already making hefty profits, don’t expect the UAW to simply roll over. The battle lines have been drawn… but nobody knows how the conflict will actually play out.
“Ford has only itself to blame for some of those higher labor costs, as some $2/hour of its labor cost disadvantage is a result of its record-high profit-sharing checks, according to the DetNews”
I’m sure that pressure from the UAW has a lot to do with this disparity since without the extra $8 the UAW would have gone on strike against Ford. This may yet happen as the UAW will ‘bargain’ to get even more benefits in the future. The answer is to move as much production as possible to Mexico, out of reach of the UAW.
Those scum commoners will eventually be the ruination of all that is correct and proper.
Ya know, maybe it’s just me, but getting $100000 in pay and benefits sounds like a pretty decent gig. I’m just not buying the oppressed proletariat thing.
At 390000 members, the UAW was costing the domestics 19,500,000,000/year more than it would cost to employ the same number of transplant workers. Now it’s only 6,240,000,000 more. (Assuming 2000 hours per year per worker).
Reality is a bitch sometimes, and the reality is that the old pay rates made it damn near impossible for the domestics to compete. They had to either save or make an extra 19 billion a year to make a dime in profit. Is it any wonder corner cutting was standard operating procedure?
Even at the new pay rate, they have to make an extra 6 billion a year before they see a dime of profit. And it’s not like 100,000 a year in pay and benefits is anything to sneeze at. It’s only a little more than twice the average median income in the US.
We need to understand that $100k (and the article says 75k, by the way, and the chart less than 60k, but who’s checking?) is not pay and benefits but per-head cost. Most employees cost their employer between 1.5x and 2.5x salary; they’re certainly not getting 100% of their salary in direct benefits.
Your average worked is not taking home, even pre-tax, twice median income; they’re taking home median income, and they don’t cost appreciably more than non-union workers.
Some other points to consider:
* If you were to compare American executive salaries with, say, Japanese or German ones, you might see a little more than an eight-buck disparity.
* Think about the “median income” figure for a while. Isn’t it interesting how people who make orders of magnitude more than median have managed to stir up a nice little internecine class war between people whose wages are within ten percent of each other.
Oh, yes. Ignore the man behind the curtain, please.
ETA: Yep, just got schooled on reading comprehension. Crow is tasty.
@psarhjinian, the chart actually says $75/hour rather than $75K/year, but your point about those being costs for Ford rather than (even gross) salaries for the employees is still valid.
If someone has a source for actual UAW hourly pay rates at Ford I’d be very interested in seeing those …
+1 Psar, especially about the stink that conservatives make about the labor rates of the middle classes while they completely ignore the ridiculous CEO pay. Of course when you bring this up they whine about “class war.” Of course CEOs are the “producers” and not the “parasites” in their perverted Randian objectivist worldview.
Yeah, its more 100,000 (transplant) 116,000 (ford current labor cost) and 150,000 (2007 UAW wages).
Even at 1.5 to 2.5 times salary, the transplant workers are doing alright.
$75/hr is $156,000 a year in labor cost per absentee junkie saboteur.
psarhjinian
+1
Ford should be proud that it is able to both make record profits and pay the workers a little more than the competition does. In doing so, they are keeping one of Henry Ford’s better ideas alive.
Henry Ford caused all kinds of consternation when he unilaterally reduced the work day from nine hours to eight and instituted a minimum pay of $5 per day (compared to the ~$2.50/day which was then the norm). Other businessmen were furious with Henry.
You only got the 5/day if you basically submitted to living in a police state though.
Very true. People forget that not every worker was eligible for the $5-a-day wage. If I recall correctly, you had to be married and supporting a family, or single and supporting an elderly parent or disabled family member, to qualify for it.
You also had to prove that you weren’t spending it in brothels, gambling halls or saloons. Ford personnel would come to your home to inspect it, and make sure that you were qualified to receive the wage.
Given how Ford has fared in the recent past going toe to toe with the UAW, I’d guess they were in for a raise.
Is the $8 difference sustainable?
With good vehicles, improved quality, profits and bonuses, could it be that Ford might be a desirable place to work?
Maybe the employees are earning that $8 difference – or will be.
Just wondering how much of a ‘handicap’ it might really be.
The UAW will only make itself look worse if they come out swinging for more. I hope they don’t become part of the problem again now that things are finally looking up.
If the old wage gape averaged out to a 2000 per car difference, then the current gap is about $630 per car. If Ford keeps up with pushing class leading, optioned up small cars (the only way to make decent money in the small car market), it probably is sustainable without the small cars being subsidized by SUV profits. If they fall behind in the future, they’ll be back in the death spiral.
Interestingly, the incentive gap is much larger than the wage gap. Again. Still.
The $8 differece is not the issue. The work rules is what kills the productivity. Basically the worst jackass drags down everyone and you cannot fire him. Pretty soon the large majority sees it and does the same.
@Pete – agree with work rules …. but there are other restrictions UAW agreements place on automakers that prevent free reaction to customer preferences and demands (and that hence get shelved).
I wonder if Ford is going to highlight their executive’s pay versus the Transplants? Oh that’s right, they have earned it but so should the hourly.
I just hope the UAW will come out of this with a few restored benefits and leave well enough alone.
The exec pay is a good rhetorical point, but the totality of executive pay isn’t even a rounding error compared to the total labor costs of the UAW (my napkin math puts the total labor cost of the UAW active workers at about 45 billion a year)
Why is the question always, “How do we get our labor costs in line with Toyota?” and not, “How do we get Toyota’s labor costs up to par with Ford?”
Cause Ford can’t make Toyota workers want to unionize?
Toyota’s domestic labour costs are pretty close to Ford’s domestic labour costs. Heck, even the transplant costs aren’t far off, and it’s not like Ford doesn’t, eg, make quite a lot of product in Mexico.
The labour cost game is a fun one to play, but it’s not really material to the success or lack thereof of a given automaker. When the domestics were in deep trouble, they were so because they were either getting killed on warranty or incentives, not because of labour costs.
Does it bother you that the people working at the transplat factories actually get something close to the average wage while the UAW thugs either get a huge wage or a puny one, depending on the tier that their crime organization categorizes them in? Or is it worth it to you just to fuel the corrupt leftist politicians trying to dismantle private property?
But the warranty and incentive costs were an indirect result of higher labor costs.
Imagine if GM and Honda both had compact cars that were essentially identical; equally reliable, equally attractive, equally everything.
Honda sells the car for 17k for a 300 dollar net profit.
GM sells the car for 19k for a 300 dollar net profit because of their extra labor costs.
Nobody is going to buy the exact same car for 2k more. So GM has to cut costs. To price match the civic and still make their 300 bucks, they have to cut 2k from the car itself. Interior is worse, engine is worse, quality is worse. And then they are selling it for 17k. Who buys a car that is substantially worse for the same price? No one. So how does GM sell a small car? By being the worst and the by far the cheapest, that’s how. By cutting corners and putting cash on the hood. But shoveling out cheap, crappy cars destroys brand equity (and they lost money doing it). And that’s how they hollowed out their market share and made tons of people very leery of buying a domestic car, even when that domestic was really just as good as the competition. The root of the domestic’s problem was high labor costs. A lot of the dumb things the domestics did was driven by their high labor costs. Dependence on trucks and suv’s? Not surprising when they are the only vehicles with enough profit margin to compensate for the higher labor costs.
The labor costs forced the domestics to the bottom of the market in any vehicle class that didn’t have really plump profit margins. Hence the greater incentive & warranty costs.
“worst and the by far the cheapest”
I thought that was Chrysler.
And Psarh: Per your note directly above, what is the distinction you are making between Toyota and the Transplants? One and the same, no?
@Robert: Yes. I’m saying that there really is no distinction. Every make has relatively high domestic legacy costs. Everybody has a unionized workforce. Everybody offshores strategically.
Blaming the UAW makes great copy, but it also let’s management off the hook undeservedly.
Labor costs were much higher at Ford (and GM and Chrysler) until 2007, when they began to drop. I believe we can all agree that 2007 is hardly ages ago…
The domestics cannot be expected to overcome 40+ years of higher labor costs with one product cycle.
And one must also note that Ford is building two critical products – the Fiesta and Fusion – in Mexico. I doubt that they are being built there because management prefers warmer weather.
And the Big Three DO have higher legacy costs than the transplant operations…the transplants do not offer pensions, which is a big cost for the domestics.
Do you have a chart comparing executive pay, between Ford and the transplants? I would be interested if Ford has itself to blame for that also.
What about the union boss pay? Is there a chart of that?
Good idea, I’d like to see that too.
How much does a “transplant” CEO make compared to Saint Al?
Ford gave white collar their concessions back, when will they give the blue collar their concessions back?
I wonder if that recent profit sharing thing has anything to do with Ford’s recent (substantial!) increase in build quality? Nahh, couldn’t be!
Ford’s [and GM’s] higher labor costs AND their inferior products were BOTH caused by inept management. Mulalley & Co. are BETTER managers – their products and profits prove it. If the white collar guys are getting their concessions back, its because they CAN – they have the clout to do so. We’ll see if the UAW can pull off a similar deal. Given 9% unemployment, I’ll bet, “No”.
Toxicroach nailed it.
The cycle is about to repeat. The UAW isn’t going to change — it’s a labor union, that’s what they do — keeping pushing for more until the host dies.
The taxpayer bailout merely bought time. History will show it to have been tens of billions of dollars down a UAW rathole.
Ford has to walk a fine line between holding these costs fixed at the risk of a strike, or allowing them to creep up at the expense of profitability … Ford will have to carefully “play ball” with the union until its debt is retired … then, if it has/wants to, Ford will be able to endure a strike without the risk of defaulting on loan payments…
Great products, perceived as such by buyers, are winning today. Ford may be paying its line workers more than, say, Toyota’s transplant people, but in my totally unscientific shopping trip, around here in the NYC suburbs, Ford’s getting more for their cars, too.
If the story was as simple as that graph implies, you’d think the transplant workers would be rioting in the streets.
But they aren’t. Hmmm – Hey Bob King, there must be something more to the picture.
@gslippy….You got that right. The whole transplant vs UAW/CAW is far more complicated than a simple graph.
The transplant workers seem contented with thier wage/benifit package,and working conditions. They do not need, or want, the UAW/CAW to represent them. Me thinks that Mr King has this figured out…maybe?
The 2011 negotiations have even started yet. Just like a couple of prize fighters.theres a whole lot of trash talking from the sidelines.
As I see it “trash talking” and rhetoric is an area the Bob King excells in. Maybe the only area.
That doesn’t take into account that foreign automakers (such as those in Germany) have higher wages in their home market and I’ll bet a good part of that $6 discrepancy is due to healtchare costs w/ Ford having older workers (also have to take into account the cost of living – a good bit cheaper in the South where many foreign automakers have their assembly plants).
W/ regard to comparing executive pay, VW had a banner year in 2010, earning a net profit of $9.9 billion compared to Ford’s $6.6 billlion.
But despite earning additional corporate profits by the tune of $3.3 billion, VW’s CEO “only” took home HALF of the pay ($12.9 million) that Mullaly was awarded.
Furthermore, VW has amassed a warchest of over $30 billion while Ford is still deep in the red.
But then again, this is nothing compared to what the CEO of the money-losing auto-supply firm, Visteon, earned in 2010 – earning about $26.9 million in total compensation.
Not bad coin for leading a company into Chapter 11 bankruptcy.
I’d like to see a breakdown of these labor costs. From what I understand, they reached that $70/hour figure by taking total payments to UAW employees and dividing them by total hours worked. Makes sense at first, until you realize that includes pension and health benefits paid to retired workers. Takes some balls to say a guy on the line is overpaid when you’re figuring money paid to a retiree as part of his compensation. Transplants don’t have the retirement obligations of the domestics, not having been around as long.
Transplants don’t have the retirement obligations of the domestics, not having been around as long.
Not that I disagree with the bulk of your post—I don’t—but the transplants do have similar obligations, just not in North America.
Psar, true, but I assume when we talk about transplants by definition we’re only talking about their North American operations. Toyota factories in Japan are hardly transplants, and I doubt Ford is including monies paid by Japanese manufacturers to Japanese pensioners in their figures.
From a recent Automotive News article, it appears that the normal UAW hourly rate is about $28, or roughly half of Ford’s current total labour cost.
And, yes, I expect that the retiree benefits make up a huge part of that difference.