Labor Pains
Detroit needs to play by market rules.

By Henry Payne

Detroit, Michigan — Massive job cuts at General Motors, America's largest carmaker — coupled with the bankruptcy of Delphi, America's biggest autoparts maker — have provoked predictable handwringing from liberal pundits who worry that America is "losing its manufacturing base." But the wrenching change now buffeting the auto industry defies the usual press formulas. Just listen to Steve Miller a turnaround specialist who is steering Delphi's restructuring process. He exploded the myth of America's "endangered" union manufacturing jobs at his October press conference announcing Delphi's move into Chapter 11: "We cannot continue to pay $65 an hour for someone to cut the grass and remain competitive."

Grass cutting is a manufacturing job?

Miller's frank assessment of unsustainable labor contracts is a refreshing dose of candor in an industry that for too long has talked around union-labor costs in a way that is totally divorced from the realities of the U.S. labor market — much less the global labor market.

While America's national press has gleefully covered the front-office shenanigans of Republican fat cats like Enron's Ken Lay, it has entirely missed the disease eating away at the roots of American manufacturing: Behind the threat of strike, greedy Democratic union bosses have built an unsustainable entitlement-wage culture that is now crashing spectacularly in America's heartland, disrupting lives, and threatening some of America's biggest publicly traded companies.

Take grass cutting. As defined by the current United Auto Worker contract negotiated with the "Big Five" (GM, Ford, Chrysler, and top parts makers Delphi and Visteon), an auto "production worker" is a job description that covers anything from mowing grass to cleaning the toilets. In the real world, these jobs would be outsourced to $8 an hour, no-benefit wage earners, but on Planet Big Five, these jobs get the same wages as any auto line-worker: an average $26 an hour ($60,000 a year) plus benefits that bring the company's total cost per worker to a staggering $65 an hour.

But at least the grass cutters are working for their pay. The UAW contract also guarantees that 12,000 autoworkers get full wage for doing nothing. On the heels of Miller's straight-talk, the Detroit News reported that "12,000 American autoworkers, instead of bending sheet metal, spend their days counting the hours in a jobs bank." These aren't jobs. And they certainly aren't being "lost" to China.

"We just go in (to Ford's Michigan Truck Plant) and play crossword puzzles, watch videos that someone brings in or read the newspaper," The News quoted one UAW worker as saying. "Otherwise, I've just sat."

For Delphi, this idled labor cost $400 million in the second quarter of this year alone. Facing similar numbers until the contract's end in 2007, Delphi took refuge in bankruptcy. "The jobs bank must be eliminated," says Miller. "Paying people not to work is just not sustainable."

As the auto companies have increased productivity through automation, the UAW calculated that jobs banks would make it too expensive for automakers to close plants and lay off workers. While that plan has worked, it has severely damaged the long-term viability of the industry — and by extension, future job creation. It also led to this week's GM bloodbath, as the company struggles to close a wage gap with American internationals (foreign automakers manufacturing in the U.S.) that now stands at $1319 per vehicle produced.

Simply put, Big Three autoworkers have been living in a fantasy world.

Statistics tell the tale. In his landmark study of the 2003 Big Five contract, Sean McLinden of the Center for Automotive Research (CAR) found that "in 1960, the UAW was 16 percent higher than the overall U.S. wage rate. . . . By 2003, the UAW average rate (with COLA) was 68-percent higher than the average manufacturing rate of $15.74 an hour."

McLinden notes that the contract reads as if autoworkers labor in a vacuum, without regard for market forces. "The workers involved will not lose their jobs at the company — they must be transferred to other facilities, bought out, voluntarily retired, or supported by protected status programs (jobs banks). Workers who refuse to transfer after layoff will... eventually be paid 100 percent of their straight pay. Indeed, UAW employment can only fall at the rate of natural retirement."

Furthermore, UAW members are guaranteed a traditional "30 years and out" provision, meaning that many retirees begin drawing full pensions in their early Fifties, burdening the Big Five with unrivaled legacy costs. Delphi, for example, shoulders $22 per worker-hour in legacy costs compared to as little as 25 cents for independent competitors like Leer and Johnson Controls.

Miller stresses that Delphi's competition for these jobs are not foreign laborers in China or Mexico — but workers right here in the Unites States. Given the huge productivity advantages of U.S. factories, relatively high-paid American autoworkers remain competitive with Mexican workers paid $3 an hour. CAR's McLinden confirms this. His analysis of independent suppliers (workers not covered by the fat Big Five contract) covering 19,379 UAW members in the U.S. found an "average wage of $15.76 an hour — remarkably close to the $15.77 per hour U.S. average manufacturing wage in 2003."

Miller does not deny that some labor-intensive auto-parts jobs (such as spark plugs manufacturing) must be moved abroad. But in production, where assembly, transportation, or quality are key factors (in the making of dashboards, for example), manufacturers will rely on U.S. workers — assuming they don't cost two to four times the market rate. Indeed, Japanese manufacturers and their suppliers have created 60,000 good-paying jobs for Americans.

The coming months will be painful for many American autoworkers. Accustomed to a certain lifestyle, they will see their wages cut in half, jeopardizing second homes, college tuitions, and car payments. One blue-collar Delphi worker interviewed by the Detroit News makes $103,000 a year operating a forklift and fears the consequences if his pay is drastically reduced. But many Americans will ask how a forklift operator felt entitled to a six-figure income in the first place (according to Bureau of Labor Statistics, the average forklift operator wage in the U.S. is $26,000).
It is an opportune time for political leadership to step to the plate and speak with candor, but the signs are not encouraging.

UAW leaders are threatening strikes, and their Democratic allies are parroting tired slogans of government bailouts and trade protectionism. Michigan's Democratic governor Jennifer Granholm recently traveled to Washington, D.C. to stump for auto-import tariffs, while Senator Hillary Rodham Clinton demanded President Bush convene a "manufacturing summit" to examine a taxpayer bailout for the Big Five's "enormous legacy costs, including paying the health care and pensions of retirees."

These dinosaurs insist on turning back the clock, but Steve Miller understands that America's manufacturing future will only be lost if it loses sight of market economics: "We are in a market for human capital," he explains "If you pay too much for a particular class of employee, you go broke."

. — Henry Payne is a Detroit freelance writer and editorial cartoonist for the Detroit News.