Abe, Eldorado, and others:
You do not need to assume anything about me. I’m well known here. My name is Michael Salemi, not mdsalami (sic); I live in Michigan. I do not work for the UAW, nor do I work for any of the automotive companies or their suppliers. However, quite literally everyone I know does. From senior management, to rank and file UAW labor both retired and active, I know quite a few people. I'm not special; it is not
who I am, it is
where I am. You cannot live here and not know people, and you cannot live here and not really know what the facts are from all sides of the fence. When you know the facts, you can separate it from the fiction that seems to be prevalent in the media. I have respect for my fellow Michiganders and Americans, too. We as a society generally do not kick those who are down—we try to help.
I have assumed nothing about you. I indicated your comments are typical of those who live outside of Michigan. Most all of this list isn't here. I indicated that your comment of $75-$80 [UAW wage rate] is wrong. It was
wrong in your first post and
continues to be incorrect now and incorrect with Eldorado’s post as well.
When looking at wage rates for
any industry it is misleading to aggregate current wages with costs for retirees. Current hourly automotive employees receive absolutely none of the difference between the wage they are at (new hires at $14, others at around $30 plus their own benefits) and this media-suggested wage of $75-$80 an hour. It is a simple concept.
These figures are not my opinion, they are in the contract. Unfortunately, management came up with this illusory number! That is what they published to try and garner public sentiment to help work down the wage costs at the last contract negotiations in 2007. Management took the current wage rates, added the benefits and then added all the retiree benefits, too, against
every principle of both financial and management accounting and then called it the “hourly wage”. Now the media has latched onto this and won't let go. It does not make it correct.
If for some reason you (or others) were of the opinion that all these retirees should simply be cut off—these retirees would simply be on Medicare/Medicaid, on the street, taking advantage of some social programs or other safety nets society provides. It is OK to have that opinion, just understand that the needs and the costs
do not go away--they just
shift. Abe suggested his father was overpaid because he had no higher education. So, he was not worth the money he earned at GM, nor did he deserve the pension and benefits he received? So, only people with higher education are worth a decent wage? Hey Dan Caron, would you like to weigh in here on education? Somebody ought to tell Richard Branson (Virgin Airlines, etc.) the same…maybe some of you harbor ill-will towards the concept of organized labor. That's OK, just understand our country has a long history of it in many industries in all parts of the country. Every public school teacher, every aerospace worker, the actors we see on TV and in the movies, and the writers that write the scripts. Like it or not we have a history of it and all kinds of rules and laws that we all have to abide by because of it. Hence, our cabinet "Department of Labor'. You don't have to like it but understand it is there and not going away anytime soon.
Retirees, Abe, and anybody else listening or interested, is the crux of the overall labor costs of the Detroit 3—many retirees that are living longer. It’s a broken model for sure,
but that’s what’s there. It does not matter what or how one chooses to deal with it—they are not going away, the costs to maintain them—remember they are people—are not going away, nor are any of their needs. The responsibility will just shift. They will shift in bankruptcy and they will shift in a restructuring. Even if all the domestic 3 go down in flames,
the people behind them do not! The transplants (Honda, Toyota, MB, etc) have the
same kinds of issues coming up, but without a long legacy, they have not arrived there yet. In their home markets they are generally in socialized societies where the costs of retirees be it pension or benefits are spread out over the entire population instead of just those still working at any one company. That’s why the marginal income tax rate in Japan is one of the highest in the world
http://www.worldwide-tax.com/japan/japan_tax.asp and places like Germany are not too far behind.
http://www.worldwide-tax.com/germany/germany_tax.asp Even just across the border here, Canada has socialized medical care for all citizens, and commensurate higher tax rates than the US. Management is all too aware of the pain of having these legacy costs, and the solution was a VEBA created out of the 2007 Master Contract with all three. While all slightly different they were formed and in the process of being funded when the perfect storm hit this year—falling demand, rising commodity costs, skyrocketing fuel prices and the flat lining of the credit markets. I do not know how many of you have heard of a VEBA but during all the UAW contract negotiations during the summer of 2007, it was on the news every night; in every newspaper here every day for months ad nauseum.
http://www.irs.gov/charities/nonprofits/article/0,,id=154610,00.html The main purpose of this VEBA was to remove the legacy costs from the balance sheets of the automakers, while simultaneously giving the union full control of the costs of benefits for their retirees. It is not easy to set up or fund on such a massive scale, but it is being done. It is in the contract.
Abe, I have assumed nothing about new hires. But there are many, many employees with 30+, 40+ years in, and
eventually they will be leaving...and replaced with $14 an hour starting wages. That's a contractual fact, not my opinion. At full time employment, that starting wage rate is just around $29K a year. Sounds exciting for some until you realize that the poverty rate in the USA for a family of 4 is just over $21K a year. It does not sound so wonderful in that context.
You indicated that labor cost—specifically speaking about the UAW labor costs, are the greatest cost component of a car. That, too, is not a true statement. Direct labor cost in a car is around 10%; hardly the largest cost component. R&D, product engineering, materials, sales and marketing add up the rest; some of those have a [salaried] labor component for sure. I left out margin and profit since there does not seem to be any now.
Another major fallacy believed by many distant from the action here is that the domestic 3 have been
sitting still, watching the world crumble around them and then asking for a handout. This is nonsense pure and simple. At Ford, in the past few years they:
Stopped production of unpopular or older vehicles (such as Escort, Mystique, Crown Victoria, Town Car, Continental).
They have closed plants like Twin Cities and Wixom.
They have reduced its salaried and hourly workforce (tens of thousands).
They have renegotiated the UAW contract (2007)
Closed more plants (Batavia, Windsor Casting).
They closed and sold some UAW-Ford joint program operations, (too esoteric to explain).
They have reduced salaried and hourly benefits (every year without fail for salaried).
They have sold Aston Martin, Jaguar, Land Rover and part of its share of Mazda.
They have reduced costs to offset rising costs of steel, plastic, rubber, and other raw materials.
They made dramatic shifts in product line-ups and plans.
Mortgaged everything they own to shore up cash; when credit was still available.
Nevertheless, it is a very large ship with a big turning radius. Similar things have happened at GM and Chrysler, too. Nobody is sitting still watching the world go by, not now and not in any recent memory.
Some have missed the point. Bankruptcy solves nothing. It just shifts the burden. It does not miraculously make anything go away. Neither will a loan or a line of credit for that matter. The only winners in a bankruptcy reorganization will be the lawyers structuring it. Cash up front please. I'm not sure a judge is any better a CEO than Congress wants to be. What do I mean by "shift"? OK, so GM owes $1m to Bosch. The bankruptcy judge comes in, nullifies all the stock--now the stockholders (including many retirement and pension funds) lost their investment. A shift to these retirees. Bosch settles for $0.50 on the dollar. They lose, and so do their stakeholders. Just a shift, or passing the burden. Someone is going to lose and they are all disparate people all over the place.
Other indicate here all kinds of problems, but Peter (vanesp) really nailed it. We have a lack of a national energy policy. When it takes many years to design and build a new car, how does one deal with fuel being $4.20 in July, and $1.41 in December? I don't know, but it sure has an affect on people's buying and driving behavior. CAFÉ does not work—never has and never did—too many stupid rules with it. Read all the articles on it in Car and Driver, such as these:
http://www.caranddriver.com/features/columns/c_d_staff/csaba_csere_the_steering_column/top_10_reasons_why_the_corporate_average_fuel_economy_law_is_d_u_m_b_column http://www.caranddriver.com/features/columns/c_d_staff/csaba_csere_the_steering_column/higher_cafe_regulations_seem_painless_which_is_why_they_won_t_do_any_good_column__1Keep in mind a lot of people have long memories; the cars they remember from 1974 do not resemble current US cars, but that is what they remember. I can't tell you how many times I've heard something about somebody's American car 25 or 30 years ago, and because of the that they won't consider another one. I remember my old Toyota rusting while I watched. My sister’s current Honda is no panacea of reliability. Lexus, Toyota, and all the imports have service bays and mechanics. What was that Dan Caron, you were telling me about Mercedes Benz cars of that mid-1970’s time? GM leads in fuel efficiency in many sectors in which it competes. Ford leads in safety. I don’t know about Chrysler, perhaps they lead in something but they are the smallest. Nothing really leveraged out of their former partners, I guess. I love my W113, but also love our new Ford and Lincoln. Being close to them, I anxiously await the new Fiesta being brought over from Europe--and made right here in Wayne, Michigan. For those that think American companies can't build cars that people want, explain that to the Europeans. Ford is, on and off, the market leader in Europe. Great solid cars that people want and buy. Some are coming here soon.
BTW, for those interested, Toyota built a new Prius plant in the US. But they will not open it.
So the troubles are everywhere.
http://www.bloomberg.com/apps/news?pid=20601103&sid=ad.mY4RPcZt0&refer=us Think and believe what you choose. Buy the cars you want. Vote with your wallet as they say. Write your congress about what you want. But it sure helps to have the facts in hand and understand what is really going on.
