The staggering difference in labor costs between Detroit automakers and Japanese automakers is often given as one big reason Detroit is failing to successfully compete.
Just last night, on ABC News With Charlie Gibson, it was told that labor costs for Detroit automakers averaged $73.21 per hour and that labor costs for Japanese automakers averaged $44.20 per hour. The implication is that Detroit is disadvantaged because of the unreasonable income and benefits won by powerful auto unions.
An article in The New Republic, “Assembly Line,” by Jonathan Cohn, says the $73 per hour amount for Detroit workers, that is often cited, is “wildly misleading.” Cohn says his research shows that the average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007, and that the average wage for Japanese manufacturers was about $25.
The $73 per hour labor costs that is often cited includes all money and benefits paid to the hundreds of thousands of retired automakers, including health insurance and pensions. This amounts to more than $42 per hour. Japanese car makers don’t have these “legacy” costs. U.S. Toyota at this point has only about 1000 retirees.
Cohns article points out that the staggering difference in labor costs between Detroit automakers and Japanese automakers, has already been addressed in a watershed 2007 labor agreement, that is to start in 2010. The agreement made a two tiered wage system in which new workers would receive less compensation for the same work as established workers; it changed the health benefits for both active and retired workers; it created a private trust for financing future retiree benefits–effectively removing the legacy burden from the companies’ books — giving the union responsibility for management.
“One thing is certain,” Cohn says about the new Detroit labor agreement, “it was a radical change that promised to make Detroit far more competitive. If carried out as planned, by 2010–the final year of this existing contract–total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory … the next time you hear somebody say the unions have to make serious salary and benefit concessions, keep in mind that they already have–enough to keep the companies competitive, if only they can survive this crisis.”