Wednesday, November 26, 2008

Auto Bailout, Part 2

The auto bailout controversy continues to fester. Congress tossed the auto executives out earlier this week. Lobbyists and other advocates and adversaries are out in full force in the media. Information and misinformation abounds! What's the real story?

Well, I'm still hard-hearted. I have no sympathy for the executives, but I have less sympathy for the rank and file exempt employees and the union guys. I've been close to the industry just once in my life, but that was enough to get the ugly picture. Everyone involved in the big three has been complicit in an outrageous wage/price inflation that cannot stand if the auto industry is to survive. They all have to give something up - wages, pensions, health care, all of it. They are sadly out of line.

Much has been made by some commentators of the inaccuracy of the $70/hour or more that's been quoted as the average cost of a union worker. It's true that that number represents the per-worker cost of all salaries, benefits, and pension contributions for both current workers and retirees. The average worker makes much less, actually about $30/hour in wages, plus health care and statutory benefits. Pension contributions go on top of that, making the average fully-loaded cost of an average current union member a bit less than $50/hour. That's crazy. At $30/hour, the gross pay averages $62,400 annually. Fully loaded, the per-worker cost is almost $100,000 each year for a high school graduate who does manual labor. Add another $20/hour to take care of retired worker pensions and health care benefits, and you get the $70/hour that I started with. A union auto worker has a great job. Too great, in fact. And that also goes for all the exempt employees whose salary packages have been pegged to the union contract for 50 years. They're all overpaid.

I have a son who teaches eighth grade math in the combat zone of Phoenix. He's a top teacher, and he has a masters degree and five years experience. He makes less than $40,000 and he gets health care and a pension contribution. His day starts early and ends late, and he has a world of requirements to worry about. His job is far more difficult than an auto worker's job, but he makes much less. He loves what he does, at age 46 and after enduring the strain of several career changes. Before 9-11 he made six figures and drove a nice BMW, but the office he headed closed due to the terrorist attack and the recession that followed. So, he got a new education and adjusted to another lifestyle. That's what some people do, and that's one reason why I have little sympathy for the auto industry employees.

Some time ago I posted about military pay. I mentioned that an Army captain does a lot better than I did when I was an officer. Today that captain with a college degree and lots more training and tons of responsibility makes a base pay of $56,664. He'll also get on-base housing for free, or a housing allowance worth more than $12,000 each year. So, this guy makes just a little more than an average union auto worker, but he may have to lead 120 guys into mortal combat and likely be away from his family for more than a year at a time on several occasions. You think that captain feels sorry for Joe wrench-turner?

Don't get me wrong. I don't hate Joe wrench-turner, and I think he deserves to have a decent life. What's happened, though, is that for many years his unions have been extorting the big three auto companies and have had no concern whatsoever for the long term viability of the companies they work for. Those chickens have now come home to roost. Some auto workers sit around at off-site facilities and get paid for doing nothing. Nutty labor rules let some workers finish their "quota" in a few hours and then sit around for the rest of the workday. Featherbedding abounds. The cars they make are substandard compared to competition, partly because the big three can't compete on price if they put comparable value into their cars in addition to their high labor costs. Unless this entire employee cost base is rationalized, these companies are doomed to fail.

Here's the big question. Will the participants in this failed industry all get together and decide to take the hit? Are they willing to give up some pay and benefits to make their companies competitive? So far, I've seen not a single movement in this direction. They want life as it is today, and that's it. My response is, shut'em down and start over. Sorry, but they had their chance to do the right thing.


NavyCS said...

Very well put.

BZ Sir.


Woozie said...

My dad, who was born and raised under the hood of an automobile, told me this past weekend that part of what is really terrible about this situation is that American automakers are actually turning out high quality cars nowadays.

Unfortunately they turned out such terrible ones for over 20 years that the stigma lingers. If I had the money (and the driver's license) I would get one of those new Dodge Challengers. Maybe retrofit it with some flavor of hybrid engine.