Traverse City Record-Eagle

November 19, 2008

GM: Labor costs competitive

DETROIT (AP) -- The leaders of General Motors Corp. and the United Auto Workers union told Congress this week that a new union contract will virtually erase the labor cost gap between GM and foreign competitors with U.S. factories. That's not quite true, according to GM's own figures.

Although the contract signed last year eliminates about two-thirds of the cost gap when its provisions take full effect in 2010, GM's labor costs will remain about $9 per hour, or 17 percent, higher than Toyota's, according to GM estimates.

The labor costs, scrutinized by two congressional committees weighing U.S. automakers' request for $25 billion in government loans, were singled out by opponents as a reason why the Detroit Three can't be competitive with their Japanese rivals, mainly Toyota Motor Corp. and Honda Motor Co.

GM CEO Rick Wagoner and UAW President Ron Gettelfinger told the Senate Banking Committee on Tuesday that the contract goes a long way toward eliminating the gap.

"The gap in labor costs that had previously existed between the Detroit-based auto companies and the foreign transplant operations will be largely or completely eliminated by the end of the contracts," he said.

Wagoner and Gettelfinger, along with Ford Motor Co. CEO Alan Mulally and Chrysler LLC's Bob Nardelli, reiterated their plea for aid before the House Financial Services Committee on Wednesday.

Figuring out labor costs is tremendously complicated because the contract has many provisions that change based on U.S. auto sales and production rates. Also, GM is estimating costs for the Japanese automakers.

But GM, which negotiated the four-year deal that serves as a template for UAW deals with Chrysler and Ford, says its total hourly labor costs dropped 6 percent this year from pre-contract levels, from $73.26 in 2006 to around $69 per hour. The new cost includes laborers' wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said.

The total cost will drop to $62 per hour in 2010 when the linchpin of the contract -- a UAW administered trust fund -- starts paying retiree health care costs.

But that's still $9 more than the $53 per hour that GM estimated Toyota now pays in the U.S., and the gap could be even wider. Toyota spokesman Mike Goss said the company's total labor costs at its older U.S. plants are around $48, with about $30 per hour in wages.

The remaining difference largely is due to "legacy" costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said.

"While legacy seems to be a dirty word of late, it also means we support hundreds of thousands of people via pensions, health care and good jobs," he said.

There's also the "jobs bank," a feature of the UAW contract that drew fire from senators, in which workers get 95 percent of their base pay and all of their benefits if they are laid off or their plant is closed.

In the past, workers could stay in the jobs bank forever unless they turn down two job offers within 50 miles of their factory. GM's new contract imposes a two-year time limit, and workers are out of the jobs bank if they turn down one job within 50 miles or four jobs anywhere in the country.

GM has about 1,000 workers in the jobs bank now because it's been thinned out by early retirement and buyout offers. At its peak, the jobs bank had 7,000 to 8,000 people, Sapienza said.

To be fair, Toyota also has paid workers whose plants were temporarily closed due to slow demand for their products. Employees attended training during the shutdown.

In addition to jobs bank costs, GM also still pays for some union officials at each factory, and its workers get days off that aren't afforded many U.S. workers, such as Election Day.

GM, which has been restructuring for about five years, had about 125,000 U.S. hourly employees in 2003 and expects to have 62,500 by the end of this year.

Critics note that when Detroit automakers try to downsize, they either have to pay workers to stay in the jobs bank or give them buyout or early retirement offers. Some of the offers have been as high as $140,000.

GM said it made those offers to save money by thinning its work force as sales declined. Most workers who left took early retirement, moving their costs out of GM's coffers and into its overfunded pension plan.

GM's contract with the UAW does not require such offers, but they have been negotiated with the union.

GM says it already is starting to see savings from the new contract because it has hired more than 1,000 workers who are paid $14 per hour, less than half the average UAW laborer's rate. Most, if not all, of those workers will be laid off, though, as GM cuts production because of the sales slump.

The company, however, expects more long-term savings as it hires more lower-paid workers in the future.

The union also agreed to work rule changes in 42 of GM's 61 factories allowing workers to do multiple jobs instead of one job under the old contracts. Other work rules, such as one requiring the company to pay skilled tradesmen whenever they hired an outside crew to do building repairs or other jobs, also were eliminated. GM also no longer has to pay UAW wages to people who clean the plant, the company said.

"This year and every year going forward we will save a half a billion dollars" from the concessions, said Sapienza. "We still have work to do, but were aggressively becoming a leaner, stronger company."