Howes: Big Three’s labor bill ain’t what it used to be

Daniel Howes
The Detroit News
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As union members prepare to vote this week on the United Auto Workers’ second tentative agreement with Fiat Chrysler Automobiles NV, an influential new study says labor costs Detroit automakers less than it used to — a lot less.

The pending contract offers signing and lump-sum bonuses and base-wage increases to so-called traditionals and second-tier workers, among other things. But last year the combined union labor bill for this town’s automakers totaled just 5.7 percent of North American revenue, according to the Center for Automotive Research.

Two of Detroit’s three automakers “went bankrupt because of legacy costs, too many workers and too many plants, not because of wages,” so workers should be paid more, says chatter in the study authored by Sean McAlinden, chief economist at the Ann Arbor-based CAR.

The findings, coupled with near-record North American profits at General Motors Co. and Ford Motor Co., could have profound implications for the widely held assumption that union wages and benefits dominate the cost models of Detroit’s automakers. Increasingly, they do not.

In 1999, GM’s UAW labor bill totaled $18.14 billion, CAR found; last year, it totaled $7.07 billion, a 61-percent decline. Ford’s total UAW labor costs slipped to $6.88 billion last year from $9.4 billion 15 years ago. FCA’s total UAW labor costs closed last year at $3.04 billion, compared to $7.07 billion in 1999

And the non-union labor bill for Detroit’s foreign-owned competition operating in the States? CAR pegs it at an average of $5.51 billion, more than FCA but less than GM and Ford.

As a percentage of North American revenue, GM’s labor bill plummeted to 4.9 percent last year from 15.8 percent in 1999; Ford’s slipped to 6.7 percent of revenue from 9.4 percent in 1999; and FCA sank to 3.7 percent of revenue from 8.1 percent 15 years ago. Combined, the three companies spent 5.7 percent of revenue to pay their UAW labor bill.

Average hourly labor costs for automakers operating in the United States vary widely — from $38 an hour, including wages, bonuses, benefits and profit-sharing, to $65 an hour — “and are determined by earnings per vehicle levels and regional labor markets, not unions,” CAR says.

Excluding the London-headquartered FCA, 46 percent of light cars and trucks built in the United States are assembled by foreign-owned automakers who collectively employ 32 percent of the U.S. hourly workers in the industry.

The downward trend in labor costs is unmistakable, compressed as it was by restructuring, bankruptcy and recession. The question for Detroit, luxuriating in profits and a 17 million-unit market, is what happens to those trends and financial reality when this season’s contracts are wrapped up, whenever that is.

If the deals under negotiation result in higher labor bills — as is expected, based on the details of the proposed UAW-FCA contract — how much would be too much? And how would it affect the competitive balance between Detroit and everyone else?

Last year, Detroit’s labor bill per vehicle produced is more than double that paid by foreign-owned manufacturers operating in the United States, namely $2,215 compared to $1,042, CAR found. Widening that gap may be necessary to get contracts ratified — and it is — but it will come at a competitive cost.

Detroit’s 1999 contract with the UAW, widely hailed at the time by the union and its allies, drove higher the automakers’ labor bill per vehicle produced. By 2007, the blended per vehicle bill for all three companies totaled $4,322, compared to $3,391 eight years earlier.

The upward pressure effectively laid the foundation for a landmark contract this year’s negotiations are aiming to reverse, where possible. To cope with rising costs, then-President Ron Gettelfinger agreed to lower wages for so-called second-tier hires; to create a retiree health care trust; to craft competitive local contracts to safeguard investment in U.S. plants.

Eight years on, according to the UAW-FCA agreement set for a ratification vote Tuesday and Wednesday, second-tier workers now have a path to reach traditional pay rates; traditional workers will receive their first base-wage increase in as many years; profit-sharing formulas will be tweaked to convert a portion of variable pay to fixed increases.

The result is likely to be a higher labor bill, but one that is dramatically less than it was before the global financial meltdown pushed GM and Chrysler Group LLC into bankruptcy and forced a deep restructuring at Ford. More, the industry’s broad restructuring eliminated excess plant capacity, reducing costs and dramatically boosting utilization.

However much rank-and-file rhetoric and a two-to-one rejection of the first UAW-FCA agreement may evoke images that Old Detroit still lives, the numbers depict a business model striving to reckon the past with the competitive present and future.

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays and can be found at

Catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.

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