Why Kill Detroit Now?

6 12 2008

…When 2 out of the Big 3 Have already taken Serious Steps at A. McCoyReform?

By Andrew McCoy

So the Big 3 need 25 gazillion dollars to stay viable. According to bad accounting people the average worker makes $73 an hour working there. Of course these are silly numbers. No factory worker brings home $151,000 (73x40x52). As of 2006 the wage breakdown at Chrysler was:

Base Wage & COLA
Health Care* All other elements Total
$/hr. %Total $/hr. %Total $/hr. %Total
29.15 38% 20.14 27% 26.57 35% 75.86

This was the latest data I could find with good hard numbers.

Health Care

The ‘Healthcare’ and ‘all other elements’ contains healthcare and pension payment for retirees. That’s 111,000 at Chrysler, 450,000 at all of the Big 3. The numbers bandied about say Japanese companies only pay 40 to 50 an hour per employee. That gives them an $1800 advantage per car made in labor costs.

Of the 20.14 in healthcare costs listed less than half goes to employees. Most goes to retiree healthcare. That issue has already been addressed; retiree healthcare will be cut, provided GM, Ford, and Chrysler, put in the upfront 50 billion needed before 2010 for the UAW health plan.

Pension Plans

The largest ‘other’ expense going forward is the continuing pension plans. The Pension fund of the GM is fully funded ( I can’t find similar info on Ford and Chrysler, but they GM’s pension covers 300,000 and Ford/ Chrysler combined cover 150,000)  currently and pays UAW member $18,000 per year after the age of 63.

So, of the 73  mythical dollars, my guess is 50 goes to current employees.

No Raises for Years Ahead

Employees have already agreed to no raises for a few years, and the new UAW contract allows new workers to be hired at a lower rate.  Nearly half of all UAW members are eligible for retirement within 5 years. That means the labor cost will go down even further.

In the chart above healthcare costs 20 bucks an hour, but let’s look realistically going forward. The average healthcare plan in the US for 2009 is projected to be $9660. According to the above chart healthcare costs $41,891 a year. Even with really good insurance, based on the $9660 number, healthcare should only cost $15,000.

So, I’m Stuck with $32,231 Out of Pocket

Just for Health Insurance?

I’m a middle class earner, for where I live. My company offers average or above average benefits across the board. At year end, when I get my “total compensation” packet, it shows that the company pays less than $15,000 for my total compensation (besides my salary). If we assume my company pays its 78% share of my health insurance (9660×78%), then $7534 goes to health insurance and about the same amount goes to other stuff (vacation, holidays, 401k, etc).

Total Compensation

For the next bit, I am assuming about 7500 is needed for ‘other stuff”.  If GM pays 29.15 per hour worked (a tad high I think), and pays all 15k for health insurance, and 7500 for ‘other stuff’. Total compensation is (29.15×2080) =60,132 + 15000 + 7500 = $83132, that equals $39.9673 per hour.

Even if “total compensation” goes up to $103132, that’s 60k in wage, 40k in healthcare/ other stuff, that only equals 49.50 an hour, which is about equal to Toyota’s costs.

Two out of the 3 have Taken the Steps…

This shows, although the hour is late, GM and others have worked out the appropriate steps to rein in their over the top expenditures. Their cars have gotten better, well 2 out of 3 ain’t bad… Chrysler still sucks.

In normal circumstances, a bankruptcy would be the right choice. It would allow their debts to be re-organized and new capital infused. There is a snag with that right now though; who is going to give them the capital? No banks have any money now.

Why Kill Detroit Now?

If our precious financial district is worth 700 billion (over 5 trillion by some counts) then the last of our major manufacturing sector should get enough to survive until their already implanted changes help them out.

Andrew McCoy is an IT Consultant
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