by Jacob Davies
I think we’re all glad that the US federal government passed on the opportunity to bail out the US automobile industry in 2008. After all, that moribund industry stood no chance of making a decent recovery, and getting on with the process of adjustment as early as possible was really the only way to go forward. Sure, the ruins of the industry were picked up by Chinese carmakers and entire factories were shipped to China and exactly reconstructed there, ready to export to the US market, but that’s just the natural operation of the free market. At least we didn’t pour billions of dollars down the Detroit rathole.
Wait… that was Universe B. In this universe:
[T]he gloom over the American auto industry is starting to lift. Jobs are growing. Factory workers are anticipating their first healthy profit-sharing checks in years. Sales are rebounding, with the Commerce Department reporting Friday that automobiles were a bright spot in July’s mostly disappointing retail sales. Ford made more money in the first six months of this year than in the previous five years combined. G.M. is profitable and preparing for one of the biggest public stock offerings in American history. Even Chrysler, the automaker thought least likely to survive the recession, is hiring new workers… 55,000 jobs have been added since Chrysler and G.M. emerged from bankruptcy in the summer of 2009.
We need more jobs that pay like this (and I mean at both GM and Toyota):
The average production worker at G.M. earns $57 an hour in wages and benefits, compared to $51 at Toyota, according to a study by the Center for Automotive Research in Ann Arbor, Mich.
On another note, I found it strange that Republicans who prided themselves on being defense hawks were so indifferent, in 2008, to a crucial defense industry. WWII was largely won by the side with the most trucks:
Allied truck production: 3,060,354 (of which US: 2,382,311)
Axis truck production: 594,859
In the United States the preparation for industrial mobilization was negligible until 1940; in fact, there was no serious effort even to restrict civilian automobile production until after the attack on Pearl Harbor in December 1941. Still, the American automotive industry represented such a concentration of productive capacity and skill that, once its resources had been harnessed to war production, its contribution was tremendous. Between 1940 and 1945 automotive firms made almost $29 billion worth of military materials, a fifth of the country’s entire output. The list included 2,600,000 military trucks and 660,000 jeeps, but production extended well beyond motor vehicles. Automotive firms provided one-half of the machine guns and carbines made in the United States during the war, 60 percent of the tanks, all the armoured cars, and 85 percent of the military helmets and aerial bombs.
I guess I’m just old-fashioned.
Jacob, while you were in Universe B, did you happen to notice that the invasion of Iraq was a success, in large part, because of good logistics transport? That allowed the Coalition forces to take charge and maintain public order — the didn’t get hung up waiting for their supplies to arrive before they took the next step forward. And that, in turn, meant that resources were freed up (relatively quickly) to actually get a grip on Afghanistan.
We know that was Universe B, because here, the abysmal logistics cause Iraq to descend into chaos. And once that happened, it took years to get a grip on things again (assuming, for the sake of discussion it ever happened). But hey, we had good generals in charge. (“Good generals study strategy. Great generals study logistics.”)
Yeah. Well, we handled logistics in Iraq by shoveling money at private contractors on cost-plus contracts:
We’ve come a long way since the Red Ball Express.
Jacob, Re your comment on KBR: are you sure this isn’t classified information?
The lorries didn’t carry replacement air and oil filters, essential when driving in the desert. They didn’t even carry spare tyres. If one broke down, it was abandoned and destroyed so no one else could use it, and left burning by the roadside.
Holy crap.
If someone needs a link, I can probably find it. Until then, this is a “I read somewhere on the internet story”.
Someone was in a convoy in Afghanistan. The convoy moved at 20 mph. Because of possible suicide bombers, no vehicles were allowed to pass. There were 300 vehicles in line behind the convoy. The vehicles behind the convoy were not happy.
$57 an hour? Geez…assuming a normal workweek and no overtime, that’s something like $120k in total compensation. Seems like a pretty high amount — perhaps unsustainably so — for a line worker in a factory.
“Automotive firms provided one-half of the machine guns and carbines made in the United States during the war, 60 percent of the tanks, all the armoured cars, and 85 percent of the military helmets and aerial bombs.”
So when the car managers say they don’t have the resources to retool their factories to make, say, cars that can get 100 miles per gallon–or to make any damn thing at all to keep from closing the plant–let’s just tell them we know they’re full of shit.
But without the government bailout, something even better would have happened. And it would have been better because it came from the market instead of the government. Q.E.D. So there!
That would be universe C, in as much as in THIS universe, A presumably, we didn’t bail out “the automotive industry”, we only bailed out select parts of it, while other parts proved to be quite healthy.
But, yes, the bailout did protect us from the horrible prospect of Ford getting some of GM’s market share, while GM reorganized into a more efficient, albeit smaller, firm.
Life imitating art as seen in consecutive comments from Mike Schilling and Brett Bellmore makes my Sunday morning just a little bit happier.
$57 an hour?
Yes, total compensation, including everything, not just wages. (Single-payer insurance may have brought that number down a lot.) It may not be sustainable, thus (from the same NY Times article):
Those costs should continue to fall as the companies hire new workers at lower pay grades agreed to by the U.A.W.
$57 an hour? Geez…assuming a normal workweek and no overtime, that’s something like $120k in total compensation. Seems like a pretty high amount — perhaps unsustainably so — for a line worker in a factory.
We were just discussing the slightly fictional 40 hour workweek (I wish someone had told me when I was 22). At 35 hours a week that’s $103,740 including benefits, probably comparable to an $80-90k salaried job with health benefits and no retirement plan.
As for “sustainable”, given the increase in productivity over the past few decades from automation (and corresponding massive job losses in the sector), one would think that someone turning out $30,000 manufactured objects on a highly automated line ought to be able to make $100,000 a year without breaking the bank. I mean, unless you’re religiously sold on the idea that workers must be paid as little as possible under all circumstances in order to maximize the Holy Profit Margin.
We aren’t talking about injection-molded plastic goods or even consumer electronics assembly. Cars are complex, durable goods with an expected lifetime of at least a decade in heavy daily use. That’s why they cost $30,000.
You know, at the end of the day, I think that there was something not admirable but grimly impressive at the way that some Republicans were essentially willing to hold a gun to the head of the American auto industry (and actually pull the trigger!) out of their hatred of unions and UAW in particular. I mean, there’s a dislike of unions and how they lean Democrat, and then there’s, “Yes, we will pull the trigger on one to five million jobs if it means killing UAW.” That is some serious ****ing malice.
For professional positions, the rule of thumb I’ve always heard is that fully loaded cost of employment is about 2x what the worker sees.
Could be different for line factory work, because “fully loaded cost” is probably not going to include things that are included for white collar — computer, cost of office space, etc.
Does anyone know a good heuristic for working back from “total compensation” to “what the employee actually sees” for factory workers?
It seems highly unlikely to me that these guys are walking home with $57 bucks an hour in their pocket.
Could be wrong, I just don’t know what the standard assumptions and cost breakdowns are for industrial labor.
Well, that was a lame response. I guess some people just aren’t willing to admit that we didn’t bail out “the automotive industry”, we bailed out part of it. With the obvious implication that, if we hadn’t, and even assuming the non-bailed out companies completely vanished, the parts of the industry that didn’t need a bailout would have just picked up the slack.
The truth is, we didn’t bail out the industry, we bailed out the UAW. We just did it in a much less efficient fashion than writing the union a check.
But Brett, if we just wrote the union a check, where would the money go? If you think about it, you will realize that you would expect it to go to the union’s leaders, rather than to the workers. Right?
The truth is, we didn’t bail out the industry, we bailed out the UAW.
I don’t have the energy to dig into this and evaluate how reasonable or nutty this analysis is.
So, I’ll just spot you one. Let’s assume that we bailed out the UAW.
Given all of the crappy, irresponsible, greedy, rich MF’s we’ve bailed out over the last couple of decades, I’d call bailing out the UAW a step in the right direction.
Net/net, of all of the things we’ve done in the last 30 to 40 years, bailing out the UAW would be somewhere in the low-to-middle range of stuff that bugs the hell out of me.
At least those guys make stuff.
One thing to keep in mind is that all three of the companies use the same parts suppliers. If GM and Chrysler and gone under they would have dragged most of the parts suppliers with them. At that point Ford would be hurting, it would have survived, but would have had to invest heavily in the parts business.
The truth is, we didn’t bail out the industry, we bailed out the UAW.
And at a pittance. Compare that to our bailout of Wall Street….lessee here, a trillion or two divided by a couple thousand worthless parasitic scum calling themselves “investment professionals”….what’s that work out to on a per capita basis, Brett? A bit more than $57/hr. you say? Speak up, lad!
So when you run the numbers, it’s pretty obvious that saving the UAW was a socially useful exercise. Saving bankers? Not so much.
Off topic….could somebody tell me who will, once the Galtian paradise is achieved, clean the toilets? And why does that industry never appear to require a bailout?
The Galtian paradise can never be achieved, no matter how much Ayn Rand harped on how it would. She was always confident that there would be “scum” around to do it.
“One thing to keep in mind is that all three of the companies use the same parts suppliers. If GM and Chrysler and gone under they would have dragged most of the parts suppliers with them.
You DO realize, don’t you, that the unstated assumption in that argument is that if 2 out of 3 auto companies vanish, (And the bailed out companies were never going to vanish, just reorganize.) 2 out of 3 car buyers will decide to walk, instead?
That’s a remarkably crazy assumption, but your argument depends on it.
Can someone with more patience explain the concept of brand loyalty to Brett? And then explain how automobile brands command some of the strongest loyalty of any good on the market?
Is that assumption more or less crazy, Brett, than your assumption that Ford could have tripled its output fast enough to stop the suppliers from going under, and that the suppliers could have retooled fast enough and cheaply enough to provide the immense numbers of additional parts Ford would need, rather than supplying parts for (discontinued) GM and Chrysler models?
2 out of 3 car buyers will decide to walk, instead?
they could walk right over to Toyota, Honda, Hyundai, VW, Nissan, or any of the other non-US brands. which would do nothing for Ford.
Brett,
I think you are relying on a really oversimplified, abstract notion of what would have happened. To continue operating, and reorganize, GM – the biggest industrial bankruptcy in US history – would have had to get private debtor-in-possession financing. There is no guarantee this would have been available, especially with Chrysler’s problems, in the middle of a deep recession. In effect, this financing was provided by the US.
Alternatively, I suppose it could have liquidated, with factories being taken over by Ford, Toyota, or others. This would have had massive frictional costs, likely far in excess of whatever the government support of GM ends up costing.
The point is, it’s easy to say, “Well, the assets would still be there, and buyers would still want cars, so it would haveworked out.” The trouble is things were vastly more complex than that.
So, Bernard, are you suggesting that they couldn’t just put a new sign up on the front wall of the Chevy factory?
Brett, you do realize, don’t you, that both Toyota and Honda also asked the government to bail out GM due to what would happen to the supply chain and how it would affect them? The fact is, a lot of the money used to bail out GM was used to pay bills to suppliers who, if they had not been paid, would have had to declare nbankrutpcy themselves, thus leaving no place for Ford to go to.
One puff piece in the NYT is, on balance, fairly meaningless. Neither the NYT nor JD’s piece mention the cost of the bailout–I tried to google it and got way more numbers than I can assimilate with my current level of caffeination. But, it was a lot of money. And some equity stakeholders took a pretty big hit, as I recall. If you read far enough down in the NYT piece, you learn:
“Their recovery is not sustainable yet,” said Mr. Morici, the economist. “They need to reduce their costs more if they’re going to be competitive in the long term with the Japanese, the Koreans and ultimately the Chinese.”
Implicit in the piece is that the UAW was forced to significantly retrench as a matter of self preservation with a lot more to go. Of course, retrenching to $57/hr (with benefits, which leaves open the question of what the worker takes home, but still, it’s a nice piece of change) is a retrograde movement only in a very small and fortunate world. I am sure folks with combined incomes of 90K are happy that their taxes go in part to underwrite others’ single family incomes of 100k plus. Russell, my incremental cost of adding one non-professional employee is base salary plus 25% give or take (professionals are higher because of added loads on liability insurance, continuing education, etc). I suspect the GM cost is higher, thus the take home is lower. I also suspect the benefits at GM are better. My employees and I have identical benefits whether they are licensed attorneys or file clerks, FWIW. I don’t factor in start up costs of computer, furniture, etc because it’s a one time sunk cost. I don’t factor in general overhead (rent, some insurance, library, etc) because those expenses exist whether I add an employee or not. Adding a non-professional is cost neutral, adding a professional averages down the per capita cost.
After that, we got a look at the breakdown in numbers: Toyota will increase its workers’ average monthly base pay by 1,000 yen ($8.55 at today’s rate), or about 6.25 yen per hour. Honda is set to increase monthly base pay by 900 yen ($7.69), or 5.63 yen per hour, and Nissan workers will be bringing home an average of 6,700 yen more per month next year ($57.26, or 41.88 more yen per hour).
That may not seem like much, but their average base salaries were already well above the national average: Toyota’s average monthly base will nudge up to 350,580 yen and Nissan’s to 355,400. According to the Ministry of Health, Labor and Welfare’s December 2006 data, average national wages (not including cash from bonuses) stood at 273,175 yen.
The raises in base pay may not amount to much, but Toyota has agreed to pay an average annual bonus of 2.58 million yen ($22,051) per employee, an increase of 8.9% over last year. Nissan’s average annual bonus will be at 2.13 million yen ($18,205), and Honda’s workers will on average see 2.46 million yen ($21,026) in bonuses.
link
That line ‘nice piece of change’ line sounds a lot like resentment that someone doing a different job from yours gets something approaching what you get. It seems like the fundamental principle is ‘Since I’ve got mine, there is no way in hell you should get anything that looks close to mine.’ Which seems to be the basic principle of conservatism now.
Implicit in the piece is that the UAW was forced to significantly retrench as a matter of self preservation with a lot more to go. Of course, retrenching to $57/hr (with benefits, which leaves open the question of what the worker takes home, but still, it’s a nice piece of change) is a retrograde movement only in a very small and fortunate world.
Note my added emphasis. Also, one big problem I see is that the “fortunate world” is so “very small.”
I am sure folks with combined incomes of 90K are happy that their taxes go in part to underwrite others’ single family incomes of 100k plus.
How are you arriving at this? Total compensation doesn’t equal income, as you later note, McKinney. And you would think somehow that my taxes didn’t get spent on the auto-industry bailout, since I’m not resentful of working people keeping jobs that provide them good total compensation for the value they’ve created, rather than being out of work and, let’s see, collecting unemployment, not spending nearly as much money, possibly losing their homes, thereby depressing the housing market even further (and probably a bunch of other crappy stuff I can’t think of right now, if anyone else wants to jump in).
Here’s the UAW look at total compensation. From 2007, but should be in the ball park (Link).
So in 2007, before the UAW agreed to the new tiered wages system, automobile factory line workers were not grossing ~$110K/year. They were grossing ~$62,000.
I am sure folks with combined incomes of 90K are happy that their taxes go in part to underwrite others’ single family incomes of 100k plus.
Whooooo – weeeee!
If someone typed this sentence in a conversation about the concentration of wealth in the US, and how all the gains in wealth have gone to the top 10% of earners in the last three decades, how would you feel about that?
Funny how no one is supposed to talk about wages and salaries at work because that only leads to resentment, but the moment a union is involved so many anti-union types start highlighting wages and salaries in order to try to stir up resentment. I guess class warfare is only good if it is isolated to the working class fighting over which lucky sot gets a living wage.
Per FactCheck.org:
Average UAW wage is about $29.00/hour. Call it $60K a year, base. Not too bad.
Add in bonuses, overtime, paid time off and you’re up to about $40.00 per hour worked.
Add in insurance and retirement, you’re up to about $55.00 per hour worked.
So, UAW line workers are making an average base wage of $60K, all-in costs per employee are not quite double that.
Toyota folks typically earn more than UAW because their companies are profitable, and they have a profit-sharing plan in place.
Per fact-check, labor costs are about 10% of the cost of producing a vehicle.
My understanding is that automobile assembly work is somewhat to relatively highly skilled hands-on production. To me, personally, an average base wage of $60K across that population seems like a good, but not outrageous, pay scale.
Revenue per worker for those companies is multiples of labor cost per employee.
I’d also like to note that, once again, a discussion of anything that has even the most tangential relationship to a union has turned into a debate about whether union workers are paid too highly.
Want a good laugh? Compare the C-level executive salaries of the Big 3 to Honda or Toyota.
Hourly wages as quoted in newspapers always require careful analysis, which, bluntly, the media are not very good at. During the bailout debate various rates were quoted that included the pension and health benefits of retirees in GM’s hourly labor cost.
I don’t think that’s going on here, but “benefits” can cover a lot of ground. There’s the FICA match, and health insurance, unemployment insurance, etc. Also, many calculations include things like vacation, holidays, etc., that can make the benefit percentage quite high.
In fact the Bureau of Labor Statistics says that the median wage for production operations in motor vehicle manufacturing is $27.28/hr. So the discrepancy is pretty big and, at a minimum, needs some explanation before we assume that these workers are wildly overpaid.
“Brett, you do realize, don’t you, that both Toyota and Honda also asked the government to bail out GM due to what would happen to the supply chain and how it would affect them? ”
I don’t remember this. It seems surprising, though not I suppose impossible. Can you point me to it?
As far as the NYT piece, I’m not impressed yet. Surprised that there is anything positive to talk about at all, so that is good news, but the hyper-ventilating spin is a bit much.
First of all the biggest proportion of the ‘Detroit’ recovery is Ford, which didn’t get a bailout. The journalist breezes over Ford except in the intro, and doesn’t deal with the magnitude.
The fact that Chrysler is hiring workers doesn’t really suggest it is healthy yet, more that it shed so many when people thought it was definitely dead that it needs to hire a few now that it might not be dead.
I’m willing to posit that it looks somewhat positive for the first time in decades. But I wouldn’t break out the champagne yet.
Also, I suspect a HUGE portion of GM’s bounce is because of the enormous (and since it turns out that almost all of the reports of unintended acceleration were operator error, undeserved) hit to Toyota’s quality reputation in the past six months. Which is super-lucky for GM, but we’ll see how long that lasts.
And you would think somehow that my taxes didn’t get spent on the auto-industry bailout …
Without meaning to contradict hairshirt’s point, I have to say that neither his taxes nor McKinney’s got spent on bailing out Detroit. None of us paid a surtax to rescue GM or the UAW or whoever. We borrowed the money.
The cost of borrowed money is not the principal; it’s the interest you pay on it. If you get a higher rate of return, on whatever investment you use the money for, than the interest rate you pay, then you make a profit on your borrowing, not a loss. That’s why private sector corporations and individuals borrow money all the time.
It’s okay for people to argue that bailing out Detroit was a poor investment. The worst they can be is wrong.
But to frame the bailout in terms of the principal coming out of our taxes is not right. It’s not even wrong.
–TP
Without meaning to contradict hairshirt’s point…
Whatever, man. I never liked you anyway.
A fair bit of Chrysler’s troubles should be laid at the feet of Daimler-Benz. Chrysler was cash rich when Daimler bought it, more profitable than Daimler, and enjoyed the best cost structure in the industry (even including those allegedly bloated UAW contracts). Daimler ganked the cash and failed to deliver interesting new product.
Perhaps symbolic of the entire debacle is the striking, new Mercedes SLS. It’s derived from the work Chrysler’s designers did for the next generation Dodge Viper.
So we shouldn’t be too surprised that Chrysler is on the mend. After all, Daimler is no longer mismanaging it.
Sebatian, the following is a quote from Auto-Blog in December of 2008:
“Toyota doesn’t want one of the Detroit 3 to fail. Despite the fact that the Japanese automaker is a direct competitor and seemingly stands to gain long-term sales from the collapse of at least one of its American competitors, the reality is that it would be a major headache for the entire industry. The largest issue may be that a Detroit collapse, especially of General Motors, would take a number of key suppliers down with it — suppliers that Toyota relies upon just as much as any other automaker.”
A quick goggle shows several articles with the same theme.
Brett’s idea that it would have been more “efficient” to let the world’s second-largest carmaker and Chrysler collapse – with associated losses of institutional knowledge, organization, technology, brand value & customer loyalty – to let others (including Japanese & European others) pick up the pieces seems to me much like the sort of “efficiency” that would deal with the prospect of a $5,000 roof repair on your house by dynamiting the place and bulldozing the remains. Clean, crisp, efficient, no question, but sort of problematic if what you were after was a house to live in.
Jacob: I think you forget that markets are good and the government is bad.
Therefore, anything done by the government is bad, regardless of evidence. Also, the contrafactual is (again, by definition) superior because markets.
I wish GM would take advantage of some of the manufacturing infrastructure they’ve taken offline to extend their brand into more sustainable transportation. I’d love to someday take “the train that rides like a Buick”.
I don’t think you’re really being fair to how the bankruptcy procedure operates. The whole point of them is to allow knowledge, organization, technology, and often even brand value continue to operate.
Sebastian,
I don’t think you’re really being fair to how the bankruptcy procedure operates. The whole point of them is to allow knowledge, organization, technology, and often even brand value continue to operate.
Yes, that’s the ideal. But the critical issue is whether those goals would have been achieved at reasonable cost. (Of course, that’s a critical issue in any Chapter 11 reorganization).
You start losing some of those things immediately. Faced with uncertainty, the employees with the best prospects will go elsewhere and customers will hesitate. Suppliers will cut back their operations So you start to lose knowledge, innovation, brand value, and so on immediately.
The problem I had with just letting GM go was that its size meant that the disruption caused by a bankruptcy procedure with no government involvement would be enormous, and that the prospects for a successful organization without that involvement were small. And remember, that disruption included the impact on suppliers and others. The potential repercussions were huge.
I think the risk of disaster was unacceptable.
Ford, Honda, and Toyota were likely well aware of the frailties of GM and Chrysler, so to the effect that they were reliant upon the same supply system, they were bailed out. I think that was an obvious risk for any company for a key supplier, and therefore a “bet” that our federal gov’t would bail out the system before it failed, different from AIG, Freddie, and Fannie only in scale.
Does anyone here prefer public transportation? Maybe we should stop subsidizing cars, and build public transport with the money.
Does anyone here prefer public transportation? Maybe we should stop subsidizing cars, and build public transport with the money.
I do but we have lots of that in working condition over here. But the Deutsche Bahn, eager to go stockmarket, has put the bottom line over the railway line resulting in some major breakdowns that will take years to repair. The prospect of the free market again proved to be far more efficient in destryoing a working system than the government.
In comparision: the privatization of the mail service was a mixed bag. Some parts vastly improved (esp. customer service), others deteriorated (e.g. mail is now delivered several hours later than it used to be in the past because the number of mailmen got slashed).
Very casual opened your blog, but let me not to die, because you let me enjoy the share many happy. I really like your articles, have good taste, and taste. I will continue to focus on your articles, remember many updated! Thank you, wish you happy!