21 comments

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  Emma Zahn

  7 months ago

  I wish I had seen Jen's comment earlier. I was so tired of seeing this argument I decided to look at GM's last 10K. Not only are retiree benefits included in the $73 but so are employee buyouts. Nice way to inflate a number. Buyouts reduce the total hours worked while increasing the amount paid.
  
  You know, GM is being really disingenous about their 'legacy costs'. Why weren't retiree pensions funded year-by-year as they were earned. Why are they being accrued now? Did someone underestimate or worse lose funds through bad investments. Also, IIRC General Motors self-insured health benefits. Did they 'forget' to fund those accounts too?
  
  Oh and they recently agreed to let the UAW take over responsibility for retiree benefits but, oops, they don't have the $25bn they agreed to transfer. Um, $25bn. Where did I hear that number before? Oh, yeah. That's how much they asked Congress for.
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  UOJim

  7 months ago

  Emma, if I were to guess, the retiree health costs are probably what GM didn't fund in advance more than the pensions, though of course I could be wrong about that. Your point stands: bad accruals!
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  Freddie

  7 months ago

  It almost makes you wish we had some sort of functioning health care system so that the automakers didn't nearly double what they paid to workers because of the cost of benefits.
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  ryan yin

  7 months ago

  Good point Freddie. But actually, since I'm already wishing, I'm just going to skip to wishing that there's a way that health care can be magically free. Or that the value of benefits to workers can exceed the value of the money it would take to pay for said benefits.
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  Freddie

  7 months ago

  Or people could just be born into the lives of privilege that are required to be libertarians.
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  bachwards

  7 months ago

  Would you perchance describe them as trust fund scumbags?
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  UOJim

  7 months ago

  Will, it's asinine to do what GM does here and put pension and retiree benefits in a numerator where the denominator is labor hours. It's a metric that has no business meaning. If you put them over number of cars produced or dollars of revenue earned, you'd have a meaningful benchmark. But it is stupid or worse than stupid to divide those dollars by current labor hours because the two numbers have no meaningful relation.
  
  I have no business objection to including any actual current-workforce-related comp in a per-hour metric: insurance premiums for current workers? Payroll tax? Vision care? Hey, go for it. But it's just bullshit to include fixed costs for retirees in a current-labor-hour-cost figure. It's hard to find a good-faith explanation for why GM would put such a meaningless number out there.
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  Will Wilkinson

  7 months ago

  Jim, I may be reading the GM document wrong, but I see it as describing "cash compensation and benefits provided to GM hourly workers," not to retirees. Maybe they're being deceptive, but that's not clear to me. I take it that there are contractual pension obligations to current workers, pension benefits are obviously part of total compensation, and the company has to spend money to meet these obligations on an ongoing basis. Funding the pensions of current workers is part of current labor costs. Why are you so sure they're being shady? I'd like to be clear about all this myself.
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  Michael Sullivan

  7 months ago

  I'm not sure they are being shady, but I certainly do wonder, because that would have to be an extraordinarily generous set of benefits for that dollar value of compensation to be reasonable. Government required benefits come to something like 10% of wagese, a good basic health plan might for family coverage might come to 10/hr for a full time employee or 25%, but not everyone will get familly coverage. An *excellent* pension plan might cost 10-15% of wages. Dental, disability and life and improved vision all add, but none of these is particularly expensive compared to FICA, pension or basic health.
  
  Something like 50-60% is normal for firms who give top-notch benefits.
  
  My (very small) company runs at more like 35-40%, and our average hourly wage is 1/2 of GM's. Our benefits are nothing like as good as GM's, but they aren't stingy either, better than what most firms our size offer at the wage levels we pay.
  
  That's also seems like an awfully high wage rate for hourly workers, but considering the rate of overtime in the auto industry, if they are averaging out per actual hour worked, that may make sense. The quoted amounts of overtime per worker seem awfully low, actually, an average of less than 8 hours a week per worker. My father-in-law describes the standard motor city blue-collar work week as between 55 and 72 hours from when he came up as a toolmaker at chrysler to being COO of an area tool-and-die company. I fondly recall a dinner conversation where he tells the story of turning down a potential client's request for his company to do a 72hr schedule by saying "Since we started this business, I haven't made anybody work a Sunday, and I'm not starting now."
  
  That said, he's been out of the business since 2000, so perhaps bad times have cut into the OT.
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  GilM

  7 months ago

  I think Megan McArdle's post on this is pretty good.
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  UOJim

  7 months ago

  Will, as I mentioned back "home," the 45-page document whose intro Perry excerpts makes clear that it includes cost for retirees in a number of areas. (See particularly from page 41 down.) That document is very selective in what expenses it does and doesn't detail: it tells you a fair amount about life and unemployment insurance but essentially nothing about health care costs and pension/retirement income. That in itself seems . . . funny.
  
  What I can say is:
  
  1) the doc Perry quotes conflates costs for retired and active-hourly workers in a number of areas.
  2) other docs on that website do the same. See the health care chapter of the same presentation. There are pension outlays in the pensions/401K doc, though nowhere does GM explain how they integrate into the figures in the "Other Benefits" pdf that Perry considers so authoritative. Even though it's an HR document with unaudited numbers. Whatever.
  3) Megan, who is a real reporter, seems to allow that the $70/hour figure includes costs per retirees. Felix Salmon makes the same assertion.
  
  Your own suggestion that "pensions" might mean "for current workers" struck me as an important possibility to check out - were that the case, GM's number would be more defensible. With a little poking around, the balance of evidence seems to cut against this explanation.
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  tomhanna

  7 months ago

  Interesting that a blog about philosophy would be the place with enough actual detail about the business that even a rank amateur should be able to spot a potential huge cost savings for GM - take some of the guys sitting in the "Job Bank" getting paid not to work and use them to eliminate the 300+ hours per active worker of overtime per year. Clearly this company doesn't need a bailout, it needs managers with half a brain and a few less corporate jets.
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  Jen

  7 months ago

  The numbers include the retiree benefits.
  
  http://www.record-eagle.com/business/local_stor...
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  Will Wilkinson

  7 months ago

  Thanks, Jen!
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  Glen Raphael

  7 months ago

  Hey! Jen's source gives us an actual number! Or at least an upper bound.
  
  If a hypothesized future $9/hour excess largely is due to legacy costs, that implies said legacy costs are no more than $9/hour. So we can now subtract that from $73 to say the GM workers are being paid "over $60/hour" including benefits but excluding benefits to prior retirees.
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  UOJim

  7 months ago

  Glen, you misread. $9/hour comes AFTER an earlier subtraction of part of retiree costs. I recommend you read the article itself.
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  UOJim

  7 months ago

  Withdrawn! Despite Glen's bad method (you need to add $9 to Toyota's estimated $53), he arrived at a roughly correct answer. So I'll not quibble.
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  Glen Raphael

  7 months ago

  I think my reasoning was correct but I didn't explain it well. However, there's still a caveat or two. The article says that in in a few years if this new contract takes effect the difference between GM's costs and those of Toyota are $9/hour, largely due to legacy costs.
  
  The largely implies legacy costs are less than $9/hour, but only assuming Toyota's legacy costs are negligible. Which is probably true, but I thought I should point it out. Since this is a difference versus toyota, the true costs are that "largely" - some fraction of $9 - plus Toyota's excess costs, whatever those may be. Which is why I rounded up so much.
  
  A further additional quibble is that this statement was about what the situation would be in a few years if a this new contract takes effect, not what it is right now. Which means one could slant the numbers in various directions with assumptions about what happens in the meantime.
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  UOJim

  7 months ago

  All that said, there should be NO legacy costs in a per-hour comp metric. They should be loaded into per-unit or percent-of-revenue metrics. If you load legacy costs into per-hour comp, then your unit metric and your totals move in opposite directions when you do things like expand or contract your workforce.
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  Barry

  7 months ago

  "You know, GM is being really disingenous about their 'legacy costs'. Why weren't retiree pensions funded year-by-year as they were earned. Why are they being accrued now? Did someone underestimate or worse lose funds through bad investments. Also, IIRC General Motors self-insured health benefits. Did they 'forget' to fund those accounts too? "
  
  From what I've heard - yes. Many companies let their pension funds get, ah, 'a bit behind', because the top guys could declase a larger profit, and get larger bonuses, and there was insufficient enforcement. This was especially bad in 200 and the next few years, because many companies had gotten used to 10% or so growth in invested pension funds, and were baking such growth into their projections. When the stock market delivered actual losses, they simply assumed that the stock market would make it up in future years.
  
  
  -Barry
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  truck parts

  1 month ago

  That is one good compensation for workers in GM. They should not change it because this people help them grow. They should lessen the higher people compensation.
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