Automakers Forced to Pay 85- to 95-Percent of Wages to Union Members Who Are Not Working

Tiffany Gabbay | November 21, 2008 | 6:40pm EST
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United Auto Workers President Ron Gettelfinger

( – The Big Three automakers are forced to pay 85- to 95-percent of union wages and benefits to members of the United Auto Workers union who aren’t working – even if their plants have been closed.
Industry analysts say union labor agreements that obligate the Big Three to pay millions of dollars to workers who are no longer working are a major reason why the automakers are in trouble – a problem that no short-term bailout can fix.
During hearings last week where the chief executives of Ford, Chrysler and General Motors appeared before the Senate Banking Committee, Sen. Bob Corker (R-Tenn.) raised the issue.
Corker asked Rick Wagoner, CEO of General Motors, why with all of the measures he has taken to prevent a collapse, his company was still not making money.
“Is it because of the (United Auto Workers) union?” Corker asked pointedly.
Wagoner, who demurred from answering directly, said that even at plants that are closing, “85 percent” of union employment benefits still “have to be paid.” He said that GM has had to restructure and reduce the cost of operating in the U.S., but the company still pays for employees that are not currently working at “idle facilities.”
Chrysler Chairman Robert Nardelli, facing a similar question from Corker, confirmed that “agreements are in place” between Chrysler and UAW that, regardless of demand, Chrysler must still operate at a pay rate of 95 percent of wages for employees not currently working at idle facilities.
Peter Morici, a professor at the University of Maryland’s school of business, told that one of the biggest problems the companies face is the UAW’s Jobs Bank – a program established more than two decades ago that guarantees nearly full salary and benefits to out-of-work employees.
“Right now if a plant closes in St. Louis and a new one opens in Kansas City, the workers don’t have to move from St. Louis to Kansas City; they can opt to get a $105,000 payout or go on Jobs Bank where they can collect 95 percent of pay for the rest of their lives,” Morici said.
The Detroit automakers have not released official numbers indicating how much they currently spend on their respective Jobs Banks, but previously released four-year labor contracts signed with the UAW in 2003 revealed “contribution caps” to be implemented by each of the Big Three.
These contracts say that GM agreed to allocate $2.1 billion in Jobs Bank payments over four years, Chrysler $451 million for its program along with another $50 million for salaried union employees, and Ford agreed to set aside $944 million.
Morici, who also testified at last Tuesday’s committee hearing, said that economists estimate that $2,000 per vehicle of every car manufactured by the Big Three goes directly to pay employee benefits, something foreign automakers do not have as part of their overhead.
The economist said he believes U.S. automakers are “capable of making high quality vehicles” but that the extremely high labor and product development costs will keep the Big Three from becoming profitable and surviving.
“My view is they can’t do that because their labor costs are too high and their product development costs are too high” Morici said.
“They need to lower their labor costs to those enjoyed by say, Honda at the new Indiana plant and eliminate all of the burdens and work rules that get in between the management and workers in terms of defining how the work place is run,” he added.
UAW President Ron Gettelfinger, meanwhile, told the congressional panel that his union will not be making any concessions in order to receive the proposed $25 billion in government aid – and attributed the automakers’ difficulties to the economy and the tight credit market’s impact on car buyers.
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