A matter of life and death.

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The Autoworker Pay Premium Disappears

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The United Auto Workers union has started negotiating a new labor agreement with Fiat Chrysler, which will serve as the template for deals with the other members of what’s now known as the Detroit Three. The old agreements, which date to 2011, were set to expire Monday at midnight but are being extended during the negotiations.

In olden times, before the Great Recession, UAW negotiations with the automakers were often occasion for oohing and aahing (or, if that was your thing, moaning and groaning) about what amazing pay and benefits autoworkers got. You don’t hear much of that anymore.

Yes, many autoworkers are reasonably well compensated: the average hourly labor cost (pay plus benefits) is $58 at General Motors, $57 at Ford and $48 at Fiat Chrysler, according to the Center for Automotive Research in Ann Arbor, Michigan. But that’s way down from before the recession and near-demise of GM and Chrysler. It also includes profit-sharing checks that only come in good years. New autoworkers hired by the companies start at a wage of just $15.78 an hour, not much higher than the $15-an-hour national minimum wage recently proposed by Bernie Sanders.

Workers at nonunion plants owned by manufacturers such as Toyota, Honda and BMW generally make less than those employed by the Detroit Three. So do most American workers. According to the Bureau of Labor Statistics, average hourly earnings for production and nonsupervisory workers in motor vehicle manufacturing were $27.81 in July, compared with $21.02 for the nonfarm private sector overall. But while private-sector hourly earnings kept rising even through the recession, autoworker earnings are down substantially from a decade ago (and that’s without even figuring in inflation).

Add in employees of motor vehicle parts manufacturers, and you get a remarkable result. Auto workers no longer make much more than other American workers:   

The UAW is going to try to boost those average hourly earnings in the new round of negotiations. It isn't going to try too hard, though. In past rounds, the union targeted the biggest or financially strongest of the three automakers as its negotiating partner, with the idea that this would lead to the most lucrative agreement, which could then be imposed on the other two. This year it has chosen the weakest. Writes Bloomberg’s Mark Clothier:

Given that Fiat Chrysler is smaller and less profitable than GM and Ford, the union may not get as lucrative of a deal as it could with a stronger company. But by starting with Fiat Chrysler CEO Sergio Marchionne, UAW President Dennis Williams may ensure he forges an agreement that the other two companies can accept -- and make it less likely that the union would have to reach significantly different accords with each.

It used to be that the UAW’s primary goal was to get as much out of the Detroit Three as possible. That’s still a goal, but it’s a secondary one. The primary goal now seems to be making sure all three stay alive.

  1. In 2006, the numbers were $73 for GM, $71 for Ford and $76 for Chrysler.

  2. Fiat Chrysler is less profitable right now than GM and Ford; hence the lower hourly labor cost.

  3. Mercedes-Benz, which has a big non-union plant in Alabama, is the lone exception, with an average hourly labor cost in the U.S. of $65. Mercedes' costs are so high because, according to a Center for Automotive Research analyst cited by the Detroit Free Press, it pays "higher lump sum bonuses, uses fewer temporary workers and has a workforce with more years of seniority than many other automakers with plants in the U.S."

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net