Motor vehicle production report 2007
However, by the early s, the rate of change in wages had begun to go flat. To some extent this was mitigated by continued growth in benefits health care and pensions are indicated in the figure , though combined compensation wages and benefits was also flattening out by the early s. Though it is not represented on this chart, household income continued to grow as second wage earners women entered the workforce, though the rate of change in household income went flat by the s. At this point most households did not have a third wage earner able to enter the workforce, and this marked the beginning of the stagnation in purchasing power that contributed to the recent recession.
Compensation for Ford assembly workers displays much greater variability since adjustments are generally made through three-year cycles of collective bargaining with some longer-term agreements. The more recent addition of profit sharing has smoothed out some of the variability, but the main story is that the rate of change in auto industry wages continued to track the rate of change in productivity for two additional decades after the break from the AIF formula.
It was not until the s that the rate of change went flat in this industry. There are also indications that efforts will be made to connect this issue with executive compensation.
Automotive in Spain
These are complex issues, and some aspects of them are beyond the scope of labor negotiations. Even issues that are within the scope will be challenging to resolve.
For example, the entry wage has directly led to job growth among U. As noted previously, an estimated 18, new jobs have been created within Ford through new work and additional shifts in a number of domestic plants. As such, the issues surrounding pay become intertwined with issues pertaining to job creation. Ultimately, the challenge facing the auto industry, the U.
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Two often-misunderstood facets of the U. While these issues are often at the core of criticisms of the U. Moreover, there are other competitive factors—such as product mix, product quality, supply chain performance, and enterprise business strategy—that are far more important to the fortunes of the industry. Direct labor costs for hourly and salaried workers represent approximately 18—20 percent of the total costs of an automotive enterprise with hourly workers accounting for approximately half that amount.
Most of the total costs are associated with purchased parts, energy, research and design, warranty, overhead, and other factors. Indeed, Helper and MacDuffie place the cost of purchased parts at 70 percent of total costs. Additionally, work rule flexibility has been increasing through pilot experiments since the introduction of the mutual growth forums in , with major gains over the last decade-and-a-half as the industry has moved more systematically to team-based work systems.
In , as the market was collapsing, Ford allowed the UAW to select a financial expert to conduct a detailed review of the business so that there would be full transparency on the extent of the crisis the company faced. This individual, Eric Perkins, who would later be named research director for the UAW, recalls the briefings to the union membership he provided based on his findings:. I told the membership that the company was in terrible shape. They should prepare for the worst.
There were flexible body shops only running one product. Money had been wasted on share buybacks and special dividends, rather than investment in new products. There was too much complexity in the design. Their time to market was two to three years longer than the Japanese and one year longer than GM. Ford had generated many innovative products such as the Explorer and the Expedition, but the success covered up underlying problems.
Further, most of the Big 3 market share loss since had been at Ford, and this included the very profitable products such as Explorers, Expeditions, and even pickups—product segments Ford had once dominated. I said this company is on the verge of bankruptcy and they needed to make a radical transformation. Purchasing and design accounted for more of the problem than labor. I said that though we were only 20 percent of the problem, every penny counted. Many UAW members owned stock and identified with Ford. People thought of themselves as working for a great company—so it was a difficult message to deliver.
As the quote indicates, business strategy is much more salient to the fortunes of the industry than labor costs or work rules. Yet in , the Wall Street Journal still laid all the problems of the industry on the doorstep of employee benefits and UAW work rules, writing in a December 1 editorial:. Consider labor costs. Take-home wages at the U.
U.S. auto production undergoes a decade of transformation
But include benefits, and the picture changes. The absence of the UAW also gives [transplant] car producers the flexibility to deploy employees as needed. Work rules vary across company and plant, but foreign rules are generally less restrictive. That rarely happens outside Michigan. In the nonunionized plants, temporary workers can also be hired, and let go, as market conditions dictate. The health care and pension benefits provided by U.
The company-provided health benefits represented what the union saw as an acceptable but less-preferred alternative, which began with active worker coverage and was later extended to retirees. When transplant facilities arrived in the United States they also offered company-provided health benefits for active workers, but did not initially have retirement-eligible workers for whom pension or health care benefits would be needed.
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In addition, some have shifted from defined benefit to defined contribution k pension plans, and some have eliminated retiree healthcare benefits. Note, however, that BMW in South Carolina does still have a defined benefit pension plan, and others do contribute cash into the defined contribution plans. Perhaps a more significant factor is the use of temporary workers, with lower wages and lower benefit costs.
For example, as much as 20 percent of the Toyota workforce is made up of temporary workers. Cost issues loom large in the daily operations of all auto plants. The primary method of meeting the task is through efficiency improvements. Thus, work rules have historically been contested terrain—where management has an incentive to speed up operations and workers have an incentive to avoid work intensification.
The rise of team-based work systems and continuous improvement tools and methods discussed more fully below has helped to shift a historically contentious issue into an area of mutual growth. In the face of increased market volatility, there has been mutual interest in developing work rules that allow for more modular and more flexible forms of production. Today, there are a number of plants that can produce as many as six distinct products on the same assembly line—allowing for much more flexible responses to variation in product demand without as many complications due to established physical infrastructure.
This has, of course, required increased flexibility within teams for training and work assignments, which the UAW has supported. Further, the volatility of the markets means that labor costs can be highly consequential during a downturn. This goes beyond work rules. Given the large fixed capital investment, a major drop in volume quickly erodes any profit margins and requires attention to the two primary variable costs—labor hourly and salaried and purchased parts. There are penalties in both cases to a reduction in spending, so the adjustments are costly.
With suppliers, the purchase agreements are premised on predicted volumes, with additional costs imposed when those volumes are not achieved and often with shared savings when gains exceed what was anticipated in the contract. With the workforce, the original assurances of job security in exchange for contributions to continuous improvement discussed further in a later section have been relaxed, but the mutual commitment to cushioning the blow for displaced workers is a cost, albeit one that benefits the rest of society.
What is perhaps most important in understanding labor costs and union work rules is that both are a product of collective bargaining. Agreements are reached through the give and take of negotiations. Historically, auto negotiations are highly structured events, involving hundreds of union and management representatives serving on 20 or more subcommittees addressing issues such as quality, safety, sourcing, and other matters.
Importantly, the auto industry provides a vivid example of how this highly structured process can adjust in a crisis.
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For each subcommittee a multistep process was developed that included the following steps:. With periodic calibration at the main table, this process guided negotiators in developing a shared vision for success on their subcommittee topic. It also provided them with data, an analysis of underlying interests, and a brainstorming of options before the actual negotiations began.
see url While the bargaining at General Motors and Chrysler was not restructured to the same degree, the negotiations with these companies were also characterized by a high degree of problem solving. As noted earlier, the negotiations generated the establishment of a VEBA that was funded to take over responsibility for retiree health care.
This is just one example of labor and management using collective bargaining to reach agreements with transformative impact, not just to make incremental adjustments in wages, benefits, and working conditions.
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In the last two decades, the U. These forces have caused the geography of the U. They have also had important effects on the wages and benefits of the domestic auto manufacturers and on their supply chains.