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GM pays veteran employees $60,000 to retire

February 20, 2016

 

GM wants so much to rush veteran production workers out the door that it is offering them $60,000 to retire before May 1. It's not that  GM doesn't need workers or that they don't value experience. It's that their replacements will cost so much less.

 

To retire, workers must meet age and service requirements: 30 years of credited service, 85 points of combined age and credited service, or 60 years of age and 10 years' credited service.

 

Apparently, lots of workers continue working past retirement age. Maybe it is because they are earning over $70,000 a year.

 

In 2007, the UAW and all domestic automakers agreed to a wage of $14 per hour for newly-hired workers while existing workers continued to earn $28 per hour. New workers were referred to as "second-tier" while veterans were "first-tier." The starting wage for second-tier workers has increased over the years to $15.78.

 

The 2010 contracts were signed when GM and Chrysler were coming out of bankruptcy and included no wage increases for first-tier workers. Even so, as I reported in a July 2014 story, annual earnings exceeded $66,000 for the next 4 years.

 

The 2015 contracts were negotiated when the industry was thriving and UAW members felt they deserved compensation for past sacrifices. They also wanted to reduce the wage gap between new and veteran workers. Following is my breakdown of total annual earnings for what are now referred to as "traditional" (formerly, first-tier) GM production workers from September 2015-September 2019. The figures come from a summary on the UAW website of the 2015 GM contract.  I calculated base salary as hourly rate times 2080, the number of hours in a year figuring 40 hours a week and 52 weeks. That number is probably high, but is offset by not including overtime and shift differential. For hourly rate, I increased $28 by 3% for years 1-2 then increased the resulting figure by 3% for years 3-4, as the provided in the contract. We don't know the profit sharing amounts for 2017-2019, but car sales are expected to increase in the next year, then drop off gradually (source), so we can reasonably expect profit sharing to average $10,000.

  Signing Bonus   Base Salary   Quality/ Performance Bonus   Profit Share   Lump Sum  

Total

 
Year 1 $8,000 + $59,987 + $1,500 +

 $11,000

    = $80,487  
Year 2     $59,987 + $1,500 + *$10,000 + **$2,400 = $73,887  
Year 3     $61,787 + $1,500 + *$10,000     = $73,287  
Year 4     $61,787 + $1,500 + *$10,000 + **$2,471 = $75,758  
 

*Estimated   **4% of base salary

     

Total:

$303,419  

 

Now let's compare that to what a new employee hired just after the contract was signed will earn during those same 4 years. New workers, along with the current workers formerly known as "second-tier," are now termed "in-progression" workers. Hourly rates are from the chart at the top of page 3 of the contract summary.

 

Period

Hourly rate

Calculation

Earnings

 

 

9/15/2015-4/3/2016

17.00

202 days/7 = 28.9 weeks; $17 x 40 = $680 x 28.9 =

$19,652

 

 

4/4/2016-9/18/2016

18.00

168 days/7 = 24 weeks; $18 x 40 = $720 x 24 =

$17,280

 

 

9/19/2016-9/17/2017

19.50

364 days. $19.50 x 2080 =

$40,560

 

 

9/18/2017-9/16/2018

21.00

364 days. $21.00 x 2080 =

$43,680

 

 

9/17/2018-9/15/2019

22.50

364 days. $22.50 x 2080 =

$46,800

 
     

Total earnings from wages:

$167,972

 

 

This new worker will get the same yearly $1,500 quality/performance bonuses as traditional workers as well as the profit sharing, but not the $8,000 settlement bonus and not those 4% lump sum payments in the 2nd and 4th years. Here's what he'll get over the 4 years:

 

 

Wages (from above)

$167,972

 

 

Quality/performance bonus ($1,500 x 4)

$6,000

 

 

Profit share (same as traditional workers)

$41,000

 

 

Total:

$214,972

 

 

So the newly-hired worker will earn a total of $214,972 over the 4 years of the contract while the traditional worker will earn $303,419, a difference of $88,447. That's why it makes sense for GM to pay workers $60,000 to retire.

 

Driving jobs to Mexico

 

The UAW obtained substantial gains for its members in the 2015 contracts with domestic auto makers, but as a result, manufacturing of some smaller cars will move to Mexico. A December 9, 2015 Bloomberg News story says that

By the time the contracts expire in 2019, the three automakers will have added an estimated 320,000 vehicles worth of production there and cut U.S. output by a collective 120,000, according to a forecast from IHS Automotive, a research firm in Southfield, Michigan. Ford will add the most, boosting its Mexican production to 631,000 from 433,000, IHS said. . . .

 

Ford will move two compacts, the Focus passenger car and C-Max hybrid, to plants in Mexico, according to a person familiar with the matter. Fiat Chrysler will assemble a compact Jeep sport utility vehicle there starting in early 2017, according to IHS. GM said a year ago it is investing $5 billion in Mexico and will import the Buick Envision sport utility vehicle to the U.S. from China. . . .

 

Ford also is investing $2.5 billion to build new engine and transmission plants in Mexico. . . .

UAW leadership was well aware that excessive demands could cost jobs. As they told members in the GM contract summary:

The biggest challenge for your bargaining committee was to balance the competing demands of higher wages and job security . . . We know from experience that without product investments there is no job or income security and no future growth. . . . We won investments in 12 different sites and created or retained 3,300 jobs.

According to the Bloomberg story, however, those investments in 12 sites and those 3,300 jobs weren't much of concession for GM:

GM, Ford and Fiat Chrysler did pledge billions in investment for their American factories. But most of this will prepare for new models of vehicles the plants already assemble, according to Art Schwartz, a former GM labor negotiator and president of consulting firm Labor and Economics Associates in Ann Arbor, Michigan.

UAW president Dennis Williams seemed surprised by reports of production moving to Mexico. According to the Detroit Free Press, "Williams said [on February 5 that] none of the automakers said they would move production to Mexico because of labor costs during contract discussions." Apparently, it didn't come up.

 

Lower wages and lack of unions are not the only reason Mexico is drawing auto manufacturers. This is from "Why Auto Makers Are Building New Factories in Mexico, not the U.S.", a March 17, 2015 story in the Wall Street Journal:

Mexico has 10 free-trade arrangements encompassing 45 countries--counting EU members separately--plus other trade deals in Latin America and the Asian Pacific, according to the government’s trade office. In contrast, the U.S. has free-trade agreements with 20 countries, mostly smaller economies such as Chile, Jordan and Panama . . .

Free trade means no tariffs, which add to costs and cut into profits. U.S. unions typically oppose free trade, fearing competition from lower-paid foreign workers.

 

Ford to invest $1.6 billion for new plant in Mexico - Detroit Free Press, April 5, 2016

 

During the 2015 contact negotiations, the UAW membership did not share the leadership's concern about losing jobs to Mexico. They were concerned only for their own pocketbooks.

The UAW's first proposed contract with FCA [Fiat-Chrysler America] was resoundingly rejected by members . . . It was the first national agreement rejected by autoworkers since 1982 and a historic low point for the UAW. The two sides returned to the table and reached a second contract which passed. (Detroit Free Press, November 28, 2015)

UAW-GM negotiators struggled to come up with an agreement acceptable to the membership and Ford workers approved theirs by only 51.4%. If the agreements had not been approved, a strike would have been a strong possibility. The last major UAW strike was in 1998 against GM in Flint:

Only 9,200 workers participated in this 54-day strike, but it reverberated throughout GM and the American economy. The strike stopped production at 30 GM assembly plants and 100 parts plants across North America. Some 193,000 non-union workers were laid off at GM and the company's parts suppliers. GM and the UAW eventually reached an agreement where the automaker pledged to reinvest in American factories while the workers promised a 15 percent increase in output. But the damage was done. GM was crippled to the tune of 500,000 vehicles and lost $2.3 billion in profits. Production of newer models had to be pushed back months. GM was so large that the strike shaved one percent off America's gross national product. (source: autoblog.com, March 12, 2015)

In today's dollars, that $2.3 billion in lost profits would be $4.61 billion, so you can see why the automakers didn't put up much of a fight this time around. They just quietly move to Mexico.

 

Send comments, questions and tips to stevenrharry@gmail.com. If you'd like to be notified by email when I post a new story, let me know.

 

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