Automobiles

Two Tears for the UAW

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As tonight's midnight deadline approaches for the Detroit automakers and the UAW to finalize their quadrennial contract, the one issue that is not going to hold matters up is the two-tier wage structure. This structure, which has got a lot of press in recent days, was put in place four years ago to bring labor costs of the domestic automakers in line with their foreign counterparts. Under this structure, new workers get paid half as much as their senior comrades for the same work. 

UAW President Bob King is reportedly trying to boost the wages of the new workers in the negotiations. But Kristen Dziczek, a labor analyst at the Center for Automotive Research, told me over the phone that even if he fails, she doesn't expect this issue to become a deal breaker for the rank-and-file. That's because, she noted, 95 percent of the UAW workforce are senior, first-tier workers. And they are ultimately not interested in sacrificing their own paychecks to boost the wages of the new hire next to them on the assembly line. One senior worker told the New York Times yesterday that he'll happily give up regular raises "to get these guys up." But he is not representative of general worker sentiment, she maintained.

The two-tier structure certainly represents a double standards. But there is nothing morally wrong with it because it gives new workers job options that they otherwise wouldn't have. In fact, reports the New York Times:

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit's Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs here. It froze the list after receiving 10,000 applications.

The new workers certainly hope to move up eventually, although, under the terms of the bailout deal, automakers don't have to promote them till 2015. But right now their paramount concern is job security. "Everybody is appreciative of a job and glad to be working," said Derrick Chatman to the Times. He makes $14.65 an hour putting tires on Jeeps after being laid off at Home Depot, working odd construction jobs and collecting unemployment.

I couldn't be happier for Chatman and others like him. But the UAW has filed a grievance against Ford for overpaying its management, including CEO Alan Mulally who got $56 million in stock options in March. The UAW contends that if Ford paid its management less it might be able to pay its union workers more. But shouldn't that logic apply to the UAW itself too? Do we need another union to close the income disparity within the UAW's own ranks?

Post Script: Mulallay's accomplishment in turning Ford around after his predecessor, Bill Ford, systematically ran it aground is genuinely spectacular. Still, $56 million? Is it me or is that a tad obscene?

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  1. First. And high pay is not obscene. If you turn around a multi billion dollar company it does not seem wrong to give you a chance at a tiny percent of net cap on future gains (these are options, not just cash payments).

  2. Still, $56 million? Is it me or is that a tad obscene?

    I couldn’t say.

    Unless you are a Ford stockholder, its really none of your business.

    If you are a Ford stockholder, you might well be pleased by the roughly 40% increase in your stock value in the five years he’s been CEO (up from around $7.00 to just over $10.00, although its down from its January peak of $18.00).

    1. Still, $56 million? Is it me or is that a tad obscene?

      I couldn’t say.

      Unless you are a Ford stockholder, its really none of your business.

      Beat me to it. I just clicked on the comments to write EXACTLY this. Seriously, when I read that sentence this exact same string of words was the first thing that ran through my mind.

      1. Exactly. Owners decide the payroll. If there is problem with corporations in this country today it is a sick combination of tax laws and obfuscation that effectively have cut the real owners of these companies (anyone with a 401k) off from both the direct profits and responsibilities they have as owners.

    2. If Ford had taken bailout money from the feds, it would have been. (they didn’t of course)

      1. Didnt they get money from the federal reserve tho?

        1. I believe this was a loan, made by a lender of last resort, that was paid back

  3. Is it me or is that a tad obscene?

    It is you.

    There are ball players who earn as much…and, you know, Ford actually makes things.

    1. Picking of the nit:
      So do ballplayers. They make entertainment.

      1. Debatable.

        1. Not debatable. It’s a simple fact that lots of people voluntarily pay money (and time) to watch sporting events.

  4. If I could pay a guy $56 million to increase my earnings by a few billion I would do it without a second thought.

  5. It cost a lot of money to be rich.

  6. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees.

    And incentive to rid themselves of the expensive senior workers.

    1. Which is prime evidence that a job at an auto plant is worth less than $14/hour.

  7. If the shareholders think he’s worth it, fine. I can’t help wondering how he’d do if his compensation were subject to an open vote of all shareholders.

  8. Bill Ford is no genius, but don’t forget Jacques Nasser; what a fucking disaster that guy was.

    1. This. Bill Ford gave Jac… er Jacques the heave-ho; and then stepped in. Bill couldn’t do the things that needed to be done — it really required an outsider. But Bill Ford was smart enough to recognize this; and get Mulallay from Boeing.

      Nasser was the guy who thought that Ford, the company, should try to make most of its money being a service provider. He had all of his product development team in all sorts of crazy offsite meetings brainstorming ‘new business models’ instead of, I don’t know…. designing cars. His model was that the car was an assembly of commodity components, like a PC, and the value was in design and services associated with the car.

      Also, Nasser unwound Alexander Trotman’s globalization approach — the idea that the company could leverage it’s world-wide footprint to make single global models excepting homologation — in favor of regionalism and North America vs. Europe chimneys. That, of course, means you need to design a car for a market segment twice.

      I was there. They were very dark days.

      1. They were very dark days.

        Under Nasser, you mean – correct? Trotman’s idea seems really intelligent, although almost surely would have to be limited to certain models.

        1. Yes, Nasser’s tenure was pretty bad; in comparison to Trotman.

          The funny thing is that Mulallay is pretty much going from Trotman’s playbook. There’s one global Fiesta, there’s one global Focus, and so on.

  9. “Still, $56 million? Is it me or is that a tad obscene?”

    If you could know ahead of time that 56 million would turn the company around, as a shareholder you’d gladly pay it.

    So end of discussion there.

    1. Silly argument. If you knew the same results could be had for $5 million, would you be pissed if you paid $56 million?

      Assuming the top brass is the primary reason for success/failure of a large corporation is bad corporate governance.

      1. So then companies who pay their management less will have lower expenses & have a competitive advantage no? Free market always does its magic, though sometimes it takes a goddamn long time.

  10. Yeah. Sorry. It’s you.

  11. The fundamental failure with most public companies is managing to the stock price instead of long-term returns. Wall Street valuations are notoriously short-sighted and making management pay dependent on stock prices alone has foreseeable consequences. That said, I don’t know how Ford structures the details of their contracts, but my past experience with a private company going public resulted in a complete management breakdown as the quarterly reports became more important than the overall health of the company.

  12. The general comment that Mulally’s compensation is solely the provenance of Ford stockholders is pretty accurate.

    However, I’d add further points in Mulally’s defense. First of all, he took a position as something of a governor where the emperor sits in the next room. Ford has long run as something of a detached monarchy, where the royalty (aka the Ford family) delegates day to day operations to someone else while they cavort and carry on elsewhere. Nonetheless, Ford executives serve mostly at the pleasure of the Ford family and no one else. (Remember that the Ford family still CONTROLS the Ford Motor Company while holding only 1% or so of the total stock, because their shares are super special.) Were I an executive in such a situation, damn straight I’d be asking for a lot of financial assurances for delivering the goods.

    Mulally’s done an outstanding job and deserves his wages. Those underpaid employees can take solace in the fact that they are still employees thanks to him. This was not a foregone conclusion under his predecessors.

    1. I had forgotten that about Ford.

      Really, it shouldn’t be “CEO Mullaly”. It should be “Viscount Mulally”.

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