Click to go to Six Degrees From Dave Home Page

Subsidizing Failure: How The “Big 3 Paid Billions to Keep Downsized UAW Members on Payroll”

Posted on December 12, 2008
Filed Under News | 9 Comments

By Dave Mendoza, Muckraker at large

SixDegrees Continues it’s Commitment to exposing its research: how political hacks, special interests created this Financial Crisis. No greater relevancy to the Staffing Industry exists.

SUBSIDIZING FAILURE & CRONYISM


Thank This Man for Destroying the American Auto Industry: Meet Ron Gettlefinger – UAW President. Yesterday the UAW refused to compromise on Bail-out negotiations to agree by the end of next year to wage cuts to bring their pay into line with Japanese car makers. The UAW refused to do so before its current contract with the automakers expires in 2011.

As Senator Mitch McConnell stated yesterday: “This bailout doesn’t fix Detroit’s problem,” he wrote, “It subsidizes it.”

First it was Government forcing a quota system which influenced lending institutions to lend easy money to high risk groups to avoid being accused of red-lining communities. Then the Federal government removed the separation between commercial and private loans and created a securities market off of home mortgages that inevitably got bundled into junk debt. Then we had Senate/House Finance and Banking committee chairmen who avoided their regulatory oversight and defended Fannie Mae and Freddie Mac and through their “Everything is Fine” press releases influenced stock holders to maintain their investments that would catapult them into portfolio ruin. Freddie Mac and Fannie Mae, then the banking system gets bailed out on the logic that they are a public utility system upon which the economy depends … the handouts start, one after another, … with little easing of the credit markets to show for the first 700 billion dollars. Now each and every industry argues before a Congressional committee why it deserves a bail out. All the while Capital firms freeze up, start ups wane, and Silicon Valley lays off thousands or freezes reqs to force attrition.

At the end of the day, it means thousands of recruiters being laid off. Recruiters become the perceived luxury item in a world gone mad when all the while government intervention throws good money after bad policy. But there are reasons and they should be understood. At no time have so many special interests collaborated to create the perfect storm and under government fiat to proceed with such ill advised policy. Today, we focus on how the powerful United Auto Workers (UAW) collaborated with its political allies to undermine one of the last great industries of American manufacturing. This is a story about what happens when government and its policies attempt to guarantee outcomes. Unfortunately, it isn’t a fairy tale.

My public vote for the Big 3 to go into Chapter 11 to release themselves of UAW contracts otherwise we throw good money after bad if one of the primary causes doesn’t get resolved.

FACT LINKS:
** Money for Nothing: U.S. Car Companies Pay Hundreds of Millions of Dollars in Wages to Idled Workers
** UAW Job Bank: Organized Slackers
** UAW Feels The Heat And Suspends Job Bank And Delays Trust Payments
** Job Banks – Protecting the people, not the jobs
** Congress targets UAW Job Bank as U.S. Car Makers fight for Loans
** Detroit Automakers, UAW To Spar Over Jobs Bank During Talks
**
Will you shed a tear for UAW Job Bank employees when the loose their no show Jobs?
Ford’s Most Advanced Assembly Pant Operates in Rural Brazil

TRIVIA TIDBIT: Did you know Toyota and GM sold roughly equal number of cars last year and GM went billions into debt while Toyota had a record year? (“GM versus Toyota: Someone is Doing Something Wrong”)

STRUCTURAL & IRRATIONAL RED INK: UAW & The Job Bank


“We cannot continue to pay $65 an hour for someone to cut the grass and remain competitive.
Miller meant, literally, “cutting the grass.”

Original Link

In 2006 the Wall Street Journal exposed the UAW Job Banks. Their job: to do nothing.

“This is the Jobs Bank, a two-decade-old program in which nearly 15,000 auto workers continue to get paid after their companies stop needing them. To earn wages and benefits that often top $100,000 a year, the workers must perform some company-approved activity. Many volunteer or go back to school. The rest clock time in the rubber room or something like it.

The Jobs Bank at GM and other U.S. auto companies including Ford Motor is likely to cost around $1.4 billion to $2 billion this year. The programs, which are up for renewal next year when union contracts expire, have become a symbol of why Detroit struggles even as Japanese auto makers with big U.S. operations prosper. ”

WAYNE — Ken Pool is making good money. On weekdays, he shows up at 7 a.m. at Ford Motor Co.’s Michigan Truck Plant in Wayne, signs in, and then starts working — on a crossword puzzle. Pool hates the monotony, but the pay is good: more than $31 an hour, plus benefits.

“We just go in and play crossword puzzles, watch videos that someone brings in or read the newspaper,” he says. “Otherwise, I’ve just sat.”

Pool is one of more than 12,000 American autoworkers who, instead of installing windshields or bending sheet metal, spend their days counting the hours in a jobs bank set up by Detroit automakers and Delphi Corp. as part of an extraordinary job security agreement with the United Auto Workers union.

The jobs bank programs were the price the industry paid in the 1980s to win UAW support for controversial efforts to boost productivity through increased automation and more flexible manufacturing.

As part of its restructuring under bankruptcy, Delphi is actively pressing the union to give up the program.

With Wall Street wondering how automakers can afford to pay thousands of workers to do nothing as their market share withers, the union is likely to hear a similar message from the Big Three when their contracts with the UAW expire in 2007 — if not sooner.

“It’s an albatross around their necks,” said Steven Szakaly, an economist with the Center for Automotive Research in Ann Arbor. “It’s a huge number of workers doing nothing. That has a very large effect on their future earnings outlook.”

General Motors Corp. has roughly 5,000 workers in its jobs bank. Delphi has about 4,000 in its version of the same program. Some 2,100 workers are in DaimlerChrysler AG’s Chrysler Group’s job security program. Ford had 1,275 in its jobs bank as of Sept. 25. The pending closure of Ford’s assembly plant in Loraine, Ohio, could add significantly to that total. Those numbers could swell in coming years as GM and Ford prepare to close more plants.

Detroit automakers declined to discuss the programs in detail or say exactly how much they are spending, but the four-year labor contracts they signed with the UAW in 2003 established contribution caps that give a good idea of the size of the expense.


According to those documents, GM agreed to contribute up to $2.1 billion over four years. DaimlerChrysler set aside $451 million for its program, along with another $50 million for salaried employees covered under the contract. Ford, which also maintained responsibility for Visteon Corp.‘s UAW employees, agreed to contribute $944 million.

Delphi pledged to contribute $630 million. In August, however, Delphi Chairman and Chief Executive Officer Robert S. “Steve” Miller said the company spent more than $100 million on its jobs bank program in the second quarter alone.

“Can we keep losing $400 million a year paying for workers in the jobs bank and $400 million a year on operations? No, we cannot deal with that indefinitely,” Miller said in a recent interview with The Detroit News. “We can’t wait until 2007.”

Guaranteed Employment

The jobs bank was established during 1984 labor contract talks between the UAW and the Big Three. The union, still reeling from the loss of 500,000 jobs during the recession of the late 1970s and early 1980s, was determined to protect those who were left. Detroit automakers were eager to win union support to boost productivity through increased automation and more production flexibility.

The result was a plan to guarantee pay and benefits for union members whose jobs fell victim to technological progress or plant restructurings. In most cases, workers end up in the jobs bank only after they have exhausted their government unemployment benefits, which are also supplemented by the companies through a related program. Workers go directly into the program and the benefits can last until they are eligible to retire or return to the factory floor.

By making it so expensive to keep paying idled workers, the UAW thought Detroit automakers would avoid layoffs. By discouraging layoffs, the union thought it could prevent outsourcing.

That strategy has worked but at the expense of the domestic auto industry’s long-term viability.

American automakers have produced cars and trucks even when there is little market demand for them, forcing manufacturers to offer big rebates and discounts.

“Sometimes they just push product on us,” said Bill Holden Jr., general manager of Holden Dodge Inc. in Dover, Del., who said this does not go over well with the dealers. “But they’ve got these contracts with the union.”

In Detroit’s battle against Asian and European competitors that are unencumbered by such labor costs, the job banks have become a major competitive disadvantage.

Breaking the banks


Analysts say the jobs bank could be a bigger issue than health care in the 2007 contract negotiations, particularly at Ford. It has a younger work force than GM, meaning any workers Ford sends to the bench are likely to stay there for a while.

“Ford is under pressure from investors to cut costs,” said Roland Zullo, a research scientist at the University of Michigan’s Institute of Labor and Industrial Relations. “At the same time, the unions are going to be under pressure to protect jobs.”

But does the jobs bank make any sense in a climate of shrinking profits and declining market share?

While some might envy their life of leisure, workers like Cisco, 56, feel humiliated by the program.

“I felt like I was useless — like I was put out to pasture,” he said.

Most say they have no interest in retiring — or spending the rest of their careers doing crossword puzzles.

Classes are available, the workers said. They have been invited to take courses on bicycle repair, home wiring and poker. Silk-flower arranging is also available. READ MORE ABOUT HOW THE UAW & AUTO INDUSTRY ARE MAKING TAX PAYERS PAY THE BILL



View my profile on RecruitingBlogs.com

LinkedIn | Bio | MSN | Skype

(720) 733-2022

Comments

9 Responses to “Subsidizing Failure: How The “Big 3 Paid Billions to Keep Downsized UAW Members on Payroll””

  1. Steve Jenkins on December 12th, 2008 8:56 am

    Dave,

    Thanks for such an in depth analysis. A very tough read in that we have been held hostage for such a long time by the Big 3, that the chickens are finally coming home to roost.

  2. Meredith Dow on December 12th, 2008 9:20 am

    All I can say is wow! I have long felt that unions have outlived their usefulness and here is the proof! Shame on the UAW for not helping during this economic downturn.

  3. Jon Sarn on December 12th, 2008 9:27 am

    Great story. What is even scarier is that the incoming administration wants to give the unions more organizing power. Check out Ford’s competitiveness outside the US. This is a video of a new Ford plant in Brazil. One look at this and you will be able to tell why there will
    probably never be another auto assembly plant built in the USA . It will also point out why more non-automobile assembly plants will go offshore.

    And pay attention to the last few words. It says a lot!

    http://info.detnews.com/video/index.cfm?id=1189

  4. Kristen Durkin on December 12th, 2008 2:13 pm

    Nice rant! Quite frankly, I am at the point where I don’t even want to read or watch the news. Blogs like this and waking up this morning to the Wall Street Journal headline of “Top Broker Accused of $50 Billion Fraud” is embarrassing. From an international perspective it’s not hard to see why other countries are outraged by our decision makers, like Ron Gettlefinger (he may not have been given his power by us, but he’s contributing in our downfall, amazing!). This is all very disappointing, but informative. Great post!

  5. Sarah White on December 12th, 2008 2:41 pm

    Thanks for this great post! I have a hard time when we talk about all of the jobs that would be lost because the reality is that people won’t stop buying cars just because the big 3 are gone – they will just buy other cars – many of which are build in the US by american workers – so the number of jobs lost will be nowhere near what they are expecting. What they should say is “union jobs lost”…

    Keep up the good fight

  6. Sarah White on December 12th, 2008 2:41 pm

    Thanks for this great post! I have a hard time when we talk about all of the jobs that would be lost because the reality is that people won’t stop buying cars just because the big 3 are gone – they will just buy other cars – many of which are build in the US by american workers – so the number of jobs lost will be nowhere near what they are expecting. What they should say is “union jobs lost”…

    Keep up the good fight

  7. Jason Yillik on December 12th, 2008 3:47 pm

    Unions Destroying the American… You’re a douche sir! (NAME CALLING – and I didn’t say ALl unions I am saying the UAW in particular. Why is Toyota, Honda etc kicking BIG THREE ass Jason?)

    “release themselves of UAW contracts” Those contracts contain the pensions of many hard working men and woman that have dedicated their lives to the companies they worked at. Some over 40 years. That’s annual pensions as well as healthcare obligations out the door. You think that’s a good idea? Are you a nazi? (CALLING SOMEONE A NAZI TO A REASONABLE DEBATE IS A MEANS OF SHUTTING SOMEONE UP … A CRUDE ONE AT THAT) Should we eliminate a class of people because there is no better solution? Or because it’s the easiest solution? (YES IT’S CALLED FREE ENTERPRISE … AS A RECRUITER WE ARE IMMEDIATELY LAID OFF WHEN JOB REQS CEASE .. WHY DO THEY DESERVE SPECIAL PRIVILEGES OTHER HARD WORKING AMERICANS DO NOT?)

    The unions and hard working people are responsible for the middle class in America. (UNIONS ARE 10 PERCENT OF THE POPULATION. THEY ARE FORCING PEOPLE WITH DIFFERENT VIEWS TO PAY FOR COMMERCIALS FOR POLITICAK VIEWS NOT THEIR OWN, THEY LIKEWISE FORCE PEOPLE TO VOTE WITHOUT SECRET BALLOT – WHICH IS UNCONSTITUTIONAL – DO U WISH TO BE FORCED TO VOTE WITHOUT A SECRET BALLOT SIR?) Some people aren’t fortunate enough to be afforded the luxury of sitting at a computer all day to earn a living. ( OR LEARN FLOWER ARRANGEMENTS OR MOW LAWNS FOR $31 AN HOUR? ) Or come up with a quant formula that cheats 401K pensioners out of their life’s savings. (THEY DO NOT EARN 401K’s – THEY GET A PENSION) Some have never had $10,000 extra dollars laying around to discuss marble vs soapstone in the wet areas. (???) Some have to use their backs instead of bloated heads to earn – get their hands dirty. (THE ARGUMENT HERE IS THAT THEY DO NOT WORK .. THEY GET PAID NOT TO WORK THAT IS THE ISSUE OF DEBATE JASON)

    Maybe you want all those dirty (YOU CALLED THEM DIRTY NOT I) blue collars to live in tents in a field. (THEY DON’T HAVE TO LIVE IN TENTS JASON THEY ARE GUARANTEED UP TO 95% OF WAGES FOR A LIFETIME AFTER BEING LAID OFF UNLIKE ANYONE ELSE – MY WIFE EARNS $400 a month and her unemployment ended after a month … so tell me the logic or fairness Jason as to why my wife gets unemployment as low and for only weeks as opposed to a lifetime being paid NOT to work?) And we can throw all the retirees, who have been promised pensions for 40 years of labor, into the land of minimum wages and soup kitchens. (I DON’T RECALL THAT ARGUMENT BEING MADE JASON. IT’s A RIDICULOUS ASSERTION LOWERING THE VALUE OF THIS DISCUSSION)

    Your worried about $31/hour for the jobs bank? That bank has always been there in many forms, it’s the bench. It’s a perk for paying your union dues for 20, 30, 40+ years. (WHY DON’T 100 Million Americans get such perks and only UAW workers who admit that this cost bankrupts the BIG THREE?) Yes, you may need to sit a week or so on the bench. It’s the cost of doing business. (SINCE WHEN JASON – WHAT OTHER INDUSTRY CALLS THIS A COST OF DOING BUSINESS?) So what? What about management? That laborer probably feeds a family of 6 on that wage. (THE AVERAGE AMERICAN FAMILY HAS 2 CHILDREN WHERE DO YOU GET SIX?) While management has 10 weeks off per year and builds multiple vacation houses in exotic destinations. (THIS ISN’T DEFENDING MANAGEMENT – I AM ARGUING FOR CHAPTER 11 BANKRUPTCY – IF YOU CANNOT MAKE PRODUCTS PEOPLE WANT TAXPAYERS HAVE NO OBLIGATION TO SUBSIDIZE GUARANTEED OUTCOMES)

    I prefer to have a champion like Gettlefinger fighting for a sustained way of life for the fabric of our country. He’s the only one I can see standing up for the working man. (AS HE FLIES HIS PRIVATE PLANE AND DRIVES IN HIS LIMO)

    DAVE NOTE: Thanks Jason for your hyperbolic statements which have nothing to do with that many footnoted links that defy each of your rants.

  8. Dave Mendoza on December 12th, 2008 7:54 pm

    MY RESPONSE TO JASON: As defined by the current United Auto Worker contract negotiated with the “Big Five” (GM, Ford, Chrysler, and top parts makers Delphi and Visteon), an auto “production worker” is a job description that covers anything from mowing grass to cleaning the toilets. In the real world, these jobs would be outsourced to $8 an hour, no-benefit wage earners, but on Planet Big Five, these jobs get the same wages as any auto line-worker: an average $26 an hour ($60,000 a year) plus benefits that bring the company’s total cost per worker to a staggering $65 an hour.

    But at least the grass cutters are working for their pay. The UAW contract also guarantees that 12,000 autoworkers get full wage for doing nothing. On the heels of Miller’s straight-talk, the Detroit News reported that “12,000 American autoworkers, instead of bending sheet metal, spend their days counting the hours in a jobs bank.” These aren’t jobs. And they certainly aren’t being “lost” to China.

    “We just go in (to Ford’s Michigan Truck Plant) and play crossword puzzles, watch videos that someone brings in or read the newspaper,” The News quoted one UAW worker as saying. “Otherwise, I’ve just sat.”

    For Delphi [autoparts maker], this idled labor cost $400 million in the second quarter of this year alone. Facing similar numbers until the contract’s end in 2007, Delphi took refuge in bankruptcy.

    “The jobs bank must be eliminated,” says Miller. “Paying people not to work is just not sustainable.”

    I am struck by the union member comments I’ve read on forums and message boards around the web. Anyone suggesting that unions need to clean-up problems like the jobs bank are met with heated accusations of greed and downright meanness. Union workers often see nothing odd about their own greed.

    A 7th grader understands that something must be left lying on the bottom line after all debts are paid and future debts are factored in. When future debts (like health care and pensions) far exceed realistic estimates for future income, there’s a problem. The union workers’ loyalty is to the Union and not to the company or the stockholders. Hello…there is no Union without the company and stockholders. The Union’s argument: there is no company without the worker. It’s a good argument but those workers need not be Union. That’s the reality.

    Payne points out that the competition for these UAW jobs were not foreign laborers, but Americans. A UAW independent supplier, who does not receive Union benefits, in the industry in 2003, made an average wage of $15.76 an hour, compared to the hourly wage, minus the benefits, paid to UAW workers of $15.77 an hour. Add the benefits to the hourly pay in 2003, and the UAW worker received $65.00 an hour. That’s $50.00 per hour paid in benefits alone to a UAW worker – $50.00 per hour more than the average.

  9. Dave Mendoza on December 12th, 2008 7:58 pm

    Money for Nothing
    MAY 2006 :: COVER STORY : AUTOS
    U.S. Car Companies Pay Hundreds of Millions of Dollars in Wages to Idled Workers
    http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm

    By Jeffrey McCracken
    Staff Reporter of The Wall Street Journal

    U.S. Car Companies Pay Hundreds of Millions of Dollars in Wages to Idled Workers

    By Jeffrey McCracken
    Staff Reporter of The Wall Street Journal

    In his 34 years working for General Motors, one of Jerry Mellon’s toughest assignments came this January.

    He spent a week in the “rubber room.”

    The room is a windowless old storage shed in Flint, Mich. It is filled with long tables, Mr. Mellon says, and has space for about 400 employees. They must arrive at 6 a.m. each day and stay until 2:30 p.m., with 45 minutes off for lunch. A supervisor roams the aisles, signing people out when they want to use the bathroom.

    Their job: to do nothing.

    This is the Jobs Bank, a two-decade-old program in which nearly 15,000 auto workers continue to get paid after their companies stop needing them. To earn wages and benefits that often top $100,000 a year, the workers must perform some company-approved activity. Many volunteer or go back to school. The rest clock time in the rubber room or something like it.

    It is called the rubber room, Mr. Mellon says, because “a few days in there makes you go crazy.”

    The Jobs Bank at GM and other U.S. auto companies including Ford Motor is likely to cost around $1.4 billion to $2 billion this year. The programs, which are up for renewal next year when union contracts expire, have become a symbol of why Detroit struggles even as Japanese auto makers with big U.S. operations prosper.

    ‘Designed for a Different Time’

    While GM often blames “legacy costs” such as retiree health care and pensions for its troubles, its Jobs Bank shows that the company has inflicted some wounds on itself. Documents show that GM itself helped originate the Jobs Bank idea in 1984 and agreed to expand it in 1990, seeing it as a stopgap until times got better and workers could go back to the factories. The idea was to help train or find jobs for senior UAW employees who would “otherwise be permanently laid off” because of better technology or higher productivity. Ford later matched the plan for its UAW employees.

    “The bank was designed for a different time, a time when we were growing,” says Pete Pestillo, a former Ford executive who oversaw union talks. The Jobs Bank has failed to stop the outflow of jobs at Detroit’s unionized auto makers. Since 1990, GM’s union payroll, including former subsidiary Delphi, has fallen to about 137,000 from 358,000. Many have retired, died or found other jobs. The rest are in the Jobs Bank.

    Mr. Mellon, 55, joined GM in 1972, following his grandfather and his father. Through the 1980s and 1990s, Mr. Mellon held jobs designing electronic systems for vehicle prototypes. In 2000, GM merged two engineering divisions, and he wasn’t needed anymore.

    Since then, except for a period in 2001 when he worked on a military-truck project, GM has paid him his full salary for not working. That is currently $31 an hour, or about $64,500 a year, plus health care and other benefits.

    About 7,500 GM workers are now in the Jobs Bank, more than double the figure a year ago. Each person costs GM around $100,000 to $130,000 in wages and benefits, according to internal union and company figures, meaning GM’s total cost this year is likely to be around $750 million to $900 million.

    One way employees in the Jobs Bank can fulfill their requirements is to attend eight- or 12-week classes offered by GM. In these classes, Mr. Mellon has studied crossword puzzles, watched Civil War movies and learned about “manmade marvels like the Brooklyn Bridge,” he says. One class taught him how to play Trivial Pursuit. More recently, he attended an institute in Flint called the Royal Flush Academy. It is designed for those seeking work in casinos. Mr. Mellon says he isn’t interested in casino work and left the academy after they docked his pay because he was 10 minutes late coming back from lunch.

    With that he arrived at the rubber room. Every day for a week Mr. Mellon got up at about 4:30 a.m. to make the 45-minute commute to the rubber room from his home in Otisville, Mich. At first he read the newspaper or magazines lying around, such as Reader’s Digest. He talked some with acquaintances. After conversation dried up, he says he spent hours staring at the wall, hoping time would move faster.

    The waiting “makes you want to bang your head against the wall,” Mr. Mellon says. “I couldn’t take it. I need to be doing something. And there is a supervisor who walks around staring at everyone. It’s worse than high-school detention.”

    Mr. Mellon thinks a “line-worker mentality” keeps people going back to the rubber room. “A lot of guys sit in that room and just collect their paycheck because they don’t know what else to do,” he says. “They’ve spent 20 years tightening a nut as it came down the line. They are faced with this harsh reality, and they are just happy the paycheck still comes so they can put their kid through college.”

    Mr. Mellon soon found a way to escape the room, through volunteering. He recently arranged to do community service work at Freedom Temple, a Baptist church in Flint. He is installing motion sensors at the homes of senior citizens in a bad part of town.

    Corrosive Influence

    Mr. Pestillo, the former Ford executive, and others see the Jobs Bank as a corrosive influence with significant indirect costs because it encourages auto makers to build more vehicles than consumers want. Companies figure it is better to build cars with little or no profit margin than to pay people not to work, he says. They also may keep rote work in-house even though it would be cheaper to outsource.

    The system gives older union workers little incentive to move to other plants, find jobs at other companies or retire. There is no limit on how long a worker can stay in the Jobs Bank. They don’t have to look for work at their company. Contracts allow workers to turn down any job offer at a site farther than 50 miles from their home plant.

    Detroit’s Big Three auto makers are likely to seek reductions in the program when they renegotiate their contracts with the UAW next year. It may be difficult for the UAW to keep the Jobs Bank intact, not only because of the public-relations problem but also because it is hindering a settlement to get Delphi out of bankruptcy-court protection.

    In Flint, Mr. Mellon also sees change on the horizon. “I understand the Jobs Bank needs to have an end to it,” he says. “I mean, they’ve paid me like $400,000 over six years to do nothing, to learn to deal blackjack. But buy me out. Retire me with something like $2,000 for every year I worked. I need that because you know they’re going to keep cutting our health care and pensions. You are so vulnerable in retirement.”