U.S. Automakers Seek Asian Labor Parity

Light & Medium Truck, Aug 2007

When contract talks between the U.S.-based automakers and the United Auto Workers are under way, bargainers for both sides already know what will be on the table: Eliminating the labor cost gap between Detroit and its Japanese competitors of about $25 an hour.

Officials at all three companies said labor-cost parity with Toyota Motor Corp, and Honda Motor Co. will be the top priority, with industry analysts saying that survival of the companies is at stake. The Detroit Three generally pay about 30% more per hour in wage, pension and health care costs than Japanese automakers.

And nowhere is it more critical than at Ford Motor Co., which lost $12.7 billion last year and has mortgaged its assets to fund a desperate turnaround plan that includes thousands of job cuts as part of an effort to shrink itself to match lower demand for its products.

Ford, according to its annual report, paid $70.51 per hour in wages and benefits to its hourly workers last year. The company, as well as Chrysler Group and General Motors Corp., will seek to reduce costs to around $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.

The costs then would be comparable to those for Asian automakers, who pay similar wages but have far lower pension and health care costs and make thousands of dollars more per vehicle than the three Detroit automakers.

"We know there are competitive gaps," GM spokesman Dan Flores said. "We benchmark Toyota in a variety of areas of the business."

GM and the UAW have worked together to cut health care costs and reduce the company's hourly workforce by more than 34,000 in the past year through buyout and early retirement offers.

"However, more change is required to structure GM for sustained profitability and growth," Flores said.

GM's annual report said its labor costs average $73.26 per hour, while Chrysler's average $75.86.

Many industry analysts said the Detroit Three, and especially Ford, must be on par with Toyota and Honda to survive. The contract this year, they said, must be "transformational" in reducing pension and health care costs.

Chrysler's parent company, DaimlerChrysler AG, recently announced that it would sell a controlling stake in the company to private equity firm Cerberus Capital Management LP, and analysts have said Cerberus is likely to demand deeper concessions from the union than Daimler would have.

Cerberus has said it will leave the negotiations to Chrysler officials.

Combined, the U.S.-based carmakers have more than $100 billion in long-term retiree health care costs that analysts said must be reduced.

"They're all in the same boat for this," said Aaron Bragman, a research analyst for Global Insight, an economic research and consulting company. "They all need to see the same kinds of benefits and structural changes in order to survive. The big challenge is going to be whether or not the rankand-file in the UAW can be convinced."

Kevin Tynan of Argus Research, a New York-based equity research company, said Ford's situation is so bad that even a compromise to $60 per hour would not help.

- Associated Press