Ford layoffs: how much responsibility does the UAW have?

[Malodorous]

@Sam Stone

Yes, but perhaps they are making 25% fewer cars because their high cost of labor has made them noncompetitive.

Mabye, but so far as I can tell that’s not the case. If it were the case, what would be the actual cause of lower sales? Either the price of Ford products being higher (due to higher cost of labour) or the supply of Ford cars being unable to meet demand (due to Ford being unable to afford the labour to build its product). I’m not an expert in the industry, but I’m fairly certain that Ford cars are sold at the same price or lower (due to their having a lower resale value) then thier Japanese competitors. And they certainly aren’t having any supply problems that I know of.

So that leaves my original conclusion. Ford cars aren’t being sold because of a lack of demand.

[aahala]

It was UAW’s responsibility to represent their clients, the workers, and to get as much money as the company would agree to. The UAW did their job.

It was the responsibility of the company to pay as little as possible for workers, their clients were the owners of the company. Ford may or may not have done their job in the past.

Anyway, it’s clear the present cost structure is hurting the company and will result in a reduction of workers.

[Gfactor]

@bizzwire

It would be interesting to compare and contrast management and workers’ benefits between US and Japanese auto makers. Anyone?

Couldn’t find anything industry specific.
"And they tend not to be outrageously overpaid in relation to the ordinary workers, either. Most continental CEO’s earn between a quarter of a million and $400,000 a year – that’s less than 20 times the average industrial wage.

The figure for American executive pay, by the way, is 85 times the average wage. Executive packages are even more modest in Japan, where pay scales are also largely determined by tradition. In Japan, the CEOs, on average, get only 17 times what the workers earn. This, says Barry Keehne of the Japan/America Society, stems from the way Japanese companies are financed:"

Keehne: “Most firms generate their capital, not from the stock market but, from lenders – and lenders tend to be risk averse. They like a steady stream of income. And they tend to hold down salaries and costs within the firm, and Japanese CEO pay reflects that.”

Beard: “And, he says, market forces just do not come into play:”

Keehne: “There’s very little inter-firm bidding for CEO talent in Japan. They just are not headhunted from firm to firm, so the prices don’t get driven up.”

http://marketplace.publicradio.org/shows/2002/06/12_mpp.html

Japanese CEOs come out looking like paupers compared to their American counterparts. Pay for the big cheese at a Japanese firm ranges from $300,000 to $500,000 on average, says Hay Group’s Tanaka, with bonuses averaging a measly 10%. In the U.S., by comparison, bonuses often eclipse base salary. And Japanese CEOs trail those in the U.S. by one other measure: Typically, they earn only about 10 times more than a manufacturing employee, according to a 2000 Towers Perrin survey that looked at industrial companies with about $500 million in annual sales (see table). In the U.S., where the multiple is the highest in the world by far, CEOs of 365 top companies raked in 531 times more in 2000 than the average hourly worker did.

http://www.businessweek.com/careers/content/apr2001/ca20010419_812.htm

"It was [the commission’s] perception that excessive compensation was perhaps the major contributor to the dramatic loss of confidence in the governance of America’s publicly held corporations… All of us on the commission had read the Business-Week report showing that, over a 10-year period, compensation had risen about nine and one-half times faster for CEOs than for rank-and-file employees. We also knew that Business-Week had reported that in 1980 CEO compensation was 42 times that of the average worker, whereas in recent times it was roughly 500 times that average–far higher than in Japan and Europe.

http://www.findarticles.com/p/articles/mi_m4153/is_6_61/ai_n9483675

[Gfactor]

Oops.
“Couldn’t find anything industry specific” was my comment–not part of the first quote.

[Lightray]

@aahala

It was UAW’s responsibility to represent their clients, the workers, and to get as much money as the company would agree to. The UAW did their job.

It was the responsibility of the company to pay as little as possible for workers, their clients were the owners of the company. Ford may or may not have done their job in the past.

Anyway, it’s clear the present cost structure is hurting the company and will result in a reduction of workers.

But certainly it is the responsibility of the UAW to keep their clients, the workers, employed, yes?

And if the UAW’s negotiations created a cost structure that is hurting the company and is therefore losing UAW jobs, then the UAW hasn’t done it’s job.

The contract the UAW negotiated does not exist in a vacuum – there’s a market environment that should have been taken into account. The only thing I took away from my Labor Relations classes was that it’s absurdly easy to negotiate a contract that will destroy both the company and union in a very short time.

[aahala]

@Lightray

But certainly it is the responsibility of the UAW to keep their clients, the workers, employed, yes?

And if the UAW’s negotiations created a cost structure that is hurting the company and is therefore losing UAW jobs, then the UAW hasn’t done it’s job.

The contract the UAW negotiated does not exist in a vacuum – there’s a market environment that should have been taken into account. The only thing I took away from my Labor Relations classes was that it’s absurdly easy to negotiate a contract that will destroy both the company and union in a very short time.

The essence of the problem Ford and GM face goes back to the glory days of US car manufacturing. Management didn’t want a long strike over union pay and pension demands and the companies could pass the additional costs onto the consumer without hurting short term profits. It worked for years but it didn’t work forever.

The car industry is not unique. Just about everything in our society is focused on the short term. Business and government decisions are based upon the here and now, not the possible long term effects.

[Gfactor]

@Lightray

But certainly it is the responsibility of the UAW to keep their clients, the workers, employed, yes?

This is an oversimplification. When a group is a client, group interests and individual interests get intermingled.

The workers want their wages and benefits to increase, or at least remain stable. They also all want to keep their jobs. When these two desires become inconsistent (e.g., the company says, “if we increase benefits, we might have future layoffs,” or “we’ll keep paying 100% of the medical insurance premium–which has increased 30%–but we’ll have to cut some jobs,” the client gets to decide whether to adopt the contract or make wage concessions to keep jobs). And if the workers don’t believe that the UAW is adequately representing them, there are procedures for firing or replacing it.

[RickJay]

@Sam Stone

Yes, but perhaps they are making 25% fewer cars because their high cost of labor has made them noncompetitive.

If 100% of the workforce was producing 100% of the cars, cutting 25% of the workforce because you were producing 25% fewer cars would not change the ratio of labour cost to cars, would it? Maybe I’m missing something.

At least in my limited experience, workers at non-union shops like Toyota and Honda are paid very well; the folks who work at those plants here in Ontario seem to be living the sweet life. Conversely, Ford, GM and Chrysler are cutting back (albeit not quite as much as their US counterparts in some cases) despite not having the health benefits disadvantage.

I think it’s simply that the customers aren’t buying their products as much as they used to.

[Sam_Stone]

@Malodorous

Mabye, but so far as I can tell that’s not the case. If it were the case, what would be the actual cause of lower sales? Either the price of Ford products being higher (due to higher cost of labour) or the supply of Ford cars being unable to meet demand (due to Ford being unable to afford the labour to build its product). I’m not an expert in the industry, but I’m fairly certain that Ford cars are sold at the same price or lower (due to their having a lower resale value) then thier Japanese competitors. And they certainly aren’t having any supply problems that I know of.

So that leaves my original conclusion. Ford cars aren’t being sold because of a lack of demand.

I present this as an academic exercise, since I really don’t know, but it seems to me you’re missing an obvious one - the higher cost structure of Ford could mean that to remain price competitive they have to skimp on things like fit and finish, quality of interior materials, etc. In turn, that lowers the desirability of their cars, and therefore the demand for them.

[Gorsnak]

@Sam Stone

I present this as an academic exercise, since I really don’t know, but it seems to me you’re missing an obvious one - the higher cost structure of Ford could mean that to remain price competitive they have to skimp on things like fit and finish, quality of interior materials, etc. In turn, that lowers the desirability of their cars, and therefore the demand for them.

While this is no doubt true, I don’t think Ford’s problem is perceived lack of quality in interior materials, etc. Ford’s problem is perceived lack of drivetrain reliability, etc. Sure, quality control costs money, and sure, in the short run, you could cut QC in order to turn a higher profit. But doing so is incredibly short-sighted, especially in the auto industry. If Ford had been building high quality cars without interruption since 1950, their union payscale wouldn’t be much of an issue, even if it required them to charge slightly more than Honda for equivalent models. I won’t deny that the UAW has some small degree of responsibility for the layoffs because they saddled Ford with higher labour costs, but the large majority of the responsibility has to lie with management for not maintaining a high quality product, and thereby losing market share to companies that made quality a high priority. People don’t buy Toyotas because they cost a little less, or are a little shinier at the same price point. They buy them because of the consumer perception that Toyotas are bulletproof and run forever, while Fords are always in the shop. Even if that perception isn’t true any more, it was for long enough to become entrenched in the consumer consciousness.

[Lightray]

@RickJay

If 100% of the workforce was producing 100% of the cars, cutting 25% of the workforce because you were producing 25% fewer cars would not change the ratio of labour cost to cars, would it? Maybe I’m missing something.

You’re missing that the costs of manufacturing a car fall into fixed costs and variable costs.

Variable costs depend on the number of cars you make – overall, the company pays more in variable costs for making more cars, but they tend to pay the same amount in variable costs on each car.

Fixed costs, the company has to pay regardless of whether they make any cars. The fixed costs will be allocated per car, based on the total number of cars made. So, more fixed cost is allocated to each car made, if you’re making less cars. If Ford’s sales were 25% lower than they’d planned, that effectively increased the fixed cost component allocated to each car by one-third.

This is the same thing as “economies of scale”.

The fixed costs for Ford probably include their pension obligations (maybe healthcare, too?). Ford is supporting a lot of retirees. Salaries can be more variable (as Ford just demonstrated), as the number of employees can be reduced to match the amount of cars made – but the pension and other obligations that Ford had incurred from employing those people remain costs to Ford even after the employee is no longer working there.

So, cutting 25% of the workforce to match a 25% sales reduction will change Ford’s cost per car ratio – it just won’t be a 25% reduction.

[Malodorous]

@Sam Stone

I present this as an academic exercise, since I really don’t know, but it seems to me you’re missing an obvious one - the higher cost structure of Ford could mean that to remain price competitive they have to skimp on things like fit and finish, quality of interior materials, etc. In turn, that lowers the desirability of their cars, and therefore the demand for them.

Could be. That goes back to the question of why American cars have such a lowsy rep in the first place. My feel is that it isn’t because of the price of labor, as I remember jokes about how terrible American cars were from back in my childhood, when ununionized foreign competition was less of an issue and legacy costs were presumably much smaller. This impression of crummy American quality has presisted throughout the 90’s when American companies were raking it in through SUV sales, and one would be hard pressed to say they didn’t have the gross income to pay for “fit and finish” in the years leading up to 2000.

While UAW costs are no doubt a burden to Ford, they arose because Ford was here in the 50’s when unions were strong, but also when the company, as one of the “big three”, had excellent brand-loyalty, gov’t support and freedom from foreign competition. They squandered this advantage, and are now left with

[Malodorous]

@Malodorous

They squandered this advantage, and are now left with…

ahem…only the disadvantages of being a company with a longstanding presence in the US.

[control-z]

I think the UAW certainly contributed to Ford’s financial problems by getting the workers an average of $50,000 a year. Sure you’ve got happy well-paid people, but that does not help Ford compete with cars made with cheap foreign labor.

I guess I’m old-school, if you don’t like the pay of the job, find another job. Unions had their place at one time for safety reasons, but now they just seem like bloodsuckers that squeeze every bit of pay and benefits they can out of the company.

[Gfactor]

@control-z

I think the UAW certainly contributed to Ford’s financial problems by getting the workers an average of $50,000 a year. Sure you’ve got happy well-paid people, but that does not help Ford compete with cars made with cheap foreign labor.

I guess I’m old-school, if you don’t like the pay of the job, find another job. Unions had their place at one time for safety reasons, but now they just seem like bloodsuckers that squeeze every bit of pay and benefits they can out of the company.

How about these guys, did their salaries contribute anything?

Compensation details found in the 2005 proxy statement include:

*  William Clay Ford, Jr., chairman and CEO, received no cash salary in

2004. In lieu of a cash salary equivalent to $1.5 million, he was awarded
      103,882 shares of restricted common stock, tying his compensation to the long-
      term performance of the Company. He was awarded a 2004 bonus in the form of
      841,008 shares of restricted common stock and restricted stock equivalents
      with a fair market value of approximately $10.5 million at the time of grant.
      In lieu of other long-term compensation, he also received a stock option grant
      covering 1,587,301 shares. These options have a strike price of $16.49 and
      vest over a three year period. Mr. Ford also exercised stock options covering
      1,410,404 shares, realizing a value of $5.3 million, at the same time
      retaining the acquired shares. In addition, he received other compensation
      totaling $266,000.
      For the second year, Mr. Ford committed a portion of his bonus of
      restricted stock equivalents to the William Clay Ford, Jr. Scholarship
      Program, providing tuition assistance for children of Ford employees, and a
      remaining portion to Detroit charities.

*  Jim Padilla, president and chief operating officer, earned $966,667 in

salary and $2,034,910 in bonus, which consisted of $1.18 million in cash and a
grant of 69,000 shares of unrestricted common stock worth $854,910, as well as
$314,131 in other compensation. He also was awarded options to purchase
100,000 shares of common stock in long-term compensation. In addition, for
his performance in 2004, Mr. Padilla was awarded a bonus in the form of
246,696 shares of restricted common stock and received 50,000 restricted stock
equivalents as a long-term incentive grant, and for his promotion to Chief
Operating Officer. Combined, these shares and stock equivalents have a fair
market value of approximately $3,761,000 at the time of grant. Mr. Padilla
also received a Long Term Incentive Plan award of $173,460 which was paid in
unrestricted common stock for the 2002-2004 performance period. He also
exercised option grants covering 82,499 shares with a realized value of
$686,000, at the same time retaining 29,849 of those shares.

*  Greg Smith, executive vice president and president, The Americas,

earned $756,667 in salary and $1,120,970 in bonus, which consisted of a cash
award of $836,000 and a grant of 23,000 shares of unrestricted common stock
worth $284,970, in addition to other compensation totaling $48,227. Mr. Smith
also was awarded options to purchase 50,000 shares of common stock as a form
of long-term compensation. He also received a Long Term Incentive Plan award
of $105,315 which was paid in unrestricted common stock for the 2002-2004
performance period.

*  Nicholas Scheele, former president and chief operating officer, earned

$1,000,000 in salary and $1,514,530 in bonus, which consisted of a cash award
of $1,180,000 and a grant of 27,000 shares of unrestricted common stock worth
$334,530, in addition to other compensation totaling $397,985. He also was
awarded options to purchase 81,168 shares of common stock in long-term
compensation. He also received a Long Term Incentive Plan award of $929,250
which was paid in unrestricted common stock for the 2002-2004 performance
period.

*  Allan Gilmour, former vice chairman, earned $1,050,000 in salary and

$1,517,880 in bonus, which consisted of a cash award of $997,500 and a grant
of 42,000 shares of unrestricted common stock worth $520,380. Long-term
compensation for his services as vice chairman was 300,000 shares of
restricted common stock in 2004. In addition, he received $1,038,731 from his
retirement plans associated with his earlier years of service with Ford Motor
Company.

All News Releases and Press Releases from PR Newswire

[bizzwire]

@Gfactor

How about these guys, did their salaries contribute anything?
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/04-06-2005/0003335333&EDATE=

It’s deja-vu all over again

@control-z

I think the UAW certainly contributed to Ford's financial problems by getting the workers an average of $50,000 a year. Sure you've got happy well-paid people, but that does not help Ford compete with cars made with cheap foreign labor.

Are you talking about my Subaru (that was built in Indiana)?

[Gfactor]

@bizzwire

It’s deja-vu all over again

:smack:

[Leaffan]

There was a discussion just last week here in Ottawa between a respected talk radio host and the head of the Canadian Auto Workers’ Union. Anyway, the consensus was that with basic pay, overtime, and benefits, the Ontario auto workers were earning about $66 CDN per hour.

It is rumoured that Chinese auto workers are making about $3.00 per hour. It is rumoured that Chinese cars will be coming to North America soon.

Maybe the books have been pre-cooked already to accommodate the impending disaster for North American auto workers???

[Dubious_Weasle]

@control-z

I guess I’m old-school, if you don’t like the pay of the job, find another job. Unions had their place at one time for safety reasons, but now they just seem like bloodsuckers that squeeze every bit of pay and benefits they can out of the company.

I take it then that you don’t/wouldn’t ever negotiate salary?

[drachillix]

@Gfactor

How about these guys, did their salaries contribute anything?

http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/04-06-2005/0003335333&EDATE=

Considering that number represents about .5% of the total payroll even if they all took a 50% pay cut tomorrow, that would get 300 jobs back, or about a 1% reduction in the layoffs.

All fixed? :rolleyes:

Those salaries despite their immense numbers, are only a miniscule fraction of the budget. Taking away the pay package of the big boys won’t make much difference except to make them want to find a better job. You will also notice several of those you cited are taking stock. If the company tanks, so does the value of their stock. Would you like to see half of your last years income go away due to a bad decision that resulted in falling stock prices?

Take away the incentives for good people to seek out those positions and you get what you pay for, tell you what I would happily take the job as CEO of Ford for oh $250K a year, I would suck at it and probably drive the company into a wall so hard it would make a Volvo commercial look like a first kiss.