Chrysler : Labour Rates and Other Obfuscations

If you were to read the news lately, you could be forgiven for thinking that North American auto manufacturers pay their workers more than Japanese auto manufacturers do - even the Japanese manufacturers that are located in North America.

This may be true, but it's a very small difference if it is. What you are actually seeing quoted in the news are the labour rates. A labour rate is not what the employees get paid. It's the company's way of adding up the company's cost of labour - which includes actual dollars per hour, plus cost of benefits, plus the cost of pensions of workers who are retired.

It's that last one that makes it look so unrealistic. So when the Globe and Mail publishes a letter from Chrysler to its employees which says, "... the all-in labour costs at Chrysler Canada are $76 per hour while the Toyota Canada all-in rate is approximately $57 per hour" it's important to understand that much of that $19 of difference is actually Chrysler Canada's error in not maintaining a pension fund for its retired employees. Instead, Chrysler Canada promised the pension (presumably winning concessions from employees when it made the promise) and then simply declared the cost of those pensions as part of the present-day worker's cost.

Imagine the Widget Company. It has 100 retired employees who receive $39k per year pensions. Let's say the Widget Company has a staff of 100 workers who are making $39k per year ($20 per hour). Under the definition of "labour rate" used by Chrysler, the Widget Company would declare that its labour cost is actually $40 per hour because the company is putting the burden of the pension plan it promised but never managed on its 100 present day workers.

Rip-off, you say? Of course it is. I would just call it lying, personally, but the world of finance is often full of such misdirection.

It would get even worse when the Thingamajig Company comes to town. Then the stockholders could get angry at the Widget Company and its atrocious $40 per hour workers. "Why look", they would say, "the new Thingamajig Company has a labour rate of just $22 per hour!" This is because it either has no pensioners yet or because it allows a 3rd party to manage their pensions with the extra $2 per hour.

"Egad", the shareholders would shout, "You workers must make concessions! The fault lies in your greed! Give up your hard won benefits! Cut your salaries! This is a recession!"

And so Chrysler publishes a list of things it feels should be taken from employees in order to make up for the fact that Chrysler didn't put money away to cover its promise of retirement benefits and pensions. Chrysler workers will need to have less pay and benefits than Toyota workers because of that pension cost in the labour rate.

So Chrysler makes a list of ways to bring down the labour rate. Please note that nowhere in that letter does it mention anything about cutting the benefits or salaries of executives. Should we assume that's already happened? I wouldn't assume anything of sort, personally.

Somehow, putting a cap on dispensing fees costs $2.16 an hour? That cries out for an explanation. Chrysler would like to take way your Life Insurance and your out of province health care coverage as well as your semi-private hospital bed. It wants to add to your health care premiums.

The list goes on, but the point is clear: it's the union's fault.

In a way I have to agree.

It is the union's fault. It is the workers' faults. They wanted a pension plan and they trusted a corporation to maintain, fund and manage it. Why would anyone, ever, trust a corporation to take care of a person? That's just not what corporations are good at. That's why we keep them out of health care and education.

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