LIVING OFF DIVIDENDS & PASSIVE INCOME

In a work … NO.

I completely agree. I was a mechanical engineer for one of the big three in early 2000. At that time I was pricing labour at $70 for skilled labor. This was the senerio at that time:

-I want to place four lag bolts into the cement floor to lag a piece of machinery down.
-I place an order for a Machine Repair person and a Welder. You cannot just hire (internally) a MR as they are assigned in pairs.
-On the date assigned the MR/Welder pair attend the north side of the plant at 6:30am. They recieve their instructions and make there way to the south side of the plant (which is approx a mile in length). They attend the scene and see what is required by the start of first break. 8:30
-After break they order their tool cart to be shipped down by fork truck so they can do work. Since fork trucks are site/time limited their tools arrive roughly by lunch break. 10:30
-After lunch they remove the tools required, drill four holes into the ground, position the machine on top. Time for break 1pm
-After break they place the four lag bolts into the cement, tighten them, and order their tool carts to be returned to the construction side of the plant. They then return to the construction side of the plant in order to pack/wash up to go home. 3pm

Total wage cost to install 4bolts = $70 x 2 x 8hr = $1120. (Note: This figure did not include benefits/supervision/HR expenses)

I saw that this was unsustainable back in 2000, and the big three attempted to spin off subsidaries in order to reduce labor costs. But this coupled with poor model/marketing choices got them to the position they are in.

Will the big three go down? Probably not. Not only do they employ a vocal workforce and a powerful union, they do have ALOT of untapped R&D that have not made it to the market as of yet (DoD engines, bolt on hybrid wheels, HCCI engines). I believe that this is a necessary short term correction. Although I wouldn’t want to purchase stock now, buying LEAPs may be a better position. Anyhoo thats my $0.02

I really like your website, but with all due respect, please dig a little deeper.
You write/quote the following:
“However, if you are a Detroit auto worker with a high school diploma, your total compensation comes to: $67.78 (Ford), $70.43 (GM) or $72.59 (Chrysler) per hour.”
Those figures/estimates represent the total costs of the companies (WHICH INCLUDES RETIREES) divided by the hours worked by CURRENT employees. So, no, the current employees do not receive a compensation package worth $70/hour.
http://www.tnr.com/politics/story.html?id=1026e955-541c-4aa6-bcf2-56dfc3323682
“Let’s start with the fact that it’s not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research–who was my primary source for the figures you are about to read–average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income–hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.
More important, and contrary to what you may have heard, the wages aren’t that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can’t be sure precisely how much those workers make, because the companies don’t make the information public, the best estimates suggests the corresponding 2007 figure for these “transplants”–as the foreign-owned factories are known–was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker’s annual salary at $52,000 a year.

So the “wage gap,” per se, has been a lot smaller than you’ve heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants’ factories. Those factories remain non-unionized and management very much wants to keep it that way.

But then what’s the source of that $70 hourly figure? It didn’t come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits–namely, health insurance and pensions–and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages–again, $28 per hour–and you get the $70 figure. Voila.

Except … notice something weird about this calculation? It’s not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that–probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees–in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com’s Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just “not true.”

Of course, the cost of benefits for those retirees–you may have heard people refer to them as “legacy costs”–do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don’t have to pay the same costs. But don’t forget why those costs are so high. While the transplants don’t offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don’t have many retirees.

The first foreign-owned plants didn’t start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota’s entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.

To be sure, we’ve known about these demographics for a while. Management and labor in Detroit should have figured out a solution it long ago. But while the Big Three were late in addressing this problem, they did address it eventually.

Notice how, in this article, I’ve constantly referred to 2007 figures? There’s a good reason. In 2007, the Big Three signed a breakthrough contract with the United Auto Workers (UAW) designed, once and for all, to eliminate the compensation gap between domestic and foreign automakers in the U.S.

The agreement sought to do so, first, by creating a private trust for financing future retiree benefits–effectively removing that burden from the companies’ books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.

In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.”

Hi George,

thanks for the clarification. this $70-75 number has been bandied about a lot. It has been in various newspapers. It is even in Robert Kiyosaki’s new book “Financial IQ”.

The link mentions a quote for Center for Automative Research, (not Automotive Research) stating essentially that the $70/hr number is obtained by adding up GM’s total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the health care and retirement costs of retired workers.

Since this isn’t the cost they pay to existing workers, which is about $28/hr, we should ignore the $70/hr number.

While I agree this is an important consideration, when the cost of supporting retired workers EXCEEDS the wages paid to currently employees, where do you put that cost? It is a labor expense, since it is money you’re paying for labor that occurred in the past.

I feel it should be counted as a labor cost.

However, the best thing government can do to bail out GM & Ford is institute nationalized health care. Ford & GM could then stop paying for the health care of retired employees which is killing their profitability.

I would rather have the government in the business of health care, than automobile manufacturing!

“However, the best thing government can do to bail out GM & Ford is institute nationalized health care. Ford & GM could then stop paying for the health care of retired employees which is killing their profitability.

I would rather have the government in the business of health care, than automobile manufacturing!”
I agree with you one hundred percent on this. The foreign automakers in the US don’t have the same issues (expenses) with older workers, to the extent that domestic automakers have them; healthcare expenses do make our companies less competitive, relative to automakers in other countries.
You are absolutely correct in counting the benefit package for current employees and for retirees as a labor cost, but the way you initially portrayed it suggested that the current workers were receiving salary and benefits of $70/hour. (Many others elsewhere did this, too, and I finally had to say something.) Clearly, lifting the burden of paying for healthcare would help our companies have a more level playing field with those from other countries, and help us compete. Watching our industrial base wither away is something that greatly concerns me. According to one study that focused on China, “total energy subsidies to Chinese steel from 2000 to mid‐year 2007 reached  $27.11 billion.” How can we best compete given this kind of thing??
In other news, congrats on your new passive income record for the month of October, by the way; that is terrific! I like looking at the breakdown of figures.

The problem with universal health care in this country is that nobody wants to pay for it, not even the taxpayers.

The only 2 possible ways (sure there are many more problems but these 2 are probably the biggest) to cure this is 1) limit malpractice lawsuits and 2) bring down cost.

#1 can only be possible if we put a moratorium on malpractice lawsuit, period. You don’t like it? There are other countries besides the good ol’ U S of A to take care of your damn cancer, thank you very much, with your hard earned union money.

#2 can only be possible if we start doing some damn H1-B on doctors, RNs, etc. If we can do H1-B on engineers, why can’t we do it for doctors and RNs as well? Try this and let’s see doctors and nurses making only 5 digits in rural areas. You don’t like it? There are other countries besides the good ol’ U S of A to take your hard earned Stanford medical damn degree to practice your damn medicine, thank you very much.

Don’t bail out any of them (the Big Three) They need to cut cost and drop the price of car in half if they want the average joe to buy them .Simple as that.
just average Dwayne