AUTO INDUSTRY DOWNSIZING

Workers who retire unlikely to hurt state

January 27, 2008

By KATIE MERX

FREE PRESS BUSINESS WRITER

With all three Detroit automakers beginning the process of offering widespread buyouts again this year, more than 130,000 U.S. autoworkers are or will soon face the decision: Should I stay or should I go?

While the choice is a tough one in increasingly difficult times, economists say an outflow of autoworkers into retirement — the type of offers most likely to be accepted — is unlikely to further deepen the struggles of Michigan’s auto-centric economy. Rather, they say, it provides the three corporations to which the state’s fate is linked with a new chance at survival.

"Almost all of the workers who leave will be retired, not laid off," said Sean McAlinden, vice president of research at the Center for Automotive Research. "This is a good thing. … Plants here are relatively more secure than in any other state."

And the state will not have to support the people who leave with pension income, as it would have to in the case of layoffs, he said.

"We should remember that the people who retire and earn $37,000 or more are still spending, and they’re spending here," McAlinden said. "They can’t leave the state — we’ve got them trapped with their homes" because of Michigan’s deep housing slump.

McAlinden, regarded as one of the nation’s leading labor economists, forecasts that most of those who accept a buyout or retirement offer from GM will be replaced by 2011.

The new workers will be paid less under the new UAW contract, representing a fundamental change in what it means to be an autoworker as Detroit’s auto companies get their costs in line.

The automakers haven’t said how many workers they hope will accept the offers. Ford rolled its offers out this week. GM has started only the first phase of its special attrition program. And Chrysler has offered packages only to workers at select factories, so far.

But McAlinden forecasts that by 2011 GM will trim its workforce by less than 10% to about 68,190, Ford by about 30% to 35,570 and Chrysler by 22% to 32,560.

He also predicts that GM, at least, will be able to begin hiring new workers at a lesser wage-and-benefits package by late this year or next year.

The Detroit automakers all have new contracts with the UAW that allow them to pay lower wages and less-expensive benefits to new hires.

New hires will cost the automakers only about $26 per hour to start, compared with current workers’ cost of about $60, not including retiree health care costs. Even after the automakers hire enough new union members that some are bumped up to traditional hourly wage rates, a new benefit structure caps the all-in compensation cost at about $47 per hour, which is about what Toyota Motor Corp. pays its U.S. hourly workers, including benefits.

And so, the long-held ideas of what it means to get a job on the line or as a skilled-trades worker for what was once called the Big Three will soon be a thing of the past, with the Detroit Three not so big and the standard of living for U.S. autoworkers now seemingly set by Japanese rivals’ North American operations.

It’s a process that domestic autoworkers and the state of Michigan have been working through for nearly two decades, economists say.

From 1999 to 2006 alone, the nation lost about 238,500 motor vehicle and parts manufacturing jobs, according to the Bureau of Labor Statistics.

Michigan lost 108,200 of those.

Just since 2005, GM has reduced its workforce by 34,410 hourly workers, and Ford has cut 32,800.

GM Chairman and CEO Rick Wagoner said last week that the automaker expects most of the takers to come from the retirement-eligible ranks.

Packages may be a tough sell

But many workers say unless you were ready to walk out the door anyway, making a move for quick cash in lieu of guaranteed paychecks isn’t practical.

Retirement payments, in general, are significantly less than full pay. And in an economy where a person can’t be assured his or her house will sell, the fantasy of cashing in and moving to a warmer clime can quickly evaporate.

Sam Williams, a 44-year-old materials handling worker at GM’s Lansing Delta Township plant, said he has to work at least 10 more years and an offer wouldn’t change that. He has a 4-year-old son.

"If I retire at 50, do I want to retire and go get a job somewhere making $10 an hour with one week’s vacation, or just keep working, making good money and getting several weeks of vacation?" asked Williams. "I think that’s an easy choice."

Ed Pietrowski of Bowling Green, Ky., who expects to be eligible for GM early retirement under a 26-and-out program, agreed that it might be difficult to get people to take the offers, since many were eligible for them last time around and the economy has only gotten worse.

"I can probably take the package, but I’m not sure if I will," Pietrowski said. "What scares me is the job market is not very good. The economy is getting worse. I have a daughter in college, still. I would rather stay and push it out, but nobody knows what’s going to happen. But they have such an overcapacity of jobs and plants … it worries me."

And with the introduction of the two-tier wage system in the current contract, he believes that a lower wage will be a part of the next contract, and that job guarantees will be a thing of the past for Detroit automakers within eight years.

Already, the new contract makes it more difficult for workers to continue being paid while on long-term layoffs, as was the norm in previous contracts.

Good in the long run

While more upheaval of the workforce is worrisome in the short-term, analysts and economists say it is good for Michigan in the long run because it makes it more likely that the Detroit Three will survive and remain large employers.

"Longer term, if it improves the viability of the company, then Detroit should benefit," said economist David Sowerby of Loomis Sayles.

Already, McAlinden said, the buyouts, as part of the new UAW contract’s survival strategy for a domestic auto industry, have had a positive effect. Without the agreement, he said, the automakers would be working to close many U.S. assembly plants and move the work to Mexico.

The contract, McAlinden said, kept work in Michigan by making it more economically competitive.

"Congratulations go to" GM North America "President Troy Clarke and" UAW president "Ron Gettelfinger," for making the deal, McAlinden said. "It did save 10 or 12 U.S. plants, at least."

Workforce needs