It was just a couple of months ago that the country was embroiled in a debate about bailing out Wall Street. There was a national outcry from Democrats and Republicans not ready to part with $700 billion with little or no oversight. The financial CEOs seemed to hope that a golden parachute would replace the invisible hand of the market. Treasury Secretary Hank Paulson pleaded for mercy for his executive compatriots and protection from compensation restrictions: "If we design it so it's punitive and so institutions aren't going to participate, this won't work the way we need it to work." For most Americans, Paulson's pleas fell on deaf ears. Many had trouble hearing multimillion-dollar bonuses defended by a Treasury Secretary whose net worth is $600 million. But I don't remember much talk about all the "financial workers" of Wall Street taking a "haircut" on their wages, bonuses, and stick dividends.
As I wrote last week, broken relationships and social covenants are at the heart of this crisis. When we focus on symptoms of the problems we face as opposed to the brokenness that lies at the root, we are doomed to repeat our failures. For the past several weeks the distraction that has been waved in our faces is the compensation of union workers. "$73 an hour for undeserving workers" seemed like the mantra for cable news networks.
Let's take a second to debunk this myth. This figure, which if true would give the average autoworker a $120,000 yearly salary, is grossly misleading. The average Big Three autoworker makes only $28 an hour, and the average worker at Toyota and Honda manufacturing plants makes about $25 an hour. The New York Times compared the hourly wages plus benefits of Detroit's unionized workforce to Toyota and Honda's non-unionized workforce and came up with $55 an hour for Detroit and $45 for Toyota and Honda. (According to Rep. Stabenow (D-MI), GM workers make $0.22 an hour less than Toyota, Chrysler makes exactly the same, and Ford workers make $1 less.)
The real gap between foreign and domestic automakers comes in "legacy costs" for retired workers and health care, both of which are provided by the governments of their countries or have not yet added up significantly for their workers in the U.S. While the answer to this problem came later than it should have, the UAW has already made major concessions on both wage rates and benefits in 2007. The UAW now has a two-tiered system bringing in new workers at about $14 an hour. The UAW also agreed to let the Big Three go back on the retirement promises they had made and instead endow a fund that would be privately managed and let the union shoulder the responsibility of reducing benefits or increasing costs as necessary.
Negotiations with Senate Republican leaders failed when it was clear they were looking less for mutual sacrifice than they were demanding a pound of flesh from the union. If saving the Big Three was really dependent on cutting wages and mutual sacrifice, we should look at what that would mean for executives as well. At Toyota in 2006, the top 37 executives earned a total of $21.6 million, just about as much as Alan Mullally, CEO of General Motors, made in 2007. Toyota's top executive made only $903,000 the year before.
The prophet Amos warned about those who would sell "the righteous for silver and the needy for a pair of sandals -- they who trample the head of the poor into the dust of the earth and push the afflicted out of the way ..." This is true today. While some Republicans have broken ranks (notably Ohio's George Voinovich), if Republican leaders truly believe that the heart of Detroit's problem is that too many people are making $60,000 a year, then to quote Dick Cheney: "It's Herbert Hoover Time" for the party.
Detroit's problems are much more complex than the congressional debate has been, and the average worker is not the problem. But for too many Republican senators (and some Democrats), the bailout has been treated as an opportunity to score ideological victories. It's time to go to the structural problems at the heart of the auto industry, the need for an entirely new direction for Detroit -- producing a new kind of vehicle for a new environmentally conscious era. But that commitment and direction will likely be left to the leadership of a new administration in Washington.