Some Mild Commentary and Observations Regarding D3-UAW Bargaining for a New Labor Agreement Sean P. McAlinden, Ph.D. Executive Vice President for Research, Chief Economist CAR Industry Briefing Detroit, MI June 23, 2015
355191 464910 431037 376612 380719 382513 391415 403466 557,099 538,448 671,853 638,722 624,585 796,729 750,436 766,028 751,932 742,454 701,818 654,657 767,200 762,439 1,002,675 943,582 921,926 867,654 861,658 846,731 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 Bottomed Out But Needs to Turn it Up! UAW Active Membership 1987-2014 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Source: UAW
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Detroit Three U.S. Hourly Employment 1984 2014 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Detroit Three Total GM 2005: 233,985 2009: 119,753 135,500 Ford Chrysler Source: Companies proprietary data
Thousand's (000's) 500 450 400 350 300 250 200 150 100 50 0 457 The Great Restructuring GM/Delphi U.S. Hourly Population 1985 2009 1985-1992 -5.6% per yr. 442 421 394 377358 They were all retired... 324 308 281 266263 250237220 1992-2002 -5.1% per yr. 208 196188182 152147 121 114 80 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 04 05 06 07 09 Year
Percent of U.S. Market Sales Detroit 3 U.S. Market Share 1985 2015 YTD (May) 45% 40% 35% 30% 40.8% Ford GM Chrysler 25% 20% 15% 10% 5% 21.4% 17.7% 15.1% 12.0% 12.7% 0% Source: Automotive News; CAR Research Year
U.S. LV Sales in Millions 20 15 10 Sales Trend Looks Good? CAR U.S. Light Vehicle Sales Forecast: 2015-2018 16.1 13.2 10.4 11.6 12.7 14.4 15.5 16.4 17.1 17.5 17.6 17.7 5.8% 4.3% 2.3% 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: BEA; CAR Research, May 2015
Revenue per Vehicle ($USD) North American Automotive Revenue Per Vehicle 2007 1Q 2015 GM Ford FCA US* $34,000 $32,000 $30,000 $28,000 $26,000 $24,000 $22,000 $24,900 $24,022 $22,839 $24,176 $24,154 $22,896 $25,798 $22,793 $21,845 $31,632 $27,669 $26,700 $30,859 $29,639 $27,931 $31,333 $29,991 $30,000 $29,406 $30,482 $29,663 $28,729 $28,774 $28,994 *Former Chrysler Group LLC. **EBIT or automotive operating income per vehicle sold. $29,766 $29,082 $29,558 $20,000 2007 2008 2009 2010 2011 2012 2013 2014 1Q 2015 Source: CAR Research based on companies financial reports.
Operating Profit per Vehicle ($USD) North American Operating Profit Per Vehicle 2007 Q1 2015 $4,000 $3,000 $2,000 $1,000 $- $(1,000) $(2,000) $(3,000) $(4,000) $(5,000) $(6,000) $415 $- $(1,432) $(1,483) $(2,526) $(3,423) $(332) $(679) $(5,297) $2,997 $2,844 $2,459 $2,167 $2,242 $2,305 $2,303 $2,307 $503 $1,065 $2,427 $1,988.9 $1,327 $1,323 $1,266 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 Source: CAR Research based on companies financial reports. GM Ford FCA US* *Former Chrysler Group LLC. **EBIT or automotive operating income per vehicle sold. $2,632 $1,976 $950
$3,000 $2,000 $1,000 $- $(1,000) $(2,000) $(3,000) $(4,000) Per Vehicle Profits*, North America 2007 Q1 2015 $(306) $1,094 $(1,054) $(3,308) $(3,229) $452 $1,921 $2,058 $1,543 $2,275 $2,226 $995 $975 $1,897 $1,853 $1,237 $1,367 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 *EBIT or automotive operating income per vehicle sold. Global average for Chrysler figure. Honda excludes motorcycle, finance, and power products. Detroit Three Toyota and Honda $732 $3,000 $2,000 $1,000 $- $(1,000) $(2,000) $(3,000) $(4,000)
So Give Em a Raise...? GM/Ford N.A. trends on profits, sales are good market share steady. Productivity in U.S. the same everywhere... Hourly workers are now gatekeepers and final inspectors of quality before product shipped to dealers. Labor costs may be lower at D3 than raw material costs, freight costs, and advertising Risk of layoff costs from downturn is very, very low soon only pension is legacy cost Why not in-source sequencing and some component assembly at 2 nd tier wages?
Does UAW Labor Cost Still Matter? (No)
Billion USD UAW Labor Bill (total, in billion Current USD) $20 $18 $18.14 $16 $14 $12 $10 $8 $6 $9.40 $7.07 $9.40 $8.54 $5.53 $7.07 $6.88 $5.51 $4 $3.04 $2 $- 1999 2007 2014 GM Ford FCA Transplants Source: CAR Research
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 15.8% 9.4% 8.1% UAW Labor Bill (as a % of North American Revenue) 12.3% 11.4% 11.2% 11.3% 11.5% 4.9% 6.7% 1999 2007 2014 GM Ford FCA D3 Source: CAR Research 3.7% 5.7%
$5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- $4,091 $2,466 $3,606 $3,391 UAW Labor Bill (per US vehicle produced) $4,498 $4,204 $4,322 $4,167 $2,374 $2,401 $1,771 $2,215 1999 2007 2014 GM Ford FCA D3 Transplants $1,042
8% 7% 6% 5% 4% 3% 2% 1% 0% 5.2% UAW Labor Bill (as a % of 2014 (N.A. Rev. N.A. Op. Income)) 7.3% 3.8% 5.4% 2014 GM Ford FCA D3
Vehicle Price, $ 21,900 22,650 23,600 24,500 24,900 25,800 26,163 27,565 28,060 28,381 28,451 28,797 28,351 28,966 29,793 30,659 30,910 31,762 32,700 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - D3 UAW Cost per Vehicle as a % of NADA New Vehicle Selling Price 1996 2014 NADA selling price 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: NADA DATA; BLS 13.8% 15.0% 6.7%
Pattern? What Pattern? Who Needs It?
What Pattern? 46% of Light Vehicles are now built in the U.S. by international automakers (not including FCA) 32% of U.S. hourly workers employed by automakers now work for international OEMs Average hourly labor costs vary by US OEM from $38/hour to $65/hour and are determined by earnings per vehicle levels and regional labor markets... not unions Less that 15% of auto parts production workers belong to a union? FCA UAW workers cost $10 less per hour than GM/Ford UAW workers UAW D3 profit-sharing checks are $1,000s of dollar apart... every year 2 nd tier labor, 20% at GM, 28% at Ford, 45% at FCA... Over Half the workers at L.O GM Assembly are 2 nd or 3 rd tier... Workers in body and paint at Toledo Assembly are supplier workers? Every Local has a different deal on... almost everything? Shifts, Skilled Trades?
Solidarity Forever? Is There a Pattern? Not in U.S. Auto Manufacturing, or in North America Not at the automakers Not at the suppliers Not across the Detroit Three Not across a Detroit Three company s plants and locals Not in the individual plant or department And not on the line...
Dump the Pattern? It s gone everywhere else in the private sector globalization etc. Except at monopolies like the Longshoremen, but they will get what is coming. Should negotiate one company at a time based on profits-labor costs. UAW-Ford/GM workers should ignore FCA... UAW-FCA workers should negotiate best deal at FCA to solidify employment GM should hire some more people for pity sakes... Pattern is now used by companies to whipsaw workers against the weakest... Plant versus plant, worker versus worker, company versus company, community versus community Solidarity has failed. Companies are too far apart to level competitiveness thru labor cost equivalence and alternatives exist! Like selling FCA to Mitt Romney... Or Heading South... Really Far South...
Mexico Calls the Tune for Everyone in N.A. Automotive Labor
Automotive Manufacturing Labor Compensation, Employment, and Compensation Growth by Country: 2012, 2013 CANADA Wage: $39.04 (2013) Employment: 108,166 (2013) Wage Growth*: 3.7% UNITED KINGDOM Wage: $37.00 (2013) Employment: 140,000 (2013) Wage Growth*: 0.0% GERMANY Wage: $62.63 (2013) Employment: 756,000 (2013) Wage Growth*: 6.0% JAPAN Wage: $41.24 (2013) Employment: 787,000 (2013) Wage Growth*: 10.9% UNITED STATES Wage: $37.62 (2013) Employment: 876,800 (2014) Wage Growth*: 0.7% FRANCE Wage: $46.23 (2013) Employment: 161,170 (2010) Wage Growth*: 3.0% POLAND Wage: $10.70 (2012) Employment: 94,000 (2010) Wage Growth*: -1.3% MEXICO Wage: $8.24 (2013) Employment: 579,000 (2012) Wage Growth*: -5.4% ITALY Wage: $41.04 (2013) Employment: 174,200 (2010) Wage Growth*: 8.8% KOREA Wage: $26.96 (2013) Employment: 250,000 (2009) Wage Growth*: 29.8% BRAZIL Wage: $17.03 (2013) Employment: 447,859 (2008) Wage Growth*: 17.4% INDIA Wage: $2.10 (2012) Employment: 556,000 (2010) Wage Growth*: 30.3% CHINA Wage: $4.10 (2012) Employment: 2,203,000 (2010) Wage Growth*: 41.2% Source: CAR, Conference Board, Wards, OECD Onshore Nearshore Offshore TAIWAN Wage: $9.95 (2013) Employment: 84,000 (2012) Wage Growth*: 4.4% *Wage growth defined as % change between 2008 and 2012/2013
Automaker Investment Announcements, Jan 2010-May 2015 Total North America $83.0 billion Note: U.S. Great Lakes includes: IL, IN, KY, MI, MO, and OH while South includes: AL, FL, GA, MS, SC, TN, and TX Source: CAR Research, Book of Deals United States $53.4 billion Canada $5.4 billion Mexico $24.2 billion U.S. Great Lakes $ 28.2 billion South $12.0 billion
International Automaker Mexican Automotive Assembly Investment: Announced 2009-2015
Employment Motor Vehicle and Parts Manufacturing Employment 2009 2015(April) 600,000 500,000 400,000 US MV US Parts 536,600 508,700 482,800 445,500 413,700 418,900 555,200 Mexico MV Mexico Parts 495,281 434,311 391,424 334,637 543,493 300,000 200,000 146,400 152,600 157,900 167,600 181,500 199,300 211,600 This will double! 100,000 33,644 38,433 40,412 45,840 45,291-2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013
Pesos/USD 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 The Peso Unbound!!! Exchange Rate MX/USD May 2000 May 2015 24% depreciation since 2011 41% since 2000
Mexican Automotive Wages are One-Eighth to One-Fifth the Wages Paid to U.S. Hourly Auto & Parts Workers No Growth in Wages Anywhere Despite Higher Productivity Average Hourly Wages for Production and Non-Supervisory Workers in Motor Vehicle and Parts, 2007-2014 Millions still underemployed or out of labor market... Strong $ 14% still in Agriculture Massive immigration from C. America Sources: U.S. Department of Labor, Bureau of Labor Statistics; Mexico National Institute of Statistics and Geography (INEGI: Instituto Nacional de Estadística y Geografía)
Some Mexican Advantages Hourly Labor Cost on a Subcompact Car FTA advantage on a Q5 Export to Europe $674 a car $4,500+ per vehicle
North America Mexico 2.3 Million Luxury Vehicles by 2020? N.A. Luxury Vehicle Production Capacity: 2012-2020 North America Mexico 3,000,000 1,200,000 2,500,000 1,000,000 2,000,000 1,500,000 1,000,000 500,000 800,000 600,000 400,000 200,000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: LMC and CAR Estimates 0
Millions 6.0 Bigger than Germany? Mexican Capacity, Production, and 2015-2018 Production Forecast Mexican Production and Forecast Mexican Production Capacity 5.0 4.0 3.0 2.0 1.0 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: LMC, AMIA, INEGI, Ward's Automotive, U.S. Federal Reserve Board, Statistics Canada, and CAR Estimates
Let s Rattle this Down... Profitability and Sales Trends are Good for D3... Contract should be rich. Manufacturing labor costs are far less important to the D3 than in the past. Give UAW-Ford and UAW-GM a big raise... Make up for no COLA... But Pattern Bargaining could cheat GM/Ford workers push FCA bargaining elsewhere FCA has cost problems unrelated to labor... Volume and scale. Yes, Don Sergio is correct but a Romney style merger would trash Chrysler car operations... Mexican total capacity will exceed 5 million by 2018, meaning: - Some N.A. overcapacity will reappear and prices will fall wages throughout N.A. depressed - This depends on share of Mexican assembly exported from N.A. - No direct giant sucking sound since Japanese/German OEMS are moving capacity from home locations to N.A. not from U.S./Canada they don t trust their exchange rates and want Mexican FTA advantages - D3 Mexican investmentis a different mater.