More On Total Hourly Labor Costs: GM vs. Toyota

ASSOCIATED PRESS -- The leaders of GM and the UAW told Congress last week that a new union contract will virtually erase the labor cost gap between GM and foreign competitors with U.S. factories. That's not quite true, according to GM's own figures.

GM says its total hourly labor costs dropped 6% this year from $73.26 in 2006 to around $69 per hour. The new cost includes wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said. The total cost will drop to $62 per hour in 2010 when the linchpin of the new contract - a UAW administered trust fund - starts paying retiree health care costs.

But that's still $9 more than the $53 per hour that GM estimated Toyota now pays in the United States, and the gap could be even wider. Toyota spokesman Mike Goss said the company's total labour costs at its older U.S. plants are around $48, with about $30 per hour in wages (see chart above).

The remaining difference largely is due to "legacy" costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said. "While legacy seems to be a dirty word of late, it also means we support hundreds of thousands of people via pensions, health care and good jobs," he said.

There's also the "jobs bank," a feature of the UAW contract that drew fire from senators, in which workers get 95% of their base pay and all of their benefits if they are laid off or their plant is closed. In the past, workers could stay in the jobs bank forever unless they turn down two job offers within 50 miles of their factory. GM's new contract imposes a two-year time limit, and workers are out of the jobs bank if they turn down one job within 50 miles or four jobs anywhere in the country. GM has about 1,000 workers in the jobs bank now because it's been thinned out by early retirement and buyout offers. At its peak, the jobs bank had 7,000 to 8,000 people, Sapienza said.

Bottom Line: Even with the new contract, there will still be about a $14 per hour pay gap in total labor costs between GM ($62) and Toyota ($48), and more than a 29% total labor cost premium for UAW workers compared to their nonunion counterparts at Toyota.