U.S. auto makers pay employees to NOT work

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A longstanding deal with the United Auto Workers means that U.S. auto makers pays billions for employees who don’t work. The “Jobs Bank” program sees to it that over 15,000 unneeded workers continue to earn wages and benefits that often exceed $100,000 annually per employee. The total cost of this program will be $1.4 billion to $2.0 billion this year.

This was such an interesting story in the Wall Street Journal that I’m posting the entire article here.

Detroit’s Symbol of Dysfunction: Paying Employees Not to Work
By Jeffrey McCracken
WSJ, March 1, 2006

FLINT, Mich. – In his 34 years working for General Motors Corp., one of Jerry Mellon’s toughest assignments came this January. He spent a week in what workers call the “rubber room.”

The room is a windowless old storage shed for engine parts. It is filled with long tables, Mr. Mellon says, and has space for about 400 employees. They must arrive at 6 a.m. each day and stay until 2:30 p.m., with 45 minutes off for lunch. A supervisor roams the aisles, signing people out when they want to use the bathroom.

Their job: to do nothing.

This is the “Jobs Bank,” a two-decade-old program under which nearly 15,000 auto workers continue to get paid after their companies stop needing them. To earn wages and benefits that often top $100,000 a year, the workers must perform some company-approved activity. Many do volunteer jobs or go back to school. The rest must clock time in the rubber room or something like it.

It is called the rubber room, Mr. Mellon says, because “a few days in there makes you go crazy.”

The Jobs Bank at GM and other U.S. auto companies including Ford Motor Co. is likely to cost around $1.4 billion to $2 billion this year. The programs, which are up for renewal next year when union contracts expire, have become a symbol of why Detroit struggles even as Japanese auto makers with big U.S. operations prosper.

While GM often blames “legacy costs” such as retiree health care and pensions for its troubles, its Job Bank shows that the company has inflicted some wounds on itself. Documents show that GM itself helped originate the Jobs Bank idea in 1984 and agreed to expand it in 1990, seeing it as a stopgap until times got better and workers could go back to the factories.

“The bank was designed for a different time, a time when we were growing,” says Pete Pestillo, a former Ford executive who oversaw union talks. The Jobs Bank has failed to stop the outflow of jobs at Detroit’s unionized auto makers. Since 1990, GM’s union payroll including former subsidiary Delphi Corp. has fallen to about 137,000 from 358,000. Many have retired, died or found other jobs. The rest are in the Jobs Bank.

Mr. Mellon, a 55-year-old father of two, was born in Flint. He joined GM in 1972, following his grandfather and his father, a plant foreman who spent 37 years at GM. Through the 1980s and 1990s, Mr. Mellon held jobs designing electronic systems for vehicle prototypes. In 2000, GM merged two engineering divisions, and he wasn’t needed anymore.

Since then, except for a period in 2001 when he worked on a military-truck project, GM has paid him his full salary for not working. That is currently $31 an hour, or about $64,500 a year, plus health care and other benefits.

About 7,500 GM workers are now in the Jobs Bank, more than double the figure a year ago. The bank added 2,100 workers last month when the company closed a truck-assembly plant in Oklahoma City. Each person costs GM around $100,000 to $130,000 in wages and benefits, according to internal union and company figures, meaning GM’s total cost this year is likely to be around $750 million to $900 million.

One way employees in the Jobs Bank can fulfill their requirements is to attend eight- or 12-week classes offered by GM. In these classes, Mr. Mellon has studied crossword puzzles, watched Civil War movies and learned about “manmade marvels like the Brooklyn Bridge,” he says. One class taught him how to play Trivial Pursuit.

More recently, he attended an institute in Flint called the Royal Flush Academy. It is designed for those seeking work in casinos — the Detroit area has several — and teaches students to deal blackjack and poker. Mr. Mellon says he isn’t interested in casino work and left the academy after they docked his pay because he was 10 minutes late coming back from lunch.

With that he arrived at the rubber room. It is on the site of the famous Flint Sitdown Strike of 1936, a 44-day walkout that helped get the United Auto Workers union recognized at GM. The rubber room and neighboring buildings that house a technology center are off-limits to outsiders.

Every day for a week Mr. Mellon got up at about 4:30 a.m. to make the 45-minute commute to the rubber room from his home in Otisville, Mich. At first he read the newspaper or magazines lying around, such as Reader’s Digest. He talked some with acquaintances. After conversation dried up, he says he spent hours staring at the wall, hoping time would move faster.

One day he asked a supervisor if he could bring in a cot. The supervisor said no, so he pushed together four padded chairs and slept across them for several hours. He had stayed up late the night before, anticipating this nap.

The waiting “makes you want to bang your head against the wall,” Mr. Mellon says. “I couldn’t take it. I need to be doing something. And there is a supervisor who walks around staring at everyone. It’s worse than high-school detention.”

Mr. Mellon thinks a “line-worker mentality” keeps people going back to the rubber room. “A lot of guys sit in that room and just collect their paycheck because they don’t know what else to do,” he says. “They’ve spent 20 years tightening a nut as it came down the line. They are faced with this harsh reality, and they are just happy the paycheck still comes so they can put their kid through college.”

A Way to Escape
Mr. Mellon soon found a way to escape the room, through volunteering. That is what many of his fellow workers do. Dean Braid, 50, worked at GM as an engine and transmission tester for 21 years. Today, GM pays him $30 an hour as he helps a high-school friend, Doug Kahn, who is confined to a wheelchair. Mr. Braid is installing ramps in his friend’s family farmhouse and has repaired the engine of the 1984 Ford van Mr. Kahn uses.

“Dean being here has been like a little miracle for me,” says Mr. Kahn, who was injured 38 years ago in a swimming accident and now lives by himself. “It has made my life better. Just having him come by forces me to get up and get out of bed.”

GM employees constitute slightly more than half of the 14,700 auto workers in the Jobs Bank. In second place with 3,600 Jobs Bank workers is auto-parts maker Delphi, which filed for bankruptcy-court protection last October. The Chrysler unit of DaimlerChrysler AG has 2,500 and Ford 1,100. Executives expect the total to rise to more than 17,000 next year, as the Detroit companies prepare to shed more than 60,000 jobs.

Mr. Pestillo, the former Ford executive, and others see the Jobs Bank as a corrosive influence with significant indirect costs because it encourages auto makers to build more vehicles than consumers want. Companies figure it is better to build cars with little or no profit margin than to pay people not to work, he says. They also may keep rote work in-house even though it would be cheaper to outsource.

The system gives older union workers little incentive to move to other plants, find jobs at other companies or retire. There is no limit on how long a worker can stay in the Jobs Bank. They don’t have to look for work at their company. Contracts allow workers to turn down any job offer at a site farther than 50 miles from their home plant.

The Jobs Bank has its origins in the tough times Detroit faced in the late 1970s and early 1980s. A spike in oil prices, a harsh recession and the first major assault from fuel-efficient Japanese cars hammered the Big Three and cost tens of thousands of union jobs. The UAW agreed to its first concessionary contracts in 1982 with the Big Three, which then made three out of every four vehicles sold in America.

Battling the new competition, GM developed a plan to spend $24 billion improving factory automation and copying Japan’s efficient production methods. “Our workers were frightened — scared, of course, of robots,” says former UAW President Douglas Fraser, who retired from the union in 1982 and continues to teach labor history.

That was the backdrop when the UAW contract at GM came up for renewal in 1984. Papers in the Walter Reuther Library at Detroit’s Wayne State University, an archive of labor materials named for the famed UAW leader, document what happened next. At about 4 p.m. on Aug. 8, 1984, GM put forward a one-paragraph memo proposing the creation of an “employee-development bank.” The idea was to help train or find jobs for senior UAW employees who would “otherwise be permanently laid off” because of better technology or higher productivity.

Once the idea was on the table, GM agreed to expand it as the UAW ratcheted up pressure for a deal. A strike at a few locals was gradually spreading to engulf more than half the company. GM’s first proposals, noted in documents from early September 1984, described a three-year program for employees with 10 years of experience costing no more than $500 million in total. The union sent back a demand that the program cover workers with six years on the job, run for six years and cost as much as $1 billion. GM agreed, and later said even one-year workers could join.

Reaching a Deal
The two sides reached a deal to end the strike on Sept. 21, 1984. The UAW told its workers their jobs were “more secure than ever in history.” The UAW view, which continues to this day, was that the Jobs Bank would force GM and other auto makers to find work for union members because no company would keep paying people not to work.

Ford made a similar deal shortly afterward. A former Ford executive in labor relations, John Slosar, recalls: “We just focused on matching each other back then, not ‘Hey, this will disadvantage us to the Asian auto makers.’ ”

Letters between GM Vice President Alfred S. Warren and the union show GM was confident it could afford the Jobs Bank and fight off its Japanese rivals because it had new versions of the Pontiac Grand Am and Buick Riviera in the works as well as plans to introduce the Saturn line of cars.

Most of these products fell short of their targets, however, while the Jobs Bank got bigger and more expensive. When the six-year pact expired in 1990, GM and other auto makers expanded it to include not only those workers affected by technology improvements but also those affected by slow sales. GM boosted funding to $1.7 billion for three years.

Workers whose plants shut down don’t immediately go into the Jobs Bank. They first receive unemployment benefits supplemented by the company. When the cumulative length of shutdowns during a contract reaches 48 weeks, they switch to the bank.

The car companies sometimes recommend volunteer projects for people in the bank to work on, although workers are welcome to submit their own projects for company approval. Workers at the Jobs Bank site in Lansing, Mich., the state capital, spent last summer fixing up a county park.

Others in the Jobs Bank go to school. Electronic technician Tom Adams is working toward a doctorate in history at Michigan State University and is writing a dissertation of more than 300 pages. He has been in the bank since 2001, except for an 18-month stint working on a truck project. His dissertation topic: GM, the UAW and the city of Flint.

Mr. Adams’s grandfather, Frank Adamec, came from what is now the Czech Republic around 1910 and took a plant-floor job at Flint Wagon Works, which later became Chevrolet. Mr. Adams’s father spent 37 years as a die maker at Chevrolet in Flint. Mr. Adams started at Buick in Flint in 1976 working on transmissions for the Buick LeSabre. He later moved up to an electronic technician’s job and started work on an engineering degree in the 1990s so he could become a salaried engineer. He dropped that idea after seeing salaried colleagues laid off.

Mr. Adams, a short, intense man who says he has run 37 marathons, has also raised money for a food bank he runs during his Jobs Bank time. Once he was assigned to set up cable television at the Flint rubber room so “the workers there could watch cartoons.”

He says the Jobs Bank “has been wonderful for me. It’s doing what it is supposed to do, which is make it so I won’t be a burden on society.” But based on his studies, he has a low opinion of GM: “They took the Toyota concept of lifetime employment and applied it to the GM culture and what they did was create a bureaucracy. That’s what GM does.”

These who can’t find an outside activity — or don’t want to — end up in rubber rooms and the like. Despite the cable TV, these rooms are usually less than luxurious. Ford buys uncomfortable chairs for its facilities. One GM official says the company has turned down the air conditioning in the summer at bank sites. Outside of Michigan, major sites include Baltimore; Indianapolis; Lockport, N.Y.; and Rancho Cucamonga, Calif.

In their 2003 national contract, GM and the UAW agreed that “unproductive assignments are contrary” to their agreements about the Jobs Bank, but workers say that had little effect on the program.

Tom Gonzales, a Ford employee of 13 years, sat in an Edison, N.J., room for two months in late 2004 before Ford found him a job in Ohio. “It sort of felt like high-school detention. We sat in a big office with table and chairs and did nothing except maybe read,” he recalls. The room was on the site of a closed-down truck plant. About 200 idled workers would read books or work on computers while five or six salaried supervisors enforced rules including a ban on card-playing.

Seeking Reductions
Detroit’s Big Three auto makers are likely to seek reductions in the program when they renegotiate their contracts with the United Auto Workers next year. It may be difficult for the UAW to keep the Jobs Bank intact, not only because of the public-relations problem but also because it is hindering a settlement to get Delphi out of bankruptcy-court protection. The parts maker has said in court filings that it wants to reduce its hourly work force 30%, or about 8,000 people. The union would like GM to hire these people but that may be difficult because the company already has a surplus of employees in the Jobs Bank.

GM Chief Executive Rick Wagoner said recently the Jobs Bank “obviously is an area of competitive disadvantage for us.” Union officials realize the bank is tough to explain to the public but see an impact on communities if it is curtailed.

Art Luna is president of UAW Local 602 in Lansing, which sits next to a deserted GM plant. A sign in the parking lot of the local warns that “non North American vehicles will be towed at owner’s expense.” The local is a few blocks from a parking lot filled with rows of unsold Cadillacs. It has about 840 people in the Jobs Bank, with 600 doing community service or going to school.

“The bank may exist after 2007, but not like it is now, which is too bad for the communities. It does a lot for schools, agencies, the parks,” says Mr. Luna, a third-generation GM employee. “Unfortunately, we do have people that just sit in the bank and read or do puzzles,” he adds. “They feel like, ‘Hey, they owe me this.’ That’s too bad. I’m not going to lie.”

In Flint, Mr. Mellon also sees change on the horizon. “I understand the Jobs Bank needs to have an end to it,” he says over a beer at lunch in Flint’s Caboose Lounge. “I mean, they’ve paid me like $400,000 over six years to do nothing, to learn to deal blackjack. But buy me out. Retire me with something like $2,000 for every year I worked. I need that because you know they’re going to keep cutting our health care and pensions. You are so vulnerable in retirement.”

Mr. Mellon recently arranged to do community service work at Freedom Temple, a Baptist church in Flint. He is installing motion sensors at the homes of senior citizens in a bad part of town. There have been 14 murders in Flint already this year.

“Now I can go out and do good church work and still get paid. I couldn’t twiddle my thumbs any more in the rubber room,” Mr. Mellon says. “I want to do some work.”

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