Jobs Bank Cost Big Three $1.5 Billion In 2006

From the Wall Street Journal article in 2006 “Money for Nothing: U.S. Car Companies Pay Hundreds of Millions of Dollars in Wages to Idled Workers”:

The Jobs Bank is a two-decade-old program in 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 volunteer or go back to school. The rest clock time in the rubber room or something like it.

The Jobs Bank at GM (GM) and other U.S. auto companies including Ford Motor (F) 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.

About 7,500 GM workers are now in the Jobs Bank, more than double the figure a year ago. 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.

Mr. Pestillo, a 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.

MP: GM lost $2 billion in 2006, and in that same year it is estimated that GM spent between $750-900 million for the Jobs Bank, suggesting that almost half (38-45%)of GM’s loss that year was because of its costs to pay idled workers in the Jobs Bank. For the Big Three as a group (including 7,500 GM workers and another 7,500 Ford and Chrysler workers), the 15,000 workers in the Jobs Bank cost the Big Three between $1.5 billion and $1.8 billion.

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