Ford will have closed 16 plants and cut about 30,000 jobs by the end of 2008, the company announced on Friday. This year, General Motors has already eliminated more than 34,000 hourly workers to save money. But no one's getting fired, and no one's getting laid off. Then how do they get rid of their workers?
Pay them to leave. Because of their contracts with the United Auto Workers, auto manufacturers can't kick a unionized employee out the door without a good reason, like theft or drug use. Whenever Ford and GM want to close a plant or shrink the workforce, they must negotiate a system of buyouts. Right now, Ford is inviting its 75,000 blue-collar workers to walk away by choice—in exchange for a big cash payment.
Workers get eight buyout options. Some of these involve early retirement, or a "pre-retirement leave" that doesn't preclude regular retirement benefits. Other options trade off the benefits for a lump sum of $100,000 or $140,000, depending on how long the employee has worked for the company. There's even a college option, which pays $15,000 of tuition over four years, plus 50 percent of wages. * (At the end of the four years, you're on your own.)
Why would the manufacturer offer these incentives? If the workers don't take the buyouts, they'll still get paid. Under the union contract, if the company has to close a plant, anyone who worked there is eligible to keep getting wages under one of two programs.
First, they might start collecting unemployment (paid by the state in conjunction with the manufacturer). Ford or GM would have to supplement the unemployment benefits with enough extra money to give each idle worker 95 percent of his take-home pay. (He'd still have to pay taxes on this sum, so he would end up with a substantial pay cut.)
Second, a Ford worker whose plant closed could be eligible to slide into the "GEN pool," which stands for "Guaranteed Employment Numbers." Anyone who's in the GEN pool continues to get paid their full salary and benefits, even if they don't have a job to perform. In theory, they function as a sort of workforce reserve for the company, so they could be quickly reassigned if Ford needed to reopen plants. But lately, the boom-and-bust cycles of American auto manufacturing have veered toward bust-and-bust. Idle workers relegated to the GEN pool may end up on the payroll for as long as the pool exists. (A similar program at GM is called the "jobs bank.")
Workers won't get these benefits forever. Unemployment and supplemental pay have a set life span of up to almost a year. GEN pool wages are guaranteed only for the life of the program, which could expire when the union contract gets renegotiated in 2007. (The guaranteed employment programs have been around for a few decades, but the manufacturers have begun to clamor for their demise.)
In effect, any autoworker who refuses the buyout is taking a gamble. He's hoping that one of two things will happen: Either his plant won't be closed down anytime soon, and he can keep his job indefinitely; or his plant does close down, but he's able to ride out the GEN pool (or unemployment) wages until a new job opens up.
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Explainer thanks Arthur Wheaton of the Cornell University Institute for Industry Studies.
Correction, Sept. 18: The original version of this piece stated that the college buyout for Ford employees included $15,000 of tuition over four years, plus 70 percent of wages. In fact, workers could choose one of two college options—either $15,000 over four years plus 50 percent of their wages, or $15,000 over two years plus 70 percent of their wages. (Click here to return to the corrected sentence.)