Right from the get-go I want to make it clear that it is not my purpose to bash Ford. I am citing their numbers due solely to laziness. As the only American car company that has not undergone bankruptcy and re-invention, it is a lot easier to get apples to apples data from Ford than the others and I am always in favor of the easy way.
In 2010, Ford paid hourly (UAW) labor in the USA the whopping total of $2.9 billion. Any way you look at it, that is a lot of money. They sold a total of 1,936,000 cars and trucks, so it cranks out to a hair under $1,500 per vehicle for hourly labor.
Let's put that into perspective, shall we? With North American sales of $64.4 billion, hourly labor comes out to 4.5% of sales. Back in 2000, the number was $1,666 per car. So all of the slashing and burning, laying off and re-negotiating resulted in 1% per year in labor cost reductions – going from about 7% of sales down to the 4.5% figure – that's it.
Another interesting tidbit is that Ford spent $3.9 billion on advertising in 2010 – 6% of sales and 34% more than the hourly labor piece. I have yet to read where the auto industry is outsourcing their TV ads from Hollywood to Bollywood, or telling Congress and the film industry unions that the future of the American auto industry hinges on their willingness to cut wages and pensions.
This is where the funhouse effect comes in. The funhouse mirrors make skinny folks look fat and fat folks skinny, short ones tall and tall ones short. Their purpose is to provide entertainment by distorting reality. Someone needs to tell accounting and the management profession it is time to come home from the carnival – they have had their fun seeing value adding labor as a huge deal, and waste as trivial. Time to deal with reality.
Some people seem to like wandering through the funhouse so much they simply will not come out. Case in point: Skip Vallee who runs a convenience store chain in the northeast. The prospect of increasing the minimum wage has him concerned since that is what he pays most of his employees. If he has to start paying them all of $8.46 he is going to cut their hours and have them kick in for medical bennies. I can't wait to get to Vermont to be served by the kind of folks who would tolerate Skip. Apparently the funhouse view of labor cost being everything weighs heavier on him than the common sense principle that 'you get what you pay for'.
Same thinking from the management of the Triple Play Cafe in Ohio. If they have to start paying people the ungodly sum of $7.70 an hour, not only are employee hours going to be cut, they are going to stop washing the windows at the Cafe to cover the crushing burden of the payroll. There's some high level management thinking for you.
If you read all the way to the end of the article, Spencer Williams from West Paw Design started out with the funhouse view of his business but quickly figured out that reality was being warped. "Initially, he paid some plant workers the lowest wages possible. But when he later decided to give out raises that exceeded the minimum required, he says he gained a more loyal work force. Today his lowest-paid staffers earn $11 an hour. The minimum hourly wage that employers must pay in Montana will rise 30 cents to $7.65 next month. 'Our turnover dramatically reduced and the engagement level from our employees rose,' he says."
I know Spencer, and I know that West Paw is well along the lean journey under his leadership. He is a smart guy – smart enough to make a good product, put together a good team, and make good money – and smart enough to let common sense prevail over funhouse accounting. That cannot be said for the owners of businesses who conclude that cutting the hours of folks making minimum wage is a good idea – especially convenience stores and restaurants where the folks having their already minimal wages reduced are the ones dealing face to face with customers. I can imagine what the "engagement level" of those employees must be -and how much worse it will get after these funhouse managers get through with them.
Only in the carnival world of of two headed chickens and funhouse mirrors does hiring people so unqualified or desperate they will work for the least amount of money allowed by law, then treating them like crap make good business sense.