General Motors: Paying People Not to Work

From today’s Wall Street Journal, an account of how unions have protected the incomes of their members, at huge cost to the employers.

Idle Hands — Detroit’s Symbol of Dysfunction: Paying Employees Not to Work — Cost Tops $1.4 Billion a Year As Layoffs Fill ‘Jobs Bank’; A Dismal Facility in Flint — Mr. Mellon Takes a Long Nap

By Jeffrey McCracken
03/01/2006
The Wall Street Journal
A1

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.

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.”

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.

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.

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.

Others in the Jobs Bank go to school. Electronic technician Tom Adams is working toward a doctorate in history at Michigan State University and iswriting 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, 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.”

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.