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Toyota memo calls for lower labor costs

Toyota has a plan for your wages and benefits, and it’s not what you might think it is.

Why?  Because, when it came to wages and benefits, Toyota used to look to the Big Three and their workers’ hard–won pay and compensation as a benchmark for setting Toyota’s worker’s wages. 

But the newly revealed five-year plan from Toyota shows an about-face to that approach; as the Big Three began reporting sales slumps, Toyota started to take the lead in sales.  Now that they’re on top, it appears they’re using that position to push autoworker wages and benefits down, not up, for all workers despite record profits.

Why the race to the bottom? Toyota, the world’s most profitable auto maker, “is developing strategies which will reduce labor costs by $300 million by fiscal 2011.” That’s according to a “Self-Reliance Plan,” a document authored by Seiichi Sudo, president and chief operating officer of Toyota Engineering and Manufacturing in North America (TEMA), which outlines how the company can maintain its profit margins by cutting employee wages and benefits.

A close examination of Sudo’s “Self-Reliance Plan” – and the hot line e-mail which attempted to explain the cost cutting plan – shows why Toyota is so sensitive about this subject.  The company is attempting to reverse 25 years of United States  automotive history.

Starting in the 1980s, Toyota, Honda, Nissan and other global auto companies have been locating new plants in the United States, since the United States has the world’s largest vehicle market and is the most profitable place on earth to sell cars and trucks.

Since that time wages and benefits paid at Toyota and other global factories have closely tracked the industry standard set by members of the United Auto Workers.  This has been, in part, a strategy to convince workers they do not need a union, and in part a necessity to attract and retain quality workers.

But conditions are changing in the global auto industry. Toyota has now surpassed GM as the No. 1-selling car company in the world.  And Toyota is now determined to set its own wage standard, instead of following what UAW members have worked for years to achieve at the negotiating table with GM and other companies.  It’s a trend expected to set the standard for other auto companies in the United States as they also begin to look at employee compensation when considering how to keep profits steady – and rising – over the long run.

Toyota’s cost cutting will focus, wrote Sudo, on “Headcount and Rate (Wages and Benefits). Our strategy moving forward is to base our hourly wages more closely with the state manufacturing wages where each plant is located, and not tie ourselves so closely to the U.S. auto industry, or other competitors,” he added.  Specific strategies for reducing costs outlined in Sudo’s memo include  increasing employee costs for health care through premiums and co-pays; creating a “cafeteria plan” of coverage to restrict costs; and establish more company-run clinics and pharmacies with doctors on the company payroll “to improve our ability to manage costs.”

John Williams, who has worked at Toyota’s Georgetown, Ky., vehicle assembly plant for 18 years, doesn’t understand why a company that has been steadily growing every year, earning over $50 billion in the last five years, needs to cut back on wages and benefits.
“If I felt that concessions in my pay and benefits were necessary to keep this company open and able to make a profit, I would be willing to sit down and discuss what was needed to get that done,” he says. “What I see is a company that is on top of the U.S. auto industry, and now we’re finding out that they think that we are ‘overpaid’ and ‘overcompensated.” 

Back to the future: “In the past,” Toyota stated in an e-mail to its own workforce, “we benchmarked the Big Three and auto industry in terms of base wages.  Today, however, TMMK is paid better than the Big Three, so we are looking not only at the auto industry, but at other Toyota affiliates to ensure global competitiveness.”

If that sounds like Toyota workers will get a raise, think again.  Sudo’s “Self-Reliance Plan” suggests benchmarking wages to 150 percent of the average manufacturing wage.

No pay cuts – for now:  At present Toyota claims “no one is going to cut base pay by $3 an hour.”  But the $300 million in savings targeted by TEMA President Sudo over the next four years has to come from somewhere.

Some possibilities:
• No or reduced future pay raises until the average manufacturing wage catches up with Toyota.
• Increased use of temporary workers, to lower Toyota’s wage bill.
• Continued shifting of health care costs to Team Members.  Toyota will pay less for health care; Toyota workers will pay more.

Unwinding U.S. economic success: It’s not clear what mix of strategies Toyota intends to use to cut labor costs by $300 million.  It is clear that at present, Team Members have no voice in the process – and that if the company is successful, it will cause major changes in how compensation is determined for auto workers all over the United States.

It’s a change that John Williams is hard pressed to understand.  “I’ve put my life into helping build the best products on the market,” he says.  “We have done our part, but I continue to see our working conditions getting worse and our benefits being cut, reduced or changed. And we are being told that this is best for us as a company.”

Lower wages might add to Toyota’s already hefty profits, labor analyst Harley Shaiken of the University of California told On The Line News, “but it will be very damaging for the U.S. economy in the long term.  It will unwind an important part of U.S. economic success of the 20th century, allowing workers to be able to afford to buy the products that they produce.”