According to CNN and other news sources, the CEOs of the Big Two and a half have agreed to salaries of $1 for 2009 if the government hands over the $25 billion in aid that they seek. As Swade and others have said, this won’t be a difference maker in the long run, although it’s nice of them to make the gesture.

Rick Waggoner made $15.7 million in salary in the last complete GM fiscal year.
Alan Mulally made $22.8 million in salary in the last complete Ford fiscal year.
Robert Nardelli’s salary isn’t publicly known since Chrysler is, ostensibly, private.

Even if Mr. Wagoner forgoes his salary, and Maximum Bob Lutz and all of their cronies over at GM took $1 million pay cuts in 2008, how much would that help? For argument’s sake, let’s assume that about 20 or so executives at GM (other than Mr. Wagoner) make enough money each year that they could pony up a $1 million pay cut in 2009. That would be $35.7 million returned to the coffers next year. For the 74,000 UAW employees in GM’s employ, that amount would buy another 6.3 hours of pay for each UAW worker at the current rate of $77 per hour. It doesn’t even buy another day of operating cash!!

Even if we expand the executive pay cuts and reduction in executive privileges to $100 million in savings for 2009 (a number that likely exceeds reality), that only buys 17.6 hours of employment for all UAW workers employed by the General. Just over two additional days of operation.

On the other hand, if the UAW cuts to the same pay structure that Toyota workers in Georgetown, Kentucky or Honda workers in Marysville, Ohio enjoy, that’s a $30 per UAW employee per hour savings. Multiply that by a standard 40-hour work week year (2080 hours), you’ll derive over $4.6 Billion in additional cash for the corporation. As a point of reference, I estimate that Saab’s annual sales are just below that amount (about 125,000 vehicles at $35,000 per car*). The delta in UAW vs. Toyota pay is, for GM, larger than Saab’s entire budget.

Do I agree with exhorbitant executive pay and privilege? No, I don’t. I don’t think that Rick Wagoner or Alan Mulally are worth anywhere near the amounts that they get paid. For that matter, I hope that the GM board gets their come uppance for steering this company into the rocks in the first place, and those rocks include this inflated executive pay and lifestyle.

However, my point is this: the cost of the UAW is so huge that other cutbacks pale in comparison to the reductions needed there. Yes, cuts are needed across the board, but unless the UAW cuts to a competitive wage, everything else is for naught.

* – Remember that you have to consider that Saab only makes money on dealer cost, not selling price, so I feel that $35,000 per vehicle is about right.

For reasons which will soon be revealed, I’ve been become acutely aware of the margins on auto options as mentioned in a previous post. The prodigious markups are obvious on some items — after all, who really believes that floor mats cost anything near the charge? How about the stereo upgrades that can be bested in aftermarket gear for less than half the price? In some cases the upgrades are worth the price because they look or feel better, but in others the value vs. the cost is debatable. In this post, I explore this question: is metallic paint really worth the price?

Most car makers still charge a premium for certain colors of paint. Saab is no different. Buy a Fusion Blue Metallic 2009 9-3 and the car will set you back US$550 over the same model with Polar White paint. On a 9-5, the same privilege will lighten your wallet by the same amount. In fact, only three colors, white, red and black, are offered at the “base” price.

Is this additional cost justified, or is the option up sell for metallic paint simply additional margin for the automaker?

First of all, let’s explore the roots of metallic paint and why automakers charged a premium in the first place.

The obvious question: does metallic paint and it’s close cousin pearlescent paint cost more than solid color paint? The answer: not much if any. Metallic paint simply has a very small amount of aluminum flake added to the formulation while pearlescent paint has an equally small amount of mica flake added. Certainly these raw materials are very inexpensive, and the remainder of the mixture doesn’t vary to any great degree. If you want to test this theory, call an automotive paint supplier and request pricing for any color in both metallic and solid. There will be no difference.

The next question: does metallic paint cost more to apply? Well, that’s debatable.

In the 1960′s, metallic paint really was something special. Without the automated paint booths that create today’s perfect finish, paint was either applied with hand-held sprayers or with full-component paint baths, neither of which guaranteed even coverage and therefore even distribution of metal flake. Therefore, paint rework was more common and more difficult with metallic colors and thus metal flake was more expensive overall.

By the late 1970′s, the environmental regulations and workforce protection laws changed paint formulations dramatically to reduce airborne pollutants released in the paint manufacturing and application processes. Faced with the differences, automotive finish experts were forced to change many established practices to make the new paint work. Because I can find almost no data on the comparative costs, I’ll give the car makers the benefit of the doubt here — let’s assume that some difference in cost existed during this period.

Therefore, there was likely some historic precedent of increased production cost for metallic paint.

Today, however, I believe that most of the cost differences for application of metallic versus solid paint are miniscule if any real difference exists. Certainly, automation is a huge advantage overall for auto builders, but no place more so than in the modern paint booths employed in all current auto assembly plants. Once the correct procedures are dialed in, all cars are produced with similar results. Sure, certain paints my need slightly different procedures, but those changes easily happen on the fly with the manufacturing computers remembering the “recipe” for each configuration.

Certainly there are many that agree with me.

From drive.com.au, Mr. Tim Colquhoun finds that auto OEM’s are keen to defend their position that metallic and “special” paint colors cost more, but paint experts differ:

Darren Kenney, owner of Kenney’s Automotive Paints in Carramar, says that there is little justification for car makers charging a premium for metallic paint.
“It’s a bit of a rip-off really,” he says. “The only difference between standard and metallic paint is that metal flakes are added to the tinter in metallic paint.”

Wikipedia has this quote, which is, in my experience, true:

Manufacturers almost always charge a premium for the “option” of metallic paint on a new vehicle, although metallics usually account for all but one or two of the colours from the palette available (only red and white are available as solid colours from many makers).

The same article goes on to say:

…many consider the price premium for metallic paint as a way to boost the base price of a new vehicle.

In the end, I find these sorts of games with numbers annoying. You can view the inflated cost of the metallic paint “option” in two directions: either the auto OEM is attempting to raise the profit of the car with a low-cost, high-priced up sell, or the maker wants to advertise an artificially low starting price. Either way it’s attempting to obscure the truth. When the consumer doesn’t have a firm grasp of the truth, the relationship deteriorates. It’s really that easy in my view.

Does it have to be this way? I think not. In fact, consider the Saab 9-7x. For the Saab 9-7x, your choice of available colors adds nothing to the price of the vehicle. That’s right: for the 9-7x, easily the largest vehicle in Saab’s line up, the additional cost for metallic paint is zero.

So, tell me this — how can this be? Does Swedish metallic paint cost more than American metallic paint? Does Saab simply think that they can get an extra $550 per car, but not on the SUV?

Your opinion, as always, is welcome.