GM...a Welfare State?

[Guest chevydeerhunter]

Jewish World Review May 2, 2005 / 23 Nisan, 5765

 

 

Dr. GM

 

http://www.NewsAndOpinion.com | Who knew? Speculation about which welfare state will be the first to buckle under the strain of the pension and medical costs of aging populations usually focuses on European nations with declining birth rates and aging populations.

 

 

Who knew the first to buckle would be General Motors, with Ford not far behind?

 

 

GM is a car and truck company — for the 74th consecutive year, the world's largest — and has revenues greater than Arizona's gross state product. But GM's stock price is down 45 percent since a year ago; its market capitalization is smaller than Harley Davidson's. This is partly because GM is a welfare state.

 

 

In 2003, GM's pension fund needed an infusion from the largest corporate debt offering in history. And the cost of providing health coverage for 1.1 million GM workers, retirees and dependents is estimated to be $5.6 billion this year. Their coverage is enviable — at most, small co-payments for visits to doctors and for pharmaceuticals, but no deductibles or monthly premiums.

 

 

GM says health expenditures — $1,525 per car produced; there is more health care than steel in a GM vehicle's price tag — are one of the main reasons it lost $1.1 billion in the first quarter of 2005. Ford's profits fell 38 percent, and although Ford had forecast 2005 profits of $1.4 billion to $1.7 billion, it now probably will have a year's loss of $100 million to $200 million.

 

 

All this while Toyota's sales are up 23 percent this year and Americans are buying cars and light trucks at a rate that would produce 2005 sales almost equal to the record of 17.4 million in 2000.

 

 

In 1962, half the cars sold in America were made by GM. Now its market share is roughly 25 percent. In 1999 the Big Three — GM, Ford, Chrysler — had 71 percent market share. Their share is now 58 percent and falling. Twenty-three percent of those working for auto companies in North America now work for companies other than the Big Three, up from 14.6 percent just five years ago.

 

 

The Big Three have cut 130,394 North American hourly and salaried workers since 2000, while the "transplants" — foreign automakers with U.S. assembly plants — have added 27,183. In the first quarter of 2005 the Big Three operated 64 assembly plants, down from 70 in five years, during which the transplants' factories have increased from 19 to 23, with more coming.

 

 

GM says its health-care burdens, negotiated with the United Auto Workers, put it at a $5 billion disadvantage against Toyota in the United States because Japan's government, not Japanese employers, provides almost all health care in Japan. This reasoning could produce a push by much of corporate America for the federal government to assume more health-care costs. This would be done in the name of "leveling the playing field" to produce competitive "fairness."

 

 

But remember: Employer-provided health insurance is employee compensation.

 

 

It became important during the Second World War when there were wage controls and a shortage of workers. Because wages could not be bid up, companies competed for workers by offering the untaxed benefit of health care. If GM's $5.6 billion were given not as untaxed workers' compensation in the form of health care, but as taxable cash compensation of equal after-tax value, it would cost GM substantially more than $5.6 billion. Which means that soon — GM's UAW contract is up in 2007 — GM's workers may have to give back a value of at least $1,500 a year.

 

 

However, GM will have to recognize that health-care costs are not a comprehensive alibi for its woes. Its array of brands is too large and anachronistic: Will American buyers ever again regard Chevrolet, Pontiac, Buick and Cadillac as ascending rungs on a status ladder?

 

 

GM can still develop splendid cars: today's Cadillacs may be the best American cars ever built. But every dollar GM spends on health care cannot be spent on developing cars — hybrids, for example — more enticing to buyers than some new offerings like the Pontiac G6 and Buick LaCrosse.

 

 

Health care for retirees and their families — there are 2.6 of them for every active worker — is 69 percent of GM's health costs. GM says it has $19.8 billion in cash and normal mortality rates will reduce the ratio of retirees to active workers. Meanwhile, Rick Wagoner, GM's CEO, can only muse, "It's strange. When I joined GM 28 years ago, I did it because I love cars and trucks. I had no idea I'd wind up working as a health-care administrator."

[mmmikkke]

Jewish World Review May 2, 2005 / 23 Nisan, 5765 

 

Dr. GM...

 

<{POST_SNAPBACK}>

 

 

Excellent article; in fact the other articles on that link are also interesting, but too far off topic here to mention specifically.

 

Regarding GM's problems...It's a shame that a corporate diamond in the crown of the USA is being left to the vultures. I consider my 2005 2500HD to be perhaps one of the last few excellent vehicles produced by GM.

 

Living in suburban Detroit, I have a neighbor who has worked as an engineer/manager at GM for many years, and another neighbor who works in GM Corporate Marketing. Both of them report that the mood among their colleagues is dismal. This isn't just another belt tightening. This is a company that's done cutting the fat and is now cutting muscle with a chain saw.

 

Future products from 'The General' are going to suffer as a result. And as GM squeezes its suppliers even more, quality is bound to suffer. That's what happens when you start to cut muscle. The patient gets weaker.

 

Thanks for the post!

[Guest chevydeerhunter]

It, too, sickens me to see what's becoming of what I thought was the best car production company around. Without getting too political, I thought this article is great example of how what's happening with GM is a microchasm of what will happen to Social Security if it's not fixed. I'm glad President Bush is actually pouncing on it now before it becomes too broken to fix...or is it too late?

[Elwood 2000]

LIke Deer Hunter, not trying to get political, but Rush Limbaugh talked about this some today. He mentioned the same thing. GM looks like what the Govt looks like regarding Social Security. Personally, I am all for optional private accounts, as long as they are in very low to nominal risk accounts. Investing with a new start up cigar company or something equivilant is too risky and is not a wise, long term decision.

 

Back on topic: It is sad, but for GM to weather this storm, current employees, both union and non-union are going to have to take some serious personal cuts, via pay AND benifits, both insurnace and retirement all because GM banked on the come later when negotiating with unions years ago and now it is time to pay the piper.

 

BTW, something else Rush mentioned that I have not thought about before. One day, probly sooner than later, the Government will start to tax "perks" like insurance and retirement plans. In his example, if your cash salary is $50k and your benifits add up to $10k for a total of $60k per year, total salary package, you will be taxed for $60k instead of the $50k you currently are now.

 

Just another way for the Government to tax us even more!

[MillerClemsonHD]

LIke Deer Hunter, not trying to get political, but Rush Limbaugh talked about this some today. He mentioned the same thing. GM looks like what the Govt looks like regarding Social Security. Personally, I am all for optional private accounts, as long as they are in very low to nominal risk accounts.  Investing with a new start up cigar company or something equivilant is too risky and is not a wise, long term decision.

 

Back on topic: It is sad, but for GM to weather this storm, current employees, both union and non-union are going to have to take some serious personal cuts, via pay AND benifits, both insurnace and retirement all because GM banked on the come later when negotiating with unions years ago and now it is time to pay the piper.

 

BTW, something else Rush mentioned that I have not thought about before. One day, probly sooner than later, the Government will start to tax "perks" like insurance and retirement plans. In his example, if your cash salary is $50k and your benifits add up to $10k for a total of $60k per year, total salary package, you will be taxed for $60k instead of the $50k you currently are now.

 

Just another way for the Government to tax us even more!

 

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I doubt they will start to tax 401k plans, or benefits. This would completely remove the incentive for people to save. Would also discourage a lot of people from having health insurance. The health care problems we have already are big enough without making them worse. There are enough families on Gov health care bc their parents work for walmart and they are cutting corners. You start taxing health care and not making it pretax deduction it will be a disaster. Just my $.02

[Elwood 2000]

The tax imposed would probly not effect the employer providing the health care and if everyone is taxed, I don't see how it will effect saving? You are taxed, weather you save or not and you would be suprised at how many people do NOT save a penny, via 401k or otherwise.

 

I hope I am totally wrong and it never happens, but don't underestimate politicians! They seem to have a way of getting into our pockets!

[Guest chevydeerhunter]

I hope I am totally wrong and it never happens, but don't underestimate politicians! They seem to have a way of getting into our pockets!

 

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Remember, government can never tax enough, they can never do with less and they're always looking for ways to get more money. You are soooooooo correct not to underestimate those leeches. FDR was the one who came up with the idea that it was government's responsibility to handle YOUR healcare and YOUR retirement. If it weren't true I wouldn't believe anyone would put their healthcare and their future in the government's hands what with all the $200 hammers and $50 screws floating around.