GM and Ford.. Healthcare costs will kill them

[Lyion]

George F. Will: Pension costs put GM and Ford at a disadvantage
By George F. Will

Published 2:15 am PDT Sunday, May 1, 2005
WASHINGTON — 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 American 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."

[Arlos]

I've been saying we need a real national healthcare system for years. One of them wacky "liberal" ideas. Funny how it's always the "friends of business, especially BIG business" conservatives (Republican party generally) who kill any attempt to provide one, and now Big Business is saying "WE NEED NATIONAL HEALTH CARE!" Ahhhh, irony.

-Arlos

[Lyion]

It's not a whacky liberal idea, Arlos. You saw the amount of bullshit that we went through just to get a prescription drug plan for seniors, and the huge amount of waste we have with it now.

The problem is the insurance companies and lawyers are like fucking hawks reigning in ridiculous amounts of cash on the middle class.

We need a completely new mousetrap for healthcare to enable people to have free 'base' access which is covered, with a tiered deductible system.

[Ganzo]

No offence Arlos, but what makes you think that gov provided healthcare would pick up people on corporate healtcare

[Arlos]

The "Perscription Drug Plan" is another one of Bush's Orwellian-named proposals that really does nothing like what it claims to. Mostly what it does is funnel mad amounts of $$$ into the pockets of the big drug companies. It doesn't actually do a damn thing for seniors. Hell, the AARP has bitched about it multiple times. This is especially egregious when combined with the refusal to allow importation of generic drugs from that noted 3rd world hellhole, Canada. (note: SARCASM)

What the country needs is a national baseline health insurance system, where any citizen or legal alien can actually see a doctor and get the medical care they need for problems, without having to worry about the cost. There just needs to be provisions to allow those who wish to purchase upgraded health plans to do so, and employers who wish to could offer access to such plans as a employee benefit if they so choose, but they wouldn't have to. Also, there needs to be some kind of checks/regulation to make sure you don't have cases where someone who nees immediate attention has to wait weeks or months just because of beurocracy.

The savings to business, especially smaller business, in reduced health insurance and workman's comp fees would be gigantic. I bet you could even pay for most of it if you, say, levied a business tax on all business, that amounted to 50% of their current costs, since you'd be dealing with massive economies of scale, since it'd be a national system. I doubt most business would have a problem with it either, as who's going to bitch about having one of their largest costs cut in half, with no downside? Businesses are more profitable, employees are still happy, and everyone has coverage, a real win-win.

Of course, it'll never happen in today's political climate, since universal health care is a "goddamn liberal idea!"

-Arlos

[Martrae]

The AARP can kiss my lily white ass. Their stance on private accounts is based on one thing only, keeping their power. I can't help but lump all their stances on issues in the same category of self-serving grasping at power. Therefore, if they are bitching about the prescription drug plan then the plan is a good thing.

A national health plan would only do one thing....keep the trend of people relying on the government to solve all their needs instead of doing it themselves.

[Arlos]

Hey, Martrae, I'm not in the AARP, and I'm dead-set against the private accounts as well. You want to manage your own private retirement account? Get a 401k or IRA. All the private accounts in Social Security will do is give the few government-approved trading firms a HUGE windfall from the comissions from the trades necessary, cost us, what was it, 10 TRILLION in startup/conversion costs, and lead to who knows how many people fucked when they hit retirement because they made poor stock choices, and lost everything.

Oh yeah, that's a GREAT plan. Not.

-Arlos

[Harrison]

Congratulations for looking at it in one perspective only!

You really must be an angry motherfucker when you're not here drooling on the keyboard looking for the next politically charged flame to type out.

[Martrae]

Well, gee, it's modeled on the current plan that federal employees already have. How many of them have lost everything?

Social Security....another thing that has everyone relying on government. Private accounts would wean people of that dependence.

[Arlos]

Ask the ex-Enron employees (at least the non-senior management ones) how they feel now about having a retirement made up of stocks.

-Arlos

[Harrison]

Yes, let's take the most extreme example possible and use it as a basis for our argument.

You are sad...

[Arlos]

When you're dealing with the retirement income for hundreds of millions of people, you HAVE to consider extreme cases. Even if it's 0.1% of people who lose everything, the numbers are still staggering. Call it 400 million people in the system, being conservative. 0.1% is 400,000 people. Those 400k people have just lost almost their entire retirement funds. WTF do they do, starve? Become homeless?

Sorry, no. The private accounts are merely another big giveaway to big corporations, who stand to make vast sums if it goes through. Meanwhile, the average person will most likely see no improvement, with substantially higher risk of being fucked when the time comes that they need to depend on it.

This isn't to say the Social Security system couldn't use some work, because it could. But private accounts are an asinine idea, even if the only strike against them were the fact that to switch over to such a system would cost in the neighborhood of 10 TRILLION dollars, if I'm remembering the numbers someone posted here correctly. Yes, Trillion, not Billion.

-Arlos

[Ganzo]

Can I get answer to my question please Arlos, since it's directly conected with what topic was started about, not where it sidetracked to.

[Martrae]

I said the government, not private. I'm still waiting for you to show me where the accounts set up for government employees has hurt anyone.

[Arlos]

If there was national healthcare, at the very least business would no longer need to deal with Workman's Comp insurance, which, depending on the industry, can be a huge portion of the overhead costs. This is because if everyone has baseline health insurance, if they get injured at work, they don't need their employer's coverage to be able to get treatment for their injury.

Also, from what I understand, business above a certain size are required to provide some form of health care to all permanent employees, aside from workman's comp. If there was national health care, this would no longer be necessary, and I think you'd see a lot of business stop paying for such coverage. Now, I think many business might well offer a higher level of insurance to their employees, as a benefit, in the same fashion they offer ESPP's and other such perks now; as a draw to attract more talented people.

-Arlos

[Eziekial]

Does Toyota, Honda, Nissan, BWM or any other foreign owned factories in the US hire UAW employees? I just curious if anyone knows for sure.

[Ganzo]

So you saying that knowing how GM geting bancrupted by people on it's healthcare, Gov will say "Hey, let us take all those people off your hands", where will the money for it come from?

[Martrae]

From the rich! They can afford it! No wonder so many don't keep their money here...

[Gidan]

Actually he already answered that

levied a business tax on all business, that amounted to 50% of their current costs, since you'd be dealing with massive economies of scale, since it'd be a national system.

[Martrae]

And then watch even more of them locate offshore. You can't keep taking from one set of people and giving it to another.

[Arlos]

But private accounts are an asinine idea, even if the only strike against them were the fact that to switch over to such a system would cost in the neighborhood of 10 TRILLION dollars

-Arlos

[Martrae]

Ahh...so you're retreating in your position that they will cost people everything. Good.

IMPO if it costs 100 Trillion to get people to quit relying on the government for everything then it's money well spent.

[Zanchief]

You can't keep taking from one set of people and giving it to another.

Where do you think the rich got there money?

[Martrae]

They certainly didn't forcibly take it from someone, which is what the government does.

[xaoshaen]

When you're dealing with the retirement income for hundreds of millions of people, you HAVE to consider extreme cases. Even if it's 0.1% of people who lose everything, the numbers are still staggering. Call it 400 million people in the system, being conservative. 0.1% is 400,000 people. Those 400k people have just lost almost their entire retirement funds. WTF do they do, starve? Become homeless?

Right, because government initiated privatized accounts wouldn't have any controls on them. *cough*Thrift Savings Plan*cough*

Sorry, no. The private accounts are merely another big giveaway to big corporations, who stand to make vast sums if it goes through. Meanwhile, the average person will most likely see no improvement, with substantially higher risk of being fucked when the time comes that they need to depend on it.

I'd just like to take the time to point out the classic scare tactic employed here: assume, without establishing a factual basis, that an opposing viewpoint will hurt people. Repeat this claim, never establishing any evidence for it, and conclude by restating the claim. For example, Microsoft is bad because they grind the bones of unborn children into their discs. Obviously this is bad. If we give Microsoft leeway to develop unchecked, they will grow, thus consuming the skeletons of even more fetal humans. The average person will most likely see no improvement in software quality, with a substantially higher risk of being consumed by the unborn spirits clinging to their powdered bones.

This isn't to say the Social Security system couldn't use some work, because it could. But private accounts are an asinine idea, even if the only strike against them were the fact that to switch over to such a system would cost in the neighborhood of 10 TRILLION dollars, if I'm remembering the numbers someone posted here correctly. Yes, Trillion, not Billion.

Yes, it could use some work, if by "use some work" you actually mean "use a complete overhaul or a massive cash infusion to prop up its bloated corpse before it runs out out of money". If you want to talk about a "substantially higher risk of being fucked, how about the chance people take by contributing their retirement funds to the government who places them in a system which is projected to run out of money within several generations. Right now, the ultimate result isn't in question, merely the timeline. If you want to talk about getting fucked, I'd say stripping an entire generation of their retirment funds is going to rank right up there.

I'd love to see your sources for the 10 trillion dollar startup fee, particularly since nobody's so much as settled on a plan to privatize social security. I'd be interested in seeing the methodology used to project expenses for a plan that doesn't actually exist.