Are companies obligated to take care of ex-employees till they die? If there is no job guarantee, why should your life be guaranteed? What does a company do when they have negotiated unsustainable obligations?
A couple of weeks ago Pulitzer prize automotive writer Dan Neil wrote a column blasting Bob Lutz and Rick Wagoner, saying, basically, that the Pontiac G6 was another reason General Motors was going to go to metal heaven and that the top guy should go with it. I will give Mr. Neil that General Motors isnt hitting the mark on some of their cars, especially when they are compared by price in their competitive segment.
Every car company has product cycle problems and many have ridden them out. General Motors has a problem that eats away at their profit like no other company, it is their legacy costs. These problems have been gathering steam since 1950 when negotiations for pension and healthcare started, long before Bob Lutz or Rick Wagoner were in power.
General Motors marketshare is going down and has been for some time. Ford has the same problems. With every new car manufacturer coming into America, including China soon, their marketshare may continue to go down. According to Stefan Weinman spokesman for General Motors, General Motors spends $5.2 billion on health care for 1.1 million people, equaling $4,727 annually per person. People can buy cheaper cars and get the same value without the health care costs of $1,525 built into every vehicle made. Add another $675 per car for pension costs. Other car companies may have these problems, but not for some time. BMW, Nissan, Toyota and Mercedes all build cars here in the United States with American employees, but those employees are new and very few have retired.
General Motors is the worlds largest automaker, selling nearly 9 million cars and trucks worldwide last year. It is the third-largest business in the United States, with revenue of $193 billion last year. Despite the incentives that kept sales high during Americas economic slowdown, General Motors is losing marketshare and people are saying it is because their cars are no good. They are saying that the Big Three will have troubles because of the economic and production gaps between the non-union assembly lines set up South of the Mason Dixon line, save for a couple of plants, by Japanese and European competitors. They are saying that General Motors is too concerned about their big cars and not as concerned about smaller more fuel efficient vehicles. They are saying that there are too many cars in general and that General Motors could get rid of a couple of lines.
General Motors oldest retiree will be 110 years old this year. The employee worked for GM for 32 years and has been collecting pension and health benefit’s for 47 years. If this employee dies and leaves behind a spouse, the spouse will get a partial part of his benefit’s.
General Motors reported it’s worst financial quarter in 13 years on Tuesday, posting a net loss of $1.10 billion, or $1.95 per share. In the first quarter of 2004, GM earned a profit of $1.2 billion, or $2.12 per share. According to General Motors it needs to be a 28-29 percent marketshare company to survive. They claim that 98 percent of their costs are fixed costs. The 1.2 billion profit was made from selling product helped along by incentives. If that 5.2 billion health care cost werent there General Motors would report a gain for the year.
Some of these problems are the same problems America it’self is looking at when they look at Social Security and health care. When Social Security was enacted the average life expectancy was below 70 years of age. Today, General Motors is paying pension to retired folks who are over 100 years old. Along with that they pay a part of their medical costs. When these contracts were negotiated there were no stop-gap measures put in force. Now, General Motors is paying the price. Because of the excellent health care they are able to receive, retired folks are living longer and collecting longer pensions.
For every worker working at General Motors they are footing the bill for 2.5 retired workers. The picture is not going to get any better as long as the UAW isnt willing to make concessions. What concessions could the UAW make? How about going on par with what the blue-collared salaried workers make and then negotiate to the national averages.
The UAW pays 7 percent for their medical benefit’s while the salaried employees pay 27 percent for the same medical benefit’s. The national average paid for medical benefit’s is 32 percent. According to Jerry Dubrowski, another help would be if all employees purchased generic drugs. “Even if you pay a $5 co-pay, GM pays the rest of the amount for the brand name drug. Generic drugs are cheaper. If we could educate our workers and negotiate a different co-pay amount if a person bought generic vs. brand name the savings would be substantial.”
The retirement program is just beginning. Nearly half of the 302,500 UAW members at the Big Three, Delphi and Visteon will have the necessary combination of age and years of service to retire within the next five years. 60 percent of those UAW members are GM/Delphi, 39 percent Ford/Visteon and 33 percent Daimler Chrysler. If General Motors 180,000 members retired before they were eligible for 80 percent of their Social Security GM would pay them $32,000 per year. After that GM would pay the retirees, or their spouse, an average of $16,900.
These problems wont go away, but they can be lessened. According to Paul Taylor, chief economist, National Automobile Dealer Association (NADA), “GM still has plenty of time to turn in a decent sales year. With the economy continuing to show strength, automobile sales should hold up well, producing sales of 16.9 million unit’s for the year says Paul Taylor, NADAs chief economist. Two key issue should be understood. Big 3 North American manufacturers will continue to have difficulty maintaining market share unless they are willing to price effectively as consumers desire. And luxury vehicle sales will continue to be lackluster as long as the stock market underperforms expectations for it driven by expected stronger earnings.”
The bigger more luxurious cars are the ones that carry more profit. As the dollar weakens it is more expensive for Europeans and Asians to bring their smaller cars to the United States. This could be the well needed shot in the arm that General Motors and Ford needs. Product will help both GM and Ford with their legacy costs. Howe’ver, Toyota, Nissan and Honda are making forays into the pickup truck market that will weaken the grip GM and Ford have on that segment of the market.
This week the United Auto Workers (UAW) union held their regularly scheduled annual conference. UAW Vice President Dick Shoemaker, in charge of the GM relationship said “there is some flexibility within the agreement to do something” while UAW President Ron Gettelfinger stated that GM hasnt asked the union to reopen the contract. According to Paul Krell, spokesman for the UAW, “The United States is the only advanced industrial nation that doesnt have national health care. Our current President and Congress are not going to institute a single-payer insurance program.”
Even though foreign governments cover most health-care and pension costs dont expect our government to do so. President Bush is trying to convince the American public that they should invest in their own future, so that the government doesnt have to. If he wanted to put this country at a more competitive position globally he would talk about insuring each person with a basic health coverage, nationally.
According to Automotive News, “DaimlerChrysler is in talks to set up a China venture that would make and export Chrysler cars to North America, a top executive said on Thursday, sketching a politically charged move.” In China, car makers generally pay about $1.95 an hour in wages and benefit’s. By comparison, DaimlerChrysler pays it’s German workers about $49.50 an hour, and it’s U.S. workers about $36.50 an hour. The UAW countered with a press release that talked about unfair trade practices and said, “U.S. autoworkers are prepared to compete with workers anywhere in the world based on productivity, quality and innovation. But it’s just plain wrong – for workers in China as well as the United States – to force workers to compete against each other based on who can do a job for the lowest possible wage.”
Does the United States care where their cars are made? Or do they consider cars the same as medicine; they are willing to buy generic cars that are cheaper as long as they have the same active ingredients in them?
According to uaw.org the following are vehicles built by UAW members; To be sure the vehicle you are buying is assembled in the United States, check the window sticker, which will list the location of final assembly, and the Vehicle Identification Number (VIN), which is attached to the drivers side of the dashboard. A VIN beginning with “1,” “4” or “5” means the vehicle was assembled in the United States.
2005 Cars and Trucks