UAW to take on automaker healthcare burden?
As many of you know (and have commented prolifically on), the Big 3 carry an enormous burden that import competitors like Honda and Toyota don't: unionized retiree health care costs. GM, for example, had $81 billion in salaried and hourly retiree health care obligations at the end of 2005. Chrysler is on the hook for $19 billion. That's no small amount when you're trying to turn a company around -- or in this case, three companies. In fact, the term used for it is indicative of just how health care is regarded: "liability."
The UAW will be negotiating a new labor contract agreement this summer, and one of the far-reaching ideas being considered is for the UAW to take over responsibility for health care liabilities. The Big Three would pay a huge lump sum (many billions), but afterward their obligation would be capped at some agreed-upon and competitive number. Tony Faria, an industry expert, said "The unions fully realize these companies are in trouble. The auto companies would provide some major amount of funding. From there on, they'd be paying at a known rate, rather than an ever escalating rate."
The setup is called a "voluntary employee beneficiary association," and there are models for it. Goodyear set one up last year in an agreement with the United Steelworkers, and GM already uses VEBAs for some of its retiree costs. It isn't a done deal, but it is something being considered. The UAW understands how serious the situation is, and could be prepared to do the previously unthinkable in order to gain other guarantees and create a better competitive climate for the domestic makers.
[Source: Christian Science Monitor]
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Reader Comments (Page 1 of 2)
Lithous 5:50PM (5/31/2007)
"GM, for example, had $81 billion in salaried and hourly retiree health care obligations at the end of 2005"
Does that mean if GM had, say, only $19 Billion in health care like Chrysler instead of $81 Billion they would have made around $40 Billion that year (accounting for gains above their losses reported that year)?
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roadside observer 8:42AM (6/01/2007)
"Does that mean if GM had, say, only $19 Billion in health care like Chrysler instead of $81 Billion they would have made around $40 Billion that year (accounting for gains above their losses reported that year)?"
No. The $81B(or $19B, in the case of Chrysler) is not a one-year dollar-amount-spent total. It's a calculated liability spread out over several years. Think about it as "this is the maximum amount the company will have to come up with to meet health-care obligations for all current and retired employees over their lifespans."
I think GM actually spent something like $5B on health-care expenses in 2006.
Viv 5:58PM (5/31/2007)
If GM is able to get away from this albatross maybe they can further their great new products. That is a whole lot of money they can spend on product development and marketing.
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John P. 6:03PM (5/31/2007)
I can hardly imagine how a company can stay in business with 81 billion, BILLION. in healthcare costs. Maybe GM should be in the health insurance business.
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Barney 3:16AM (6/02/2007)
"Maybe GM should be in the health insurance business."
I wonder why they don't. They had a finance company and could have started an insurance company as well. Not just for the union but to everyone.
Gardiner Westbound 6:13PM (5/31/2007)
The Big-3 kept Wall Street happy by inflating profits and deferring costs. When the unions demanded large pay increases the companies instead increased pensions and retiree health benefits knowing the bill would not come due for decades. Now the piper has to be paid.
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Be Oh Be 9:11PM (5/31/2007)
What's funny is nobody really argues the potential for just the opposite: that the Big 3 are actually inflating costs and reporting losses to essentially get the UAW to pay for their health care. Not saying they do it, but it wouldn't surprise me.
Big Mike Wood 6:20PM (5/31/2007)
I guess it would theoretically be easier for the UAW to control costs incurred themselves as opposed to having GM management do it so in a way it would make sense. Somehow I wonder if the retirees won't be getting the short end of the stick in this deal though.
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Billy 7:09PM (5/31/2007)
As James Surowiecki pointed out in this week's New Yorker: "In 2006, Chrysler’s average incentive was twenty-eight hundred dollars more than what Toyota was offering. That’s two and a half times the difference in health-care costs. Even without legacy costs, Chrysler would be in trouble."
So, I wish them well, but, let's not pretend that health care costs are what's putting the big three into the red.
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Lithous 10:54PM (5/31/2007)
Billy,
Except that GM sells a million units more than Toyota in the U.S. still. Which means, if they sell more cars they can afford to put more incentives so let's not act like the $ amount difference means a direct difference in profits. i.e. if Toyota made $2500 more per car but GM sells a million more then GM could make more profit still EXCEPT FOR THE HEALTH CARE and other legacy costs.
So, no, you stop acting like it is not health care ace hole.
Americans made more tanks than the Germans and more planes than the Japanese to win. That is how we always have done it. Making more to take advantage of economies of scale.
Nothing wrong with it other than you import fanboys misunderstanding (sometimes on purpose i.e. not giving an F to want to understand) the real situation.
Tool 7:37PM (5/31/2007)
It would be truly visionary on the UAW's part if they agreed to a VEBA.
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Don 9:42PM (5/31/2007)
It's like this: make concessions, or lose whatever jobs are still around.
Ford lost $5,000 grand per car manufactured because of crap like this.
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roadside observer 10:18AM (6/01/2007)
A large part of Ford's loss was not due to "crap like this;" rather, it was due to one-time charges taken in the fourth quarter for plant closures and buyouts.
Don 2:45PM (6/01/2007)
You're telling me legacy costs didn't contribute to that $5,000 per vehicle hit?
Riiiiiiiiight.
whofan 10:14PM (5/31/2007)
We need to do what ever possible to save the domestic auto industry. I work for a municiple waste water plant. The demise of the big three will effect my life style and everyone else. I`d rather be pushed in a Chrysler than drive a Toyota. Many men wearing the uniform died for our good life style. We vshould honer them by buying from an American Corporation when ever possible.
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Barney 3:22AM (6/02/2007)
"Many men wearing the uniform died for our good life style. We vshould honer them by buying from an American Corporation when ever possible."
Are you suggesting that the Vets did/do not believe in free choice or would never buy anything but a Ford GM or Chrysler? Perhaps you missed the point. The WWII vets were the original importers of foreign cars.
Billy 11:32PM (5/31/2007)
Before you go calling people ace holes, Lithous, you might want to pull your own head out of your ace, and realize that no one was basing the calculation on an assumption of equal car sales between GM and Toyota. You are just taking whatever difference you can think of, and setting up a straw man to argue against.
Matt W. 2:31PM (6/01/2007)
Be Oh Be, your conspiracy theory surrounding the Big 3 inflating HC costs in an attempt to force a VEBA on the UAW is absurd. Not only would the UAW come down hard on the Big 3 if your idea were true, but so would Wall Street. Imagine the two powerhouses dropping the hammer on the Big 3? It would be far worse than the current circumstance. Plus, we have laws forbiding it. So I highly doubt Rick Wagoner and Allan Mullaly want to join the likes of Jeff Skilling, and Dennis Kozlowski in prison.
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olddavid 9:06AM (6/01/2007)
This argument is moot unless some decent product comes out of the Big Three. The signs are hopeful, but Rome was not built in a day.
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Stratojet 6:33PM (6/01/2007)
I am in Canada where healthcare is paid by the government. Of course, we see tons of abuses , the first one caused by a lack of deductible to be paid by the patients. As for GM employees for ex, it is a known fact that many employees were buying Viagra (.35C deductible) only to resell it on the black market! GM is the largest Viagra buyer in USA. This is abuse.
The US corporation are often accused of having given too much to the UAW. We have to keep in mind that this whole thing started with Ford in the 50's and kept on inflating. The US government wanted to break GM in the 60-70 oeriod because of monopolistic threat. Of course, the unions took advantage of it. The alternative was a costly strike.
Toyota has over forty% market share in Japan, and do not have this problem because of 3 major differences:
- Japan has been working diligently like ants to rebuild their country after the 39-45 war. They have a very diligent work ethic.
- Japan has a National healthcare system
- The asian philosophy , in general, has more respect for a work well done and attention to details. I have 3 Asian neighbours and the common denominators are:
- They are very respectful and good neighbours
- Their yards are impeccable
- They are a very patient nation . A nice japanese garden could take many hundred years to mature.
UAW will cooperate in my view. They are not stupid. The healthcare for the retirees will stabilize because of demographic reality: a lot of retirees from the 80's (so they worked in the golden age of the big three , from 1955 to 1985 ) will be in their eighties by 2010. They will join their solidarity brothers at the eternal garage....
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