Filed under: UAW/Unions
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]
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.
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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ssgtakeo 11:43AM (6/01/2007)
whofan:
I've spent a lot of time in our military, and lost friends to combat, accidents and duty-related suicides so I'm as patriotic as it gets. I believe in a fundamental American ideal: It is not good to subsidize mediocrity.
Frankly you're not doing anyone any favors by buying something that doesn't meet your own personal standards or your needs.
If I see an excellent product from the Big 3, I will certainly consider it if it meets my needs. If it doesn't meet my needs and isn't the best I can get for my dollar, I walk past it without a second glance.
Lithous, you lack something fundamental in the understanding of history:
We beat the Germans MAINLY because we stayed off the ground of the European theater until 1944. In the meantime the Russians killed nearly 80% of all of the German troops killed in WWII. The Atlantic ocean protected our production infrastructure from enemy attack.
We beat the Japanese for the simple reason that Japan is an island nation with a limited population. We choked off her supply routes with submarines, and burned the cities (and the populations in them) to the ground with incidiary bombs
... Don't talk out your ass man.
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Lithous 1:41PM (7/13/2007)
It was a figurative statement about how our industry didn't build overly complicated tanks like the Germans or easily shot through planes like the Japanese. We always have made middle ground to high quality products and made them in quanties that others would have had quality problems trying to produce. There is no way on God's green earth that Toyota could have made as many vehicles as GM in the 1970's with any hope of quality. Period. It is extremely recently, after all the global exchange of technology that they can do it now.
BTW, please keep thinking U.S. industry, which supplied not just our own military, had little effect on the war.