Big Three discussing joint healthcare fund
Recently, the UAW decided to look at the unusual step of taking over heathcare liabilities from the Big Three. The reason being that pension fund costs for future retirees is adding a terrific sum to the expense sheet every year -- GM's costs alone were $4.8 billion in 2006, and combined costs could have amounted to $12 billion. That's the price they are paying to assure healthcare for 2 million workers, ex-workers, and dependents. That drag on the bottom line is making GM, Ford, and Chrysler's return to competitiveness difficult, as if the job wasn't difficult enough already: the domestics lost $15 billion in '06, while Toyota, Honda, and Nissan made $23 billion.
In terms of total liabilities, the Big Three owe a combined $114 billion right now. The car companies have begun to discuss a fund, called a VEBA (voluntary employee beneficiary association) among themselves. They would proffer a one-time, lump sum payment, which would be a percentage of what they owe. After that, their contribution would be capped at a consistent rate that would keep them competitive. GM already uses VEBA's for some of its workers, and Goodyear set up a VEBA last year with $1 billion for the United Steelworkers, and has no further healthcare obligation.
A VEBA is just one option on the table, and neither side has said it will bring it up during labor talks. The discussion among the Big Three is in its initial stages, so company contributions have not even been determined yet.
[Source: Bloomberg]
Reader Comments (Page 1 of 1)
cowbell 3:02PM (6/12/2007)
Is it legal for Ford, GM, and Chrysler to negotiate together as one body with the Union, or does that break some sort of anti-trust law?
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Clarence 3:06PM (6/12/2007)
If I were the CEO of an American car company I would push for the following. Eliminate all health benefits. Determine the value of health benefits and add that to the workers pay. Let them then find their own insurance.
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Devin 4:49PM (6/12/2007)
And then your company goes bankrupt cause all of your workers go on strike. I think this is a great move..
Clarence 11:08AM (6/13/2007)
The company fires a whole bureaucracy devoted to health care thereby increasing profits.
If the company goes broke, then the people still have insurance.
If the workers strike, let them suffer the consequences of their own actions.
bmoredlj 3:44PM (6/12/2007)
I hate to say it, but why should the Big 3 be burdened by healthcare as Toyota, Honda and Nissan are not? Because of agreements with auto unions? You saw the article about Toyota technically edging out GM in sales last year. The Big 3 owe $112 billion.
It's clear to me the unions, and the entire nature of automotive manufacturer benefits is sadly obsolete in this "on your own" world. The total health coverage and retirement has always seemed curiously socialist for such a capitalistic system...as if the big 3 are still strong enough to act like little European countries, offering healthcare to all.
It just isn't working. Somehow, they've gotta dump those burdens if they ever want to dig themselves out of a hole. There has been discussion after discussion about this. I know it's not fair to open a trap door underneath the employees, but its just adding another two million to the 40 million-plus uninsured in America. That's a whole other problem.
The big 3 can either collapse under the weight of its own workforce as a martyr, or be a big bad guy and live to fight another day in this no-quarter auto industry where niceties like healthcare can't be provided anymore. If they can, tell me how.
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The Other Bob 9:58AM (6/13/2007)
bmoredlj :
Keep in mind that a majority of the foreign workforce is under a government funded healthcare system. Its almost like an export subsidy. (which would violate trade agreements)
...and don't tell me that imports are now "American made". A majority still comes from overseas, hense our trade deficit.
Gardiner Westbound 4:41PM (6/12/2007)
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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Desmond_ 6:23PM (6/12/2007)
Stop and consider the reasons why Nissan, Honda, and Toyota don't have the same health care problems as the big three. The answer has almost nothing to do with unions.
Most of Nissan's, Honda's, and Toyota's workers are in Japan, most of these workers are also unionized. The difference isn't unions, the difference is that Japan has nationalized health care. And while the Japanese manufacturers do have factories in North America, some of these factories are in Canada which also has nationalized health care.
As for the Japanese car factories in the US, those plants have not been open long enough for the Japanese companies to have built up a large retired work forces. Once those Japanese companies have a few hundred thousand retired US workers, they will be in much the same place as the big three.
It's not realistic to suggest that the big three could shift this health care burden to their work force. Firstly because the auto makers can volume-purchase health care much more cheaply than can individuals. Secondly because much of the big three's health care expense isn't their active work force, it's the result of commitments to their retired work force.
Before anyone suggests the big three should just abandon their obligations to their retired work force, play out the scenario fully. Were the big three to declare bankruptcy, the national pension insurance fund would simply shift all of that health care burden to you and me, the US taxpayers.
The problem is that there is no easy solution. In the end, I think the US will eventually accept the fact that the only way we will be able to compete on an even playing ground is to adopt the health care policies present in nearly every first world country.
The obvious and inevitable answer is nationalized health care in the US. I think the nation is a lot more ready for nationalized heath care than we were a decade ago. I think it's only a matter of time before we have nationalized health care, the only question is, how much time.
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Barney 12:26AM (6/13/2007)
You seem to have missed the visa-versa. The big three also have factories all over the world including Canada. Somewhere down the road US cars will not be made in the USA. It has always been labour costs. In Canada, Toyota is the higher priced vehicle and yet has no problem selling cars there.. Price is not the only factor determining the next new car.
Barney 12:28AM (6/13/2007)
You seem to have missed the visa-versa. The big three also have factories all over the world including Canada. Somewhere down the road US cars will not be made in the USA. It has always been labour costs. In Canada, Toyota is the higher priced vehicle and yet has no problem selling cars there.. Price is not the only factor determining the next new car.
Stratojet 8:55AM (6/13/2007)
I live in Canada and here is the story about national health care system:
1- When a system is free, it is abused either by doctors or the general public. The administration of this program is a nightmare for any government.
2- This is the reason why the US don't want to give in a public system. In Canada, one way or the other, the system will be modified to become more private. At the moment, we have long waiting list for surgery, cancers, mamographies and on and on.
3- The health care system in Japan is basically a subside to the auto industry, which give them (along with Germany by the way) a truly unfair advantage. So, it is not a free market as the present government seem to think.
So what is the solution in US?
- The US manufacturers will undoubtedly shift their obligations to their retirees. The US government will take care of the chronic cases: 20% of the cases account for 80% of the expenses.
- They will not go on chapter 11 to do so but will use the Delphi situation to renegociate the entire health care pact.
- The UAW represents the active employees; they do not legally have a say about the retirees.
In Canada, in Quebec province in particular, many elected parties promised and instaured several costly social programs. The actuarial cost of those obligations have been pushed to the next generations. The system is just about to implode under it's own weight. The future generations will not have the benefits of those far too rich programs because the age pyramid is reversed, as in the steel and auto industry.
The UAW employees had it good, too good to be true . They enjoyed it for a long time but it is not a birth right. One way or the other it is going to be less generous. The reduction in benifits will depend on how fast the UAW and CAW will proceed to the inevitable changes in this so-called "Global Market".
The Other Bob 9:59AM (6/13/2007)
Desmond_:
Thank you for a rational, thoughtful comment. That is rare here at autoblog these days.
Billy C. 8:02PM (6/12/2007)
You are wrong on two counts.
First, Honda, Toyota etc don't have to offer retiree health care benefits to their workers in the US. Most US companies don't offer retiree health care benefits. That's one of the main reasons there is little sympathy for the UAW-they have a sweet deal and whine anyway.
Secondly, national health care means raising taxes to pay for it. Most of those taxes will come from employers, who then pass the cost of the tax on to their customers. Honda and Toyota already do this for the cars they make in Japan and Canada. National health care might be a good idea, but you are dreaming if you think it will make car companies more competitive. They will pay for employee health care one way or the other.
On the other hand, if we have national health care, it surely won't be as good a plan as the UAW has right now, so if you are a UAW member, you will lose on this issue.
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naif 8:08PM (6/12/2007)
although i often wonder if GM knows what it is doing, i do think GM needs to run whatever insurance scheme evolves as i know the uaw will screw it up.
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Desmond_ 9:02PM (6/12/2007)
Billy C
The Japanese companies do offer retirement benefits, including pensions, to their US workforce. Although retirement medical care does differ depending on the company.
However, you've missed my main point. A lot of people blame the unions for the US automaker's troubles. Other people blame the US car manufacturers themselves. Well, consider that BMW, Mercedes, Toyota, Honda, Nissan, and Subaru generally have unionized work forces in their home countries. Each of those nations also have nationalized health care.
The main point of inequity between those manufacturers and the US manufacturers is not unions, it's health care. Germany and Japan have nationalized health care, the US does not.
The German people pay for nationalized health care, so do the Japanese, Canadians, Aussies, every member of the European Union, and nearly ever other first-world nation on the planet. I believe Switzerland is the only other first-world nation to share the US, insurance-based, health-care system. But the similarities end there, because Switzerland requires each of its citizens to be covered with medical insurance.
Almost no one in the US would disagree that the Japanese car manufacturers have an advantage over their US counterparts. But when you boil down the differences, the only advantage of any economic significance is health care.
Whether you like the concept of nationalized health care or not, the lack of a nationalized health care system has put our nation at a economic disadvantage. It will not be easy to fix the problem, but the sooner we fix it, the sooner we'll be on an even playing ground with our international competition.
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