Another price for not having a national healthcare plan

Last week, General Motors Corporation announced massive layoffs and restructuring, with its intention to close or significantly downsize seventeen plants (fourteen in the United States) and lay off over 30,000 workers. GM cited a slump in sales combined with the rapidly increasing cost of providing healthcare under a union negotiated contract for employees and their families, as well as the cost of the company pension fund which pays retirees under another union negotiated contract.

Critics on both the right and the left have missed the point though.

Critics on the left have criticized GM for stupid planning. Even as late as this fall, as fuel prices soared and GM sales, particularly of SUV's, fell through the floor, GM executives were talking at trade shows about building bigger SUV's. They can't take a hint from the fact that Toyota sales have skyrocketed during the same time period. Toyota, with some justification, is considered to build more fuel efficient vehicles. Now, this is somewhat of an exaggeration as well, since Toyotas are definitely better than comparable American cars for fuel mileage, but not by a huge amount, and Toyota is still building its own mammoth gas guzzling SUV, the Sequoia. Toyota executives read the changing market much better though and began cutting back on production of the Sequoia last year and produced more of their smaller, more fuel efficient vehicles. Toyota also has a well deserved reputation for quality (which I can attest to, having owned two Toyotas which I collectively drove for nearly half a million miles). However, of American cars, GM vehicles hold their own in quality compared to Fords and Chryslers, and again aren't that far below Toyotas. So while these criticisms of GM are justified, there is something more.

Critics on the right are quick to point fingers at the union contracts negotiated between GM and the United Auto Workers (UAW), and claim that the union contracts tied GM's hands, cost it billions of dollars at a time when GM could ill afford the expense, and have forced it to make this decision. And it is true, that under the terms of the contracts, even when they do close the plants, part of the contract says that GM will still continue to pay the laid off workers a large portion of their salaries. And it is true that health care costs have risen as much for GM workers as they have nationally, at a double digit rate of increase yearly for over a decade. At the same time, the UAW is right to point out that they have worked with GM on this problem. In fact, only two weeks ago, UAW workers ratified a contract over health care benefits that involved substantial givebacks (especially in the area of retiree healthcare). The union negotiated this in good faith with the belief it would protect the jobs of workers, and it is hard to believe that GM (which will now benefit from the newly ratified agreement even while it closes the plants) didn't know two weeks ago what they knew one week ago about the financial problems that would lead them to make this week's announcement. Quite plainly, GM knew they were going to shut the plants down anyway and they negotiated this contract in bad faith. Also, the UAW is right to criticize the 'golden parachute' payments given to executives when they are cutting employee benefits. For example, GM's major parts supplier, Delphi, recently declared bankrupcty in order to try and end their employee pension plan and spend the money that has been deposited into it to pay creditors (which worked for United Airlines, so now everyone is trying to do it). But before filing bankrupcty, Delphi found the money to pay some of its top executives millions of dollars in bonuses.

So if the left doesn't have the whole story, and the right doesn't have the whole story, then why IS General Motors in such dire straights, especially compared to foreign auto makers (not just Toyota)? For that matter, Ford is limping along as well, hamstrung in similar ways, and Chrysler has had a mild resurgence, and that only since being absorbed by Daimler-Benz, a German company.

It doesn't take a big look to figure that out. Remember back about fifteen years ago when the complaint was that foreign governments were 'subsidizing' their auto manufacturers? At the time, people were using it as an excuse for everything from tariffs to taking a hard line in union negotiations. Well, it turns out that the 'subsidies' that these people were talking about were 1) the national health care systems in those countries (meaning that employers there don't have to provide health insurance), and 2) the national retirement systems there (unlike Social Security, the retirement systems in many industrialized countries is designed to directly pay retirees 100% of their retirement benefits, meaning there is no corporate pension plan). True, companies make contributions towards both the national health plan and the national retirement plan. But with other countries much more successful with their regulated approach than we have been with our 'laissez-faire' approach to holding down healthcare costs, (as reflected in the link, we spent 15.3% of our GDP on health care in 2003 with a high rate of growth, while countries with national health care systems spend 10% or less with low growth rates) the total in taxes they pay for this is far less than what employers and workers collectively pay in America (plus we still pay taxes for Medicare and Medicaid, to cover a couple of high risk groups which in those countries are just part of the same system as everyone else). Those who exclusively blame either GM management OR the unions (or even both together) are missing the point, that they are fighting over how to allocate costs that their competition, simply put, doesn't have to pay. I read somewhere that health care costs add $1,500 to the price of every new GM vehicle (that may or may not be an accurate number, but the point is made). Manufacturers in other industrialized countries have to deal with unions, too, but negotiations are a lot simpler if health care and retirement aren't even on the table to be negotiated. Plus, they don't have to hire anyone to administer the plans. So, if GM prices its vehicles competitively with other manufacturers who make their vehicles elsewhere, then that is money that comes directly out of their profit margin when they do sell a vehicle.

What this means, is that American corporations are at a competitive disadvantage precisely because we DON'T have a national health care system. And corporate pension plans, as we now see, have become simply sand castles, to be built up and then washed away when a big wave of red ink hits. And until we figure this out, then it is certain that we will continue to lose sales to foreign competitors (to say nothing of jobs; GM and other companies have moved some factories to Canada, Korea and other countries where they get to take advantage of those countries national healthcare systems-- and their American plants took the brunt of GM's announcment last week; No operations outside of North America were impacted, and the impact in Canada was limited to the effects that the Oshawa #1 plant will be reduced from three shifts to two in 2006 and the Oshawa #2 plant will cease production two years later, as well as a parts manufacturer in St. Catherines).