October 20, 2005
GM Rolling Out of Its Welfare State
-- General Motors took an interesting turn on Monday. It is going
back into the automobile business.
GM has always been in that, but it has also become the nation's
largest private purchaser of health care. This supposedly secondary
role has become primary.
GM has been
forced to allow product development, pricing and other decisions
to be driven by the need to keep sufficient revenues flowing in
so they can flow out in fulfillment of GM's function as a welfare
state. GM provides $5.2 billion in health care annually -- more
than Harley-Davidson's revenues -- to 1.1 million workers, retirees
and dependents. Retirees outnumber current U.S. employees 2.5
to 1. The $4 billion that goes annually to retirees does not go
into developing products people want to buy.
by the United Auto Workers will provide GM with annual savings
of $1 billion in cash in health care costs. But GM's hourly workers,
who pay no health care deductibles and only nominal co-payments,
will still enjoy coverage better than most Americans have. Since
2000, the percentage of American businesses offering any
health insurance to workers has declined from 69 to 60.
willingness to make concessions regarding a contract that does
not expire until 2007 recalls what the UAW did in the recession
of 1982. Then Chrysler was in parlous condition, and the UAW reopened
a contract in order to give back benefits. But today's givebacks
are occurring while a humming economy in the fourth year of expansion
has lowered unemployment to 5.1 percent.
because of generous benefits won by the UAW in palmier decades,
GM's North American auto business is hemorrhaging money -- $1.6
billion in the third quarter. This is in part because its employee-discount-for-everyone
pricing has worked, sort of: Until that promotion ended at the
beginning of this month, GM was selling lots of vehicles -- but
losing more than $1,000 per sale. Then in the first nine days
after the discounts ended, GM's sales plunged 57 percent.
Monday's announcement that the UAW has agreed to trim GM workers'
and retirees' benefits, Delphi, the auto parts company that until
1999 was owned by GM, sought bankruptcy protection. Under terms
of the 1999 separation, GM may be liable for up to $12 billion
of Delphi's pension and health care benefits, which would offset
GM's gains from the UAW concessions.
of Delphi is another pebble -- a big pebble; Delphi has 185,000
employees worldwide, 33,000 of them unionized Americans -- in
an accelerating avalanche of corporate decisions dismantling ``defined-benefits
America." As a result, intergenerational strife, which has
long been anticipated, may at last be at hand: Delphi proposes
cutting the compensation -- pay and benefits -- of younger workers
from $65 per hour to $20 or less, in order to fulfill the promise
to retirees of a fixed percentage of their salaries.
Miller, Delphi's CEO, minces no words, telling The Wall Street
Journal that defined benefit programs are imprudent anachronisms:
``The notion of having all your retirement eggs in one basket
-- your employer -- is a concentration of risk that is simply
inadvisable for anyone in today's fast-moving economy." He
calculates that a competitive American industrial compensation
cost is about $20 an hour. And to get to a total compensation
cost of $20, including health care, retirement and workers' compensation
``which is high in the states we are in like New York, Ohio and
Michigan," you have to have a basic hourly wage of $10. Pay
at Delphi's plants in China is roughly $3 an hour.
says that the social contract written after 1945 is being -- must
be -- repealed because, given globalization, unskilled manual
labor cannot be paid $65 an hour, with the cost passed on to consumers.
``When you buy a Hyundai you get a satellite radio as your option,
but if you buy a Chevrolet you get social welfare as an option.
Long term, the customer is going to desert you if you try to price
for your social-welfare costs."
the University of Chicago economist who served as chairman of
President Nixon's Council of Economic Advisers, famously said:
If something cannot go on forever, it won't. Delphi's resort to
bankruptcy and GM's attempt, with the cooperation of UAW, to avoid,
for now, doing that, suggest that America's welfare state -- its
private sector as well as its public sector components -- is reaching
its Herb Stein Moment.
2005, Washington Post Writers Group