U.S. Automaker Profit Woes Attributed to Health Care Costs
by Trude DiamondLink to article
August reports of the relative profitability of
Let’s put the auto manufacturing industry’s plight into perspective. Business Week observed in a July, 2004 report on the demise of airline retirees’ pension and health care benefits that “Traditional pensions — so-called “defined-benefit” plans — and retiree health insurance were once all but universal at large companies. Today experts can think of no major company that has instituted guaranteed pensions in the past decade. None of the companies that have become household names in recent times have them….”
Even before that, in August, 2003, the New York Times reported that “Health costs have been soaring for many employers. In other industries, businesses have generally passed along more and more of the costs to workers and retirees, if they maintain benefits at all. Not so in the auto industry, where union leaders have negotiated some of the most substantial medical benefits in the country for their members.” In the same article: “The Big Three automakers, which open contract talks with the United Auto Workers union on Wednesday, are making a bigger issue out of reducing medical costs than they have in years. But the union has staked out health insurance as untouchable. ”We’re not going to share costs,” said Ron Gettelfinger, the U.A.W. president, at a recent news briefing.”
Flash forward to July and August, 2007, and we find conditions worsening instead of improving. On August 5, a widely-carried Associated Press article on automakers’ new UAW negotiations stated that although “the domestic automakers have a lot they can do to become more efficient to reduce costs and close the profit gap with the Japanese automakers,” U.S automakers contend that “they have to erase a roughly $25 per hour labor cost gap with their Japanese competitors.” By some accounting magic that puts retiree health care costs in the same bucket as current employee labor costs, “the biggest chunk of that $25 the companies want to shave is in retiree health care.” The cold, hard financial numbers show that “Ford, Chrysler and GM lost a combined $15 billion last year. Although Ford and GM recently turned profits, they’re still losing money in North America.”
The equally cold but much squishier part of the calculation is just how big a part of that loss is really attributable to retiree health benefits. The automakers cite “a combined unfunded retiree health care obligation of about $90.5 billion, a staggering number that must be carried on their books and paid over the life of their employees. With far fewer retirees, the Japanese companies have much lower payments.” In the contract negotiations, “On the bargaining table is the domestic companies’ desire to reduce or get rid of that giant obligation, perhaps by funding a UAW-run trust that would pay retiree health care bills.” So the current and future retirees are caught in a game of “who do you trust?” between their employer and their union to keep promises about retirement health care benefits through a trust nobody’s willing to discuss just yet.
It doesn’t take much cause-and-effect logic to see where this problem can lead – where, in fact, it has been leading for a long time. Older workers, however valuable their experience and reliability may be, simply cost companies too much in benefits – particularly health benefits. So the trend of early retirement buy-outs and “lay offs” thinly disguising ageist cleansing of the workforce will continue to grow. It’s so easy to argue both perspectives on this situation because they both come to the same conclusion. For the senior employees, it’s plain unfair and financially damaging; for the corporations, it’s a short-term fix resulting in leadership decapitation, which, in the not so much longer-term, is also financially damaging.
The solution to this lose-lose death-spiral is universal health coverage, government managed and funded by taxes on corporations and individuals at a rate that will likely equal fewer dollars than each is spending now on for-profit insurance companies’ health plans. Folks, let’s learn to read those spreadsheets and stop being brainwashed by the “kind, caring” insurance companies’ ads. That’s our money they’re spending on brainwashing us and buying influence among the legislators we elected. Imagine the efficiencies health care would realize if none of the money in it had to be wasted persuading us and our elected officials to believe the insurance companies’ self-serving lies.
Tags: defined-benefit-plans, employers-healthcare-costs, retirement-health-benefits, United-Auto-Workers