Friday - June 24, 2005

Death Of An Automaker

The year was 1953. Dwight Eisenhower had just been elected President and was promising to build a national system of “interstate” highways to make transportation across America much easier and to provide easy access for national defense in light of the rising communism in Europe. General Motors executives brought a new phrase into American folklore when one of them stated, “What’s good for Genera Motors is good for America”.

Cars were being built at an astounding rate and Americans were buying them up. Life was good. Then along came the Auto Workers Union who decided their workers deserved a bigger piece of the pie. Gradually, over the years, wages increased, often outpacing price increases on cars. In addition, the union held out for a medical plan for its members that was unprecedented .... completely free medical care with GM paying 100% of the premiums, guaranteeing auto workers a lifetime of free medical care.

Fast forward fifty years to today. National health care costs have risen dramatically over the last two decades. They are so high that a decade ago, most companies switched over to the HMO plans and raised the amount employees had to pay for company-provided coverage. Not General Motors. The unions refused to back off on their health coverage in the contract. As you read the excerpt below from an article in today’s USAToday, keep in mind the following salient points ....

• Union retirees from GM get to keep their medical benefits, free of charge, until they die


• GM reported its largest loss in history last quarter .. $1.1 Billion


• The cost of providing this health care to union workers adds $1,100 to $1,500 to the cost of each car.


• GM spends more per car for health care than it does for steel for that car.


• GM spends more per car for health care than it does for advertising for that car.


• The United Auto Workers (UAW) union refuses to budge off of its sweet deal.

Taking a cigarette break outside a General Motors (GM) assembly plant in Lansing, Mich., last week, Mike O’Driscoll admits he has problems: diabetes, high blood pressure, high cholesterol.

But his arteries are cleaned out, thanks to a $160,000 heart-bypass surgery a few years back.

“I ate too many steaks and not enough veggies,” says O’Driscoll with a laugh.

For as long as O’Driscoll has worked at GM, he hasn’t had to worry about health care costs. He paid nothing for his heart surgery, and he estimates that during the past five years, he has paid his cardiologist a total of $500. GM doesn’t take anything out of his paycheck for health insurance.

The American auto industry is one of the last bastions of generous benefits that were once part of many employers’ largess: fully paid health insurance, retiree medical coverage and pensions.

At a time when the average American company requires workers to pay more than $2,000 a year toward family health insurance premiums, the auto industry is among the 4% of employers that offer free family health coverage. Retirees, who outnumber workers by more than 2-to-1 at General Motors and represent significant percentages at the other major U.S. automakers, get the same deal.

As GM recovers from its worst quarterly loss in more than a decade, $1.1 billion, executives have targeted health care as a top opportunity for cost cutting. And as GM is the nation’s largest private purchaser of health care, what it does is being watched closely and could have ramifications beyond its own 1.1 million employees, retirees and dependants.

The cost of providing health care adds from $1,100 to $1,500 to the cost of each of the 4.65 million vehicles GM sold last year, according to various calculations. GM expects to spend at least $5.6 billion on health care this year, more than it spent on advertising last year.

But getting the union to agree to major changes in the middle of its contract could be difficult. Already, union members are balking at talk of trimming retiree benefits, and local union leaders are grumbling about the possibility of a strike if the company tries to force changes through; however, a mid-contract strike could be deemed illegal.

“It is a well-known fact that the U.S. automobile industry spends more per car on health care than on steel,” says Lee Iacocca, the retired chairman of Chrysler who in the early 1990s advocated a national health care program as a solution. “This problem is not going to go away on its own.”

And while white-collar workers at GM, who represent 26% of the active workforce, pay about 27% of their health care costs, unionized workers pay about 7%. Because the coverage is mainly free, that 7% comes from charges for doctor-office visits and co-payments on drugs. Outside the auto industry, single employees pay an average of 18% of the cost of their premiums, and families pay 22%, according to research by benefit firm Towers Perrin. Many also pay deductibles, co-payments and other out-of-pocket costs on top of that.

Posted by Z Woof     on 06/24/2005 at 10:37 AM   
Filed Under: • Economics • Unions-Labor •  
• Comments (12) • Trackbacks(0)  Permalink •  

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Not that very many people ever read this far down, but this blog was the creation of Allan Kelly and his friend Vilmar. Vilmar moved on to his own blog some time ago, and Allan ran this place alone until his sudden and unexpected death partway through 2006. We all miss him. A lot. Even though he is gone this site will always still be more than a little bit his. We who are left to carry on the BMEWS tradition owe him a great debt of gratitude, and we hope to be able to pay that back by following his last advice to us all:

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It's been a long strange trip without you Skipper, but thanks for pointing us in the right direction and giving us a swift kick in the behind to get us going. Keep lookin' down on us, will ya? Thanks.

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