4-15-05, 9:17 am

From Labor Research Association

After pushing one of the largest companies in the world to the brink of disaster, General Motors executives began their annual meeting with UAW leaders on April 14 with plans to intensify their push for health care benefit cuts.

GM announced on March 16 that it would report an $850 million loss for the first quarter of 2005 and earn $1 to $2 per share for the year, down from its earlier forecast of $4 to $5 per share. The company’s cash flow is a negative $2 billion. GM’s bonds are now rated just above junk, and it still owes billions to its under-funded pension and retiree health plans.

Ford cut its profit forecast for the year by 14 percent on April 8 and announced that it will not meet its 2006 goal of $7 billion in pretax profit. Ratings agencies are now poised to downgrade Ford’s credit status.

Both companies will cut production and accelerate layoffs for their white-collar workers. GM’s salaried workforce has already been hit with substantial job cuts, wage freezes and higher benefit contributions.

There is no ready solution for the financial problems that may easily overwhelm these companies. Ford is sitting on an inventory of almost 900,000 vehicles and GM faces substantial overcapacity. Although GM executives continue to claim that they can regain market share, industry analysts uniformly agree that GM and Ford have permanently lost their position as the leading car companies in the U.S.

U.S. market share for the American automakers fell from 65 percent in 1994 to 42 percent last year. Toyota displaced Ford as the second-largest car seller in the country for reasons that have nothing to do with Ford’s higher benefit costs.

The U.S. automakers have been digging their own graves for years, but GM faces the highest costs because of its misguided expansion two decades ago. The U.S. automakers have squandered market share and mismanaged resources, but would like to blame benefit costs for the financial crisis they have been courting for two decades.

The financial crisis born of mismanagement leaves the companies facing costs they cannot cover, including health care costs.

GM paid out $5.2 billion for health care benefits in 2004 and expects to pay out $5.8 billion this year. These benefit costs are part of the total compensation negotiated in union contracts that traded what would have been higher wage increases for better benefit provisions.

Health benefits, including retiree benefits, are simply wages delivered in a different form or, in the case of retirees, deferred for payment at a later date. The U.S. automakers are now pressing for the equivalent of a wage cut for its union workers and take-backs from its retirees.

The costs have been exacerbated by the unwillingness of the Bush administration and Congress to address the catastrophic rise of health care costs in the U.S.

GM’s $73 billion liability for retiree health benefits could be covered three times over by the amount the U.S. squanders every year on administrative costs for its private health care system.

China and India will begin exporting cars to the United States within the next few years. Car makers in both countries benefit from national health care systems that pay for employee benefits with public funds.

The U.S. automakers are moving more production to Canada where a national health care program provides coverage for workers and their families for less than one-fifth of the cost of health benefits on the U.S. side of the border.

Benefit costs account for 28.8 percent of compensation costs for private sector production workers in the U.S., compared with 17.0 percent in Japan, 16.6 percent in Canada and 17.6 percent in the United Kingdom. Three-fourths of the difference in benefit costs stems from the private health insurance system in the U.S.

The Bush administration has a choice. It can preside over the dissolution of what remains of the U.S. auto industry or it can take the first steps toward a national solution for the health care cost crisis that is distorting labor markets, driving down disposable income, leaving millions of Americans without health care and creating the largest competitive disadvantage that U.S. companies now face.