Just how onerous are pension/health care liabilities for
American automakers? Here’s a sampling. General Motors currently
employs around 5,700 workers in the state of Indiana. Want to guess
how many retired GM workers there are in Indiana? More than 90,000
— all of them drawing benefits.
You do the math.
Like Social Security, the numbers are forbidding: An
ever-smaller pool of active workers are (in effect) having to
support an ever-growing pool of ex-workers collecting bennies. But
while Uncle Sam can raise FICA “contributions” levied on active
workers to finance benefits for retirees, GM can only do one of two
things.
The first is cut down on current payroll costs — which it does
in part by shuttering operations in North America while opening
manufacturing facilities in lower-wage countries such as Mexico and
China. Not only does this reduce direct payroll costs, it reduces
future “legacy costs” — since the non-union workers in places like
China and Mexico don’t get $40 per hour or a UAW-guaranteed
health/pension package. It also makes it possible for GM to make a
little more money per car — and thus, to remain competitive with
import brands that don’t have the Albatross of billions in legacy
costs hanging around their necks.
It’s ironic that one of the big drivers of outsourcing is not so
much corporate greed as it is corporate necessity. The UAW may not
like to hear this, but the truth of the matter is that the plush
bennies negotiated by the unions have helped to shutter American
manufacturing and sent tens of thousands of American workers to the
unemployment line while their jobs are sent overseas.
Of course, the unions adamantly refuse to see this — and
continue pushing for ever more bennies for ever fewer U.S. workers.
Even though the goose that lays the golden eggs is already
half-choked to death anyhow. But instead of relaxing the grip
around its neck just a little bit, the unions just squeeze all the
harder.
The other thing GM and other automakers can do — and have done
— is eat the approximately $1,500 per car in legacy costs by
“selling” cars either at a loss or at a competitive disadvantage
relative to import equivalents. The obvious problem with that, of
course, is you can’t make money by giving away your product — or
by selling it at a return so low the competition is earning
considerably more on each sale of its equivalent product. Not
indefinitely, anyhow — and certainly not when (unlike, say,
Wal-Mart) your share of the market is in decline.
While Toyota accumulates a huge pile of reserve cash, GM (and
Ford and Chrysler too) are barely making ends meet. This is bad
news today — but it’s even worse news as far as tomorrow is
concerned, too.
Why?
Because when you’re running this lean, there’s not a hell of a
lot left over for R&D into new technologies, engine designs,
car models/types. This is one reason why the Japanese are more
“innovative” than American car companies have been in recent years
— bringing hybrids to market years before any American automaker
did, to cite one obvious example. Toyota and Honda had the money to
invest in hybrid development; GM and Ford didn’t. The imports are
also better positioned to revise and update existing models more
often than American car companies can — another tremendous
competitive advantage in a marketplace that will not brook dated,
obsolescent products.
A third option is to simply fold legacy costs into the sticker
prices of new cars — and make the customer pay for retiree health
and pension benefits. But of course, the customers can elect not to
pay by not buying the more expensive U.S.-branded vehicle — so
that’s not going to work, either.
Bottom line: GM and Ford and Chrysler must find a way to sell
their cars at competitive prices relative to the imports — and
make equivalent money on these sales.
If legacy costs — and obstreperous unions — won’t permit this,
the American automobile industry will very probably cease to exist
within the next 5-10 years.
That is the reality.
And the UAW had better get religion, quick.
