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US: Desperation Deal at GM

by Robert KuttnerThe Boston Globe
October 22nd, 2005

The United Autoworkers union has agreed to save General Motors over a billion dollars a year in health insurance costs. This is a disguised pay-cut, since workers will now pay more out of pocket for their healthcare.

The union agreed to this desperation deal to help keep GM alive. The once-dominant auto-maker posted a record $1.1 billion loss in the third quarter; and its former parts division, Delphi, with 34,000 union jobs, has just gone into bankruptcy. If and when it emerges, Delphi's $26-an-hour workers will be cut to something like $12. That gets your attention.

The union leadership was so eager to help GM survive that the UAW filed an unusual suit intended to block its own union retirees from challenging the negotiated health-benefit cuts. Now Ford has just reported a $284 million third-quarter loss, and wants the same kind of deal the UAW gave GM.

Even with these concessions, the industry that once was the core of America's blue-collar middle class is continuing its downward spiral, cutting jobs and cutting the pay and benefits of the workers that remain. General Motors, which a generation ago had about half a million union workers, will soon be down to 84,000.

But it would be a mistake to conclude that high wages or excess health benefits are bankrupting US industry. Look at our competitors. Japanese labor costs in the auto industry are comparable to American ones and German wages are far higher.

There are, however, two offsetting differences. First, the Japanese and Germans are ahead technologically and have a knack for making reliable cars that consumers want to buy. Second, their healthcare is financed socially.

So GM's biggest problem is not labor costs; it's that except for its profitable SUVs (which are becoming white elephants as gas prices rise), too few consumers are buying GM's products. When management makes dumb decisions about design, quality, or marketing, autoworkers end up paying the price.

GM spends also $5.6 billion a year on healthcare -- more than it spends on steel. Its foreign competitors spend nothing on healthcare. So GM and the UAW are common victims of America's failure to have national health insurance.

The UAW, to its credit, has advocated national health insurance since the days of its first president, Walter Reuther. General Motors, like the rest of American big business, has fiercely resisted it -- preferring to bear billions in expenses to having a national policy it considers socialistic. But it would be another mistake to conclude that autoworkers have had too good a deal on health insurance. The reality is that most Americans have had too bad a deal.

Somehow, the rest of the industrial world can provide health coverage for everyone, and only spend an average of about 10 percent of its national income, while we spend 14 percent and leave over 44 million people without health insurance.

How is that possible? Simple: we squander hundreds of billions of dollars processing claims, having dozens of competing insurers spend a fortune on marketing, paying HMO reviewers to second-guess physicians, evaluating who is ''insurable," and otherwise wasting about 30 cents on every premium dollar paying middlemen who provide no healthcare.

And we overpay dearly for treatment in emergency rooms, where tens of millions of poor people go when they get really sick, having been unable to afford cheaper and more cost-effective routine care. Other nations spend more efficiently on preventive care, because everyone can afford to see the doctor.

Here is one good idea, proposed by environmental activists Michael Shellenberger and Ted Nordhaus, and sponsored by Senator Barack Obama of Illinois as the Competitiveness and Accountability Act. Congress would offer automakers the following deal: If they invest substantially in fuel-efficient technology, Congress will relieve them of the health insurance burden of their retirees.

Isn't this a bailout? As Shellenberger and Nordhaus observe, after 9/11, Congress bailed out the airlines and asked nothing in return. This proposed subsidy would insist, in return, that auto-makers help themselves, their workers and consumers -- by building more competitive and fuel-efficient cars. A bankruptcy is also a bailout -- investors and workers bail out failing management.

If we could think more creatively, we wouldn't have to choose between saving the auto industry and having decent health coverage for its workers -- and everyone.




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