As the U.A.W. and the big three automakers prepare to negotiate what promises to be a critically important labor contract the New York Times reports that for the first time U.A.W. retirees outnumber active workers.
That shift has the greatest impact on medical costs. Detroit automakers cover the health care expenses of both current and former union members — more than 1.1 million of them combined — and their dependents. That adds up to an annual bill of about $12 billion.
Despite the fact that many thousands of UAW workers have lost their jobs the total health care costs of the American auto companies continues to rise. With foreign competitors having health care costs that are significantly lower the American health care system seems to be a significant (but not the only) factor in the financial woes of the big three.
G.M., Ford Motor and the Chrysler Group say these so-called legacy costs have hampered their fight against surging foreign competitors. Health care and pension benefits cost them $1,000 for each vehicle they sell, they say, compared with a few hundred dollars for companies like Toyota, Honda and Nissan.
What may come out of these negotiations is something called a Voluntary Employee Beneficiary Association, which would essentially give control over health care to the UAW, with an enormous upfront payment by the auto companies to cover most of the liability.
The automakers and the U.A.W. could create a health care trust, called a Voluntary Employee Beneficiary Association, that could take over the responsibility for worker and retiree benefits.
That would allow the three companies to get their combined long-term health care liability, about $100 billion, off their books, and would give the U.A.W. a more direct say in the benefits that its workers would receive.
But once a system is funded initially how would such an entity deal with the rapid escalation in health care costs?
Moreover, the union, not the companies, would be in charge of administering the huge fund, and would have to face tough choices if health care costs climb precipitously.
And so both Union and companies face difficult choices. Will retirees interests be protected, or will they face the fate of so many other retirees in this country? With each passing day and each new story the failure of the current health care system becomes more apparent. Modest change that entails cost shifting but no cost reduction is not likely to work. Putting one finger in the dike and closing our eyes is no substitute for real health care reform.
Read the New York Times story here.
Bill Manzi.com 
Your Honor,
The Management and unions of the American automobile industry have created this situation by years of draconian contracts that have resulted in a sick industry. I believe management has run the companies poorly never setting the trends.
Auto sales are through the floor while foreign sales eat our native companies for lunch. Many of these foreign companies make cars here in the good old USA. So we can’t blame the economy.
It is greedy men who took what they could for the short run and ignored the long term effects.
Now that the industry is on the verge of collapse maybe they will work together to stabilize then revive itself, at least I hope so.
The good news is that the free market has made itself heard and energized our American companies to find solutions.
Haven’t heard from you in a while.
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Jules,
I understand that I missed you at the Park the other day. I further understand that Councilor Leone was giving some aid and comfort to you on the right vs left argument. I wish I had been there to correct you both. I agree that the planning and business forecasting has been whoefully inadequate at the Big Three. I do believe that American industrial hegemony in the fifties gave us a comfort level that had to change as that dominance eroded. In many cases those changes were never made. Those chickens are now coming home to roost.
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Your Honor,
Sorry to miss you. We must meet.
It’s good to see there is another conservative in town and he is MY representative. There is a God.
Who was the other gentleman. He was, I believe an aid. Nice fellow. His name escapes me.
I remember we invented the TV then gave away the business to Japan. They cleaned our clock.
We are innovative, but our Harvard graduates seemed to line their pockets rather than grow the business. I shutter to think what will happen when the Chinese catch up. They graduate more engineers in one discipline than all our engineers combined. If we don’t wake up they will conduct business without needing us at all.
I am not pleased with publicly held companies as I thought I would.
Now I have to go back to conservative remedial policy camp.
Have a good weekend.
Jules
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The U.A.W. has warned that attempts to place additional onus on the Union for concessions, or media reports describing such talks as transformational, are wrong. UAW President Ron Gettelfinger, in a Washington Post story, said
Gettelfinger, in attempting to dampen expectations of a union rout at the negotiating table, pointed out
He also said he expects that the Big Three will be healthy for years to come. Read the full story at this link
.
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Your Honor,
It looks like the UAW negotiators have announced they are going to confront the management negotiators. This may be a bluff to serve the members, but if it isn’t, I foresee the end of the American phase of the business. American made may mean Toyota, or Honda.
I saw this happen in Framingham. It happened after the Arab boycott when GM was being forced to manufacture different cars with improved millage. Gm was having financial troubles and shut down many plants.
There were plans to keep Framingham open and to give it a line of cars to manufacture. The problem was GM felt they needed concessions.
On top of this GM wanted to add a painting operation onto the existing plant.
Result:
1. Framingham denied a permit to build the building addition.
2. The union took an adversarial roll and would not yield.
Result. The plant is gone. Managers and union leaders move on. The workers ended up in unemployment line.
I hope the upcoming negotiating go better.
Jules
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