GM is doomed - unless Big Labor accepts cuts

Rick Moran
Former labor lawyer Richard Berman, writing in the DC Examiner, makes a compelling case that the only thing that can save GM is a big cut in the only thing it really controls: labor costs:

GM has three ways to balance its liabilities and assets (currently over 50 percent in the negative). It can sell more cars—a variable ultimately controlled only by consumers. Alternatively, it can cut cost of materials—also unlikely, as the material cost of automobiles aren’t controllable beyond suppliers who’ve already been squeezed.

GM has only one serious controllable expenditure: Labor costs. The automaker is currently operating under disastrous wage and benefits contracts miles away from reasonable.

GM provides health benefits to over a million people today. Only a fraction (150,000) of them are current workers. The company’s healthcare benefits add $1,500 to the price of every vehicle. (Giving meaning to the joke that GM is a health insurance provider that happens to make cars.)

Pension deals the UAW has been forcing on GM since the 1950s have debilitated the company’s flexibility. For every UAW worker at GM, there are 4.6 retirees collecting benefits. The union retiree healthcare fund is suffering through a $30 billion shortfall. Pension costs add about $700 per GM car.

There are currently 3,600 non-working UAW members enrolled in the infamous “job banks” program, in which laid-off workers continue collecting most of their paycheck as they wait for a new job.

When including all labor costs, the average UAW member working for the company costs about $73 an hour, compared to GM’s main competitor, Toyota, which pays $44 an hour to American employees.

The fact that Big Labor just elected a president means that none of this will come to pass. The Democrats in Congress wouldn't dare reopen the labor agreement - even if they wanted to. And Obama will do nothing either.

That means that this bailout is going to be going down a black hole where taxpayers are going to be tapped time and time again to keep the Big Three afloat unless someone puts their foot down. Indeed, in the future, the argument will be that "We've already invested all of these billions. We can't let that go to waste so we have to pony up another $30 billion to ensure the safety of the taxpayer's investment."

Judging by the margin the auto bailout passed in the House, it is highly unlikely that Republicans can stop this boondoggle before it gets started.


Former labor lawyer Richard Berman, writing in the DC Examiner, makes a compelling case that the only thing that can save GM is a big cut in the only thing it really controls: labor costs:

GM has three ways to balance its liabilities and assets (currently over 50 percent in the negative). It can sell more cars—a variable ultimately controlled only by consumers. Alternatively, it can cut cost of materials—also unlikely, as the material cost of automobiles aren’t controllable beyond suppliers who’ve already been squeezed.

GM has only one serious controllable expenditure: Labor costs. The automaker is currently operating under disastrous wage and benefits contracts miles away from reasonable.

GM provides health benefits to over a million people today. Only a fraction (150,000) of them are current workers. The company’s healthcare benefits add $1,500 to the price of every vehicle. (Giving meaning to the joke that GM is a health insurance provider that happens to make cars.)

Pension deals the UAW has been forcing on GM since the 1950s have debilitated the company’s flexibility. For every UAW worker at GM, there are 4.6 retirees collecting benefits. The union retiree healthcare fund is suffering through a $30 billion shortfall. Pension costs add about $700 per GM car.

There are currently 3,600 non-working UAW members enrolled in the infamous “job banks” program, in which laid-off workers continue collecting most of their paycheck as they wait for a new job.

When including all labor costs, the average UAW member working for the company costs about $73 an hour, compared to GM’s main competitor, Toyota, which pays $44 an hour to American employees.

The fact that Big Labor just elected a president means that none of this will come to pass. The Democrats in Congress wouldn't dare reopen the labor agreement - even if they wanted to. And Obama will do nothing either.

That means that this bailout is going to be going down a black hole where taxpayers are going to be tapped time and time again to keep the Big Three afloat unless someone puts their foot down. Indeed, in the future, the argument will be that "We've already invested all of these billions. We can't let that go to waste so we have to pony up another $30 billion to ensure the safety of the taxpayer's investment."

Judging by the margin the auto bailout passed in the House, it is highly unlikely that Republicans can stop this boondoggle before it gets started.