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October 21, 2005

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A GM worker at plant in Georgia

A worker walks down the assembly line at the General Motors Assembly Plant in Doraville, Georgia, October, 17, 2005. (AP/John Bazemore)

There's a joke with the ring of truth making the rounds this week: when you buy a Hyundai, you get a car with a global positioning system. When you buy one from GM, you get a car with a general welfare system. In fact, GM is so burdened with the cost of health care and other benefits for its workers and its retirees, it's become increasingly difficult for GM to compete against foreign automakers with lower costs. This week, the United Auto Workers made historical concessions to GM, aimed at cutting costs before there are no jobs because there is no GM. As one industrial relations expert told THE WALL STREET JOURNAL, "The union had the choice between bad and worse and it chose bad."

"It's a time of great change in the global auto industry," says Rick Wagoner, Chairman & CEO of General Motors. Fifty years ago the GM president at the time boasted, "What's good for GM is good for the country." While GM is no longer the largest company in the US -- today it ranks just 169th -- what's good for GM still has national and global ramifications.

GM is the largest health insurance buyer in the world. It spends more on health care than on steel -- $1500 per car -- three times, for example, what Toyota spends. UAW workers receive a benefits package worth about $40 an hour -- the industry norm -- and that's on top of wages.

That has helped push up domestic car costs, driving consumers to cheaper imports. GM hopes that making a deal with the UAW on health benefits, along with other cost cutting measures, will enable GM to compete more effectively against foreign automakers that are not burdened by such high labor, pension and health care costs.

The 750,000 GM blue collar workers and retirees and their families enjoy one of the most comprehensive health care plans of any industry. For most, there are no monthly premiums, deductibles or co-payments, except for prescription drugs. This costs GM $5.6 billion a year, at a time when the company has lost almost $4 billion dollars so far this year.

The deal with the UAW would require workers and retirees to pay a greater share of the health costs: to pay an annual deductible for the first time and higher co-pays. Most US corporations have already made benefits changes -- some as early as 20 years ago. The new GM/UAW fix will still leave automakers a decade or more behind most big companies, and their employees significantly better off.

GM hopes to save enough to avoid bankruptcy -- something the UAW also desperately wants to avoid -- the so-called nuclear option. Bankruptcy could enable GM to step away from many of its obligations. So UAW concessions could be saving both GM -- and the health and pension benefits of its members.

Joining the panel to discuss all this are Dan Henninger, columnist and deputy editor of THE WALL STREET JOURNAL editorial pages, Paul Ingrassia, who won a Pulitzer Prize for his coverage of the auto industry and is now head of the Dow Jones newswires, and Steve Moore, our senior economics writer and a member of the editorial board.
Paul Gigot
Paul Gigot
"This sure looks like a watershed moment for the American auto industry and maybe for American manufacturing. How significant is this for the UAW and the future of GM?"
Paul Ingrassia
Paul Ingrassia
"It's very significant. It is a watershed for the traditionally unionized portion of the American auto industry. There is some realization that as the clock is about to strike midnight for these companies in trouble. They have to get their cost structure under control, which is part of the solution that they have to put into place."
Daniel Henninger
Daniel Henninger
"A long time ago management and the unions in the American auto industry made a Faustian bargain. Essentially they had two choices. They could either run a welfare state or they could run a business. Essentially GM's managers have been running a welfare state, not really running a business. You can't do both. And they've reached the day of reckoning now."
Stephen Moore
Stephen Moore
"I think the healthcare system is in a death spiral in this country and unless we move away from the employer-sponsored program it is going to bad for workers and for companies. Ultimately the way out of this death spiral is to get the companies out of the healthcare business. The companies give the workers the full $26.00 an hour and then every worker would go out in America and get the health insurance they want."

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ARCHIVE: WSJ - Daniel Henninger Commentary