The Real reason GM is failing

Per the UAW's website based on 2007 figures:

GM has 270,000 retirees pulling a pension.
The average pension is $36,240 a year.

GM's medical cost for these former employees is 4.42 billion a year.

Therefore GM spends (with administrative costs) between 14 and 15 billion a year on something that ads no value whatsoever to their products or the company.

GM now sells around 7-8 million annually worldwide.

Therefore $1,700-2,000 per vehicle goes to pay for past labor. Labor that doesn't benefit the current company at all.

This is the reason GM cannot prevail.

Please note that I recognize the hard work of those retirees years ago, I'm just pointing out what an astronomical expense and liability they currently represent to the company.

It's no wonder why outsourcing is so appealing to large companies.

I 100% agree. The unions are not killing GM....THEY KILLED THEM!!! That is why we need to let this company fail - to break the union. There are a lot of hard working Americans out there that don't draw 1/10th the benefits these schmucks get. All the UAW ever did was extort money out of GM. I think this breakdown in our economy is going to bring sweeping changes to the powers the union possess going forward.

Does anyone know if Toyota has any pension programs at all?

[Deleted by Amazon on Mar 8, 2010 7:47:01 AM PST]

[Deleted by Amazon on Nov 23, 2008 2:44:31 PM PST]

Pensions are normal. It is what is offered as a Perk when you are hired, and you choose it, you would expect it to be given to you. But, other employers (who did not go under, or file bankruptcy) in the past have proven that when need be, they can legally dispense the pensions of those they are paying out to (and insurance, along with other perks). There have been lots of lawsuits. Paying into a pension is how you get it. So, the actual funds are supposed to be set aside for you (from the funds) into accounts that pay out to each individual.

You are talking net income. The gross income allows for dispersements you speak of. Then, the net income is the income after all expenses (like pensions).

So, it isn't as bad as you made it sound.

If they hadn't set the monies aside as those individuals paid into the pension fund, then they have done far worse than just bad management. That would be a form of fraud or theft.

Kevin,

Why do you resent the compensation other people get? Would you be willing to give up your hard-earned pay and bennies? I honestly don't understand your train of thought. These folks retired depending on the pension and benefits they had at the time. They can't go back and renegotiate at this point in their lives. $36,000 is not that much to live on when you have increased health care costs and inflation to consider. What are the unions doing now? Are they willing to cut back to save their members jobs? I know they have in some situations.

The thing that frosts me is the HUGE bonuses and salaries of the execs that are not union controlled. Calculate that into the "average" pension and you've thrown it way out of perspective. I agree, something needs to be done but all the union bashing is not fair, in my mind. I've worked in both union and non-union environments and it's not fun when you have NO VOICE in what goes on in your job. Unions have helped improve working conditions, job security, and safety considerations of many of the employees. Some have gotten ridiculous and gone to very extreme measures, but without them in the earlier years, many of those jobs would be equivalent to slave labor. I say, don't criticize until you've walked in their shoes. Most of the US jobs would not be what they are today if not for the influence of unions, and most unions have been, basically, neutered in recent times anyway.

It's always easy to point a finger and play the blame game. The Unions have done much for the working class in this country----the eight hour day, the end of child labor, higher wages and benefits etc. We could also point a finger at American flag wavers who drive around in their Korean cars, and soon cars from China where the wage is about fifty cents an hour. When we support our companies and our industry we support ourselves. Wage earners here pay taxes and support our own economy----always another side to the coin! GM produces cars that get mileage equal to the imports---check out Saturn! They are also priced competatively! How about some thinking about solutions instead of the blame game?

Please get informed, slow plane.

Erisa law requires that defined benefit pension have funded reserves. GM, to my knowledge has these reserves. The point being made by the original post was that due to the so called "legacy costs", which are pension benefits and health care benefits payed to retirees who do not produce product, GM is at a $1700 cost disadvantage per car as compared to its competition. You also go on to confuse defined benefit pension, which applies in this case, with defined contribution pension when you allude to "monies set aside as those individuals paid inot the pension fund", implying "fraud or theft". The legacy costs to GM do not reflect any 401k deferrals by employees. Corporation bashing is the rage nowadays...sometimes it is merited, most often it comes from the woefully uninformed.

Gee I wonder how many $36K worker pensions it takes to make up ONE multimillion dollar executive bonus?

Don't blame the workers and the little guys (or the unions) for mismanagement at the top. GM has been slow to react to market changes unlike Honda and Toyota -- that's their real problem.

I agree that these pensions were probably paid into by the employees, but what remains is how much did GM match? 100%? 200%? More? I know past employees didn't pay into a medical fund! There's the REAL expense! Do you have any idea what just a leg spiral fracture would cost if you had to spend 21 days in the hospital in traction?? You could literally buy a couple of small cars for what it costs! Plus, factor in past employees' aging and you can easily equate that with increased health care...it's just a natural fact of life: as we age, the likelihood of medical problems increases. Now there's a real budget killer!

These GM past employees had it really good: not a whole lot of self-planning went into their retirement. Wish I had it so good.

I also have to agree with the CEO's huge paychecks being absolutely rediculous. Good grief, they get better paid than a doctor and with less education. If they do a bad job, so what? They still get their seperation bonus' of millions in most cases. That ISN"T an incentive to perform by any means...just a reward for doing a bad job.

I am pro-union. Ed is absolutely right that unions were instrumental in transforming American society in the early 20th century. Having said that, the UAW certainly deserves some (but not all) of the blame in GM's current problems. It isn't sustainable for most corporations to pay $27 an hour, especially to workers with no skills. Yes, executives at GM make more than that, but they aren't the highest paid executives in the US. As for the pension issue - UAW workers have defined benefits, just as Financial Advisor said. They did not contribute any money to this plan. It is hard for most of us to understand that because this type of retirement plan has become so rare in the past 20 years. Retirees from GM receive a salary essentially and it is pretty close to the same money that they made when they were working. Additionally, they have comprehensive medical benefits, which they also do not pay for. Maybe they deserve it, but most Americans don't receive these benefits.

But don't foreign automakers have the disadvantage of universal healthcare to fund? Isn't this supposed to put costs up so much that companies cannot compete?

Ed,
I checked out & test drove a Saturn before I bought my Kia. The Astra was an ok car to drive but the driver's seat was a bit uncomfortable. The longer warranty was appealing too. However, because Saturn has fixed pricing, the dealership was not able to be competitive and they really low-balled me on my trade-in. I ended up with a Rio5 & love it. 10 yr/100,000 mi power train warranty, a sweet price ($3K lower than Saturn) & a great trade-in figure.
You can slam me for buying a Korean car, but the dealership folks are local & I will give them business when I get my car serviced.
All car dealers need to change with the times. Every industry does. Look at phone companies/wireless companies or look at the computer/information technology industry. If a company doesn't change as technology and the market changes, it will become a dinosaur and go down.

I agree, Sunshine & Ed. It is very easy to say that unions are terrible and we would all be better off without them anywhere, ever. People do not realize that most reap the benefits of unionization all the time. I grew up in coal mine/steel mill areas and even here people forget the tent villages people had to live in when they were evicted from their company-owned homes due to union-talk. People forget that the National guard shot at these people (many of whom survived by digging trenches under their tent homes. (The ones I know are the Matewan and Ludlow Massacres.)

They fought for this right for us, but we seem so used to (and expect) the gains that union workers have made over the years and want to dismiss the "old" unions as unnecessary. Even "professional" jobs maintain higher standards due to labor unions fighting for "certified" or "trained" employees to fill them (such as plumbers, nurses, etc.) I know that businesses are there to make money, and I think they will cut corners with staff/conditions/hours/benefits as much as they can. I think now is just as important time for workers to work together to make sure people are not taken advantage of. I hope we haven't come so far in the "me-first" type thinking where we are only worried about what happens to us, forget the new guy, forget the old guy, forget the disabled guy, forget the women, forget the "lowly" people, forget the part-timers... I haven't forgotten.

Edit: I should have added that I think all the parties have part of the blame when a company is no longer competitive, but I think it is unfair to solely blame the unions. I think it also a little like propaganda where people only see the "bad" things about unions (or "right-to-work" spin).

I don't think I'm as uninformed as you make it sound. Just because your screen name is "financial advisor" does not mean you are really an expert as much as just someone who thinks they are.

And, I am not corporation bashing. That is your read into it. I have direct knowledge or such funds and how they are handled. If GM is in deficit per car made and sold, that is poor management. But, it is not the fault of the pensions that are in place based on the prior corporations dealings and earnings. The correct methods would have been, that when GM was making a lot more (which they have in their history), they would have set monies aside to cover future disbursements. They did not. That is the point when most companies give the CEO(s) the massive raises, and some pittance to their employees in bonuses. But, the fact is, if they had set the monies aside when it was appropriate, I doubt there would be a per vehicle deficit.

Other issues are this. Their vehicle designs are archaic. That is the real problem. Rescuing them from bankruptcy that is really a source for reorganization is all (allowing them to let union employees go without fees) does nothing to encourage them to upgrade their systems, bring their designs up to snuff, or reorganize so they run more efficiently.

I can't believe the negativity from people on here. I'm a Chrysler retiree, and trust me..there are many skilled people in the auto industry. I've worked with many people who were formerly teachers and college educated individuals that came to Chrysler for the benefits and wages. No..everything hasn't been rosey in the 30 years I worked. Constant layoffs every 5 years, working in factories that exceeded 120 degrees in the summer, mandatory overtime (work 13 days to get a day off) body fatigue of lifting 50 lb parts throughout an 8 hr shift, 2-12min breaks and 1-17min lunch, not to mention the loss of quality family time (working off shifts). The reason we stayed...for those benefits you people seem to think that came to us so easily. Just remember, that UAW members across the country have given back to their communities in the form of United Way etc. It's time to think outside the box. I doubt that any of you writing the negative comments would have ever turned down a job by the Big 3 in order to better provide for your own future and the future of your family.

Most of it is covered through Medicare and Medicaid. Their retiree benefits only cover the small differences between how much medicare covers and the approved facilities charges (which are adjusted according to contractual agreements with both Medicare and the insurance companies).

In 2005 GM's pension was underfunded by 17 billion (fact). Earlier this yr that fund is up to par but has only been made that way through the issueance of debt (for which GM pays interest on). HOWEVER recently, and given market losses, that pension is estimated to be underfunded by 18 billion. Every pension has been hit by this it's not just a GM thing.

Also saying that Rick Wagoner's 3.4 million dollar pay package & other executives = 18 billion dollar pension shortfall or Gm's 193 billion in balance sheet liabilities doesn't equal up either.

http://articles.moneycentral.msn.com/Investing/Extra/general-motors-and-chrysler-on-the-brink.aspx?page=3
http://finance.yahoo.com/q/bs?s=GM
http://finance.yahoo.com/q/pr?s=GM

[Deleted by Amazon on Jul 2, 2010 3:24:28 PM PDT]

As a conservative, living in the Detroit area and whose father is a one of these retirees, I have to say that most of you responding about "the schmucks" who don't work, and these astronomical pensions blah blah blah are absurd and you know nothing of which you speak.

For 35 years my dad gave his life to GM. He was promised certain things and now we are supposed to go back on that? Now that he's 70 and can't have a job that would pay him more than minimum wage? Remember, they PROMISED these pensions and health care to these people, and they lived their lives expecting them to see through on that promise. And although, I'm not a pro-union guy, there was a lot of good they did (like making sure workers weren't operating electrical equipment while standing in an inch of water). Oh and yes this stuff was even happening in the 90s before my dad retired.

As for the REAL reason, let's look at this shall we? Our government allowed foreign auto companies to invade our turf selling junk in the 70s and 80s for cheap. In order to compete the big 3 had to start building parts and stuff in other countries which caused their product quality to go down the toilet. At the same time, the foreign auto companies were getting better at making their product.

And during this time, we couldn't sell our quality vehicles in their country on equal turf. A $10,000 vehicle in the U.S. sold for $40,000 in Japan. Yet they were able to sell their stuff here dirt cheap on their slave labor wages. Due to the government actions of the Reagan era, the hands of the big three were forced to move operations which caused a decline in quality.

Today, we have a HUGE misconception in our society that they make better cars and trucks than we do, when they don't. If you don't believe me, look at how much each company makes for Extended Service Contracts (what used to be extended warranties). The big three make millions upon millions off of these because they make QUALITY vehicles that don't break down.

[Deleted by Amazon on Jul 2, 2010 3:24:28 PM PDT]

You hit the nail on the head there!! Until health care costs can become manageable for every American, every business, no profession or industry will be safe from outsourcing to other countries that pay slave wages and even employ children.

The Big 3 are always behind the auto industry. When cheap econo cars were important because of a sluggish economy and rising fuel costs in the 70s, they were pumping out the big boats from the 60s. When entry level luxury badge cars were all the rage in the mid-80s, they were focusing on cheap econo boxes. Chrysler scored a lucky break with the minivan and all 3 scored a huge break with the SUV - not because they tried to, but because they already had options like the Suburban, Jeep, Hummer, etc. Not recognizing that this trend would end (as they all do), they are behind the 8-ball again.

They're like the guy who wears the same style forever - once in awhile a style comes back in fashion. Even a broken clock is right twice a day.