Health Insurance costs are killing the car companies.
June 1, 2009


Sometime today, General Motors (GM) is expected to declare bankruptcy, joining fellow U.S. automaker Chrysler, who should announce its emergence from the bankruptcy declared barely one month ago as it is bought out by Italian automaker Fiat. Ford, the third of the “Big Three”, in what I believe was a shrewd marketing ploy more than anything else, deemed itself healthy enough to reject Federal Bailout money and avoided declaring bankruptcy (despite losing nearly $30 Billion over the last three years, a whopping $8.7 Billion in the second quarter of 2008 and has continued to lose an additional $1.4 Billion in the first quarter of this year.

I have mentioned the fact “GM spends more on health insurance than it does on steel” numerous times here on Mugsy’s Rap Sheet, and it bears repeating yet again. The global recession has hurt auto sales worldwide, with even Toyota posting its first annual loss in history last December… between $1.5 and $1.7 Billion for the entire year.

I began this Op/Ed planning to deunk myths of “American quality” vs. “Japanese Quality” in automobiles, which, for the most part is true. But as I dug deeper, I found many “bargain” American vehicles deserved their bad reputations… typically because of “cost-cutting” moves necessary to compete with cheaper foreign-made cars. A growing number of “American” economy cars are assembled in Mexico, where the labor is cheaper, using cheaper materials, all in an attempt to get the price low enough to compete with vehicles made in countries with low labor costs.

This “cheap labor” defense has many Republicans demonizing Unions, specifically the UAW (United Auto Workers), making outrageous claims of workers making $70/hour in combined pay and benefits (a ridiculous myth MediaMatters debunked last December), calling for their dissolution. Of course, none of it is true. But no one can argue that American workers are paid more than workers in Mexico or Korea, where the standard of living it a pittance compared to the U.S.. Apparently, Republicans won’t be satisfied until the American standard of living is on par with that of India (home of “Tata Motors”, who just released the worlds cheapest car, the Nano, selling for the equivalent of $2,000 American dollars). But anyone that has seen the movie “Slumdog Millionaire” has seen the slums in which many impoverished Indian workers live.

If you want to cut the cost of American-made products, we need to lift the financial burden of providing ever-increasing health care costs from American businesses that are forced to compete against auto manufacturers in countries with Federally funded National Health Care systems. A government report on the cost of employer-based health insurance in the United States found:

In 2006, the average single premium in the private sector for employer-sponsored health insurance was $4,118, while the average premium for family coverage was $11,381.

Last year (before many of the recent layoffs), GM had approximately “266,000 American employees” (though not all of whom receive employer-based health coverage). If we estimate (no hard figures could be found) that 60% of them receive health benefits, that’s roughly 160,000 employees.

Doing the math…

If we assume 75% of them have at least one additional insured family member, that’s 120,000 employees receiving roughly $5700 in health benefits a year, plus another 40,000 single/unattached employees receiving the $4,000/year figure estimated above:

(120K x $5,700) + (40K x $4,000) = $844 million dollars a year in heath benefits.

Now, I have no way of confirming whether or not each of the Big Three automakers are laying out anywhere from $750,000 – $1 billion dollars a year just to insure its employees, but one thing is painfully clear: that relieving them of that burden would go a long way to restoring them to fiscal health.

I hope to post a more detailed follow-up in the near future. – Mugsy


June 1, 2009 · Admin Mugsy · No Comments - Add
Posted in: Healthcare, Politics

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