The most recent financial snapshot of America’s auto industry emerged last week. It looks bleak – and an even gloomier future looms.
Lagging sales of fuel-sucking SUVs are partially to blame, along with the competitive Asian automakers who continue to increase their U.S. presence by offering cheaper, sometimes more fuel-efficient vehicles.
But the auto industry also is being hamstrung by rising health care costs. Much like the airline industry, millions of employees, and the company’s retirees, enjoy relatively cheap health care costs while employers absorb rate hikes. Businesses large and small across the country have felt that sting.
General Motors lost $1.1 billion in the first quarter. Ford, meanwhile, earned $1.2 billion in the first three months, but that was down 38 percent from a year ago, and officials forecast production cuts and a difficult year ahead. Both companies’ bonds are teetering on the brink of junk.
And German-American carmaker DaimlerChrysler AG saw its first-quarter earnings drop 30 percent, netting a first-quarter profit of $374 million.
Half a century ago, Charlie Wilson, GM’s chairman, was testifying before Congress when he said he always thought “what was good for the country was good for General Motors and vice versa.”
Fifty years later, it’s safe to assume that what’s bad for GM could be bad for America’s economy. Most of the GM’s bad news came in the United States, where its market share continues to shrink. GM North America’s revenue dropped 12.8 percent in the first quarter of 2005 to $25.38 billion – compared to $29.1 billion to start 2004.
Its financial picture is so bleak, one of its competitors actually broached raising its prices in America to help GM. Toyota Motor Corp. chairman Hiroshi Okuda said the plight of GM and Ford could cause problems for Toyota and others. (A company spokeswoman later said they have no plans to raise prices in the U.S. Okuda’s comments, however, certainly underscore the gravity of GM’s problems.)
GM will pay about $5.6 billion this year to insure its more than 1 million workers and retirees, adding $1,600 to the price of each car. The United Auto Workers health plan is generous, with workers contributing between 7 percent and 27 percent of health-coverage costs. That compares to the nation average of about 32 percent.
The union will have to make some concessions because GM can’t continue to absorb the rising cost of health care and stay competitive with foreign automakers who have government-subsidized benefits. And a bailout from Republican-controlled Washington, D.C., doesn’t appear in the cards.
The cost of health care is beyond the crisis stage in the United States, and the focus of our elected leaders should be on developing some sort of a national health plan or some other comprehensive solution.
Doing so may not help GM or Ford in the short term, but it needs to be done for the health of our overall economy.
