WASHINGTON -- Who knew? Speculation about which welfare state will be the first to buckle under the strain of the pension and medical costs of aging populations usually focuses on European nations with declining birth rates and aging populations. Who knew the first to buckle would be General Motors, with Ford not far behind?
GM is a car and truck company -- for the 74th consecutive year, the world's largest -- and has revenues greater than Arizona's gross state product. But GM's stock price is down 45 percent since a year ago; its market capitalization is smaller than Harley Davidson's. This is partly because GM is a welfare state.
In 2003 GM's pension fund needed an infusion from the largest corporate debt offering in history. And the cost of providing health coverage for 1.1 million GM workers, retirees and dependents is estimated to be $5.6 billion this year. Their coverage is enviable -- at most, small co-payments for visits to doctors and for pharmaceuticals, but no deductibles or monthly premiums.
GM says health expenditures -- $1,525 per car produced; there is more health care than steel in a GM vehicle's price tag -- are one of the main reasons it lost $1.1 billion in the first quarter of 2005. Ford's profits fell 38 percent, and although Ford had forecast 2005 profits of $1.4 billion to $1.7 billion, it now probably will have a year's loss of $100 million to $200 million. All this while Toyota's sales are up 23 percent this year and Americans are buying cars and light trucks at a rate that would produce 2005 sales almost equal to the record of 17.4 million in 2000.
In 1962 half the cars sold in America were made by GM. Now its market share is roughly 25 percent. In 1999 the Big Three -- GM, Ford, Chrysler -- had 71 percent market share. Their share is now 58 percent and falling. Twenty-three percent of those working for auto companies in North America now work for companies other than the Big Three, up from 14.6 percent just five years ago.
The Big Three have cut 130,394 North American hourly and salaried workers since 2000, while the ``transplants" -- foreign automakers with American assembly plants -- have added 27,183. In the first quarter of 2005 the Big Three operated 64 assembly plants, down from 70 in five years, during which the transplants' factories have increased from 19 to 23, with more coming.
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