WASHINGTON -- General Motors took an interesting turn on Monday. It is going back into the automobile business.
Granted, GM has always been in that, but it has also become the nation's largest private purchaser of health care. This supposedly secondary role has become primary.
GM has been forced to allow product development, pricing and other decisions to be driven by the need to keep sufficient revenues flowing in so they can flow out in fulfillment of GM's function as a welfare state. GM provides $5.2 billion in health care annually -- more than Harley-Davidson's revenues -- to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. The $4 billion that goes annually to retirees does not go into developing products people want to buy.
Concessions by the United Auto Workers will provide GM with annual savings of $1 billion in cash in health care costs. But GM's hourly workers, who pay no health care deductibles and only nominal co-payments, will still enjoy coverage better than most Americans have. Since 2000, the percentage of American businesses offering any health insurance to workers has declined from 69 to 60.
The UAW's willingness to make concessions regarding a contract that does not expire until 2007 recalls what the UAW did in the recession of 1982. Then Chrysler was in parlous condition, and the UAW reopened a contract in order to give back benefits. But today's givebacks are occurring while a humming economy in the fourth year of expansion has lowered unemployment to 5.1 percent.
Largely because of generous benefits won by the UAW in palmier decades, GM's North American auto business is hemorrhaging money -- $1.6 billion in the third quarter. This is in part because its employee-discount-for-everyone pricing has worked, sort of: Until that promotion ended at the beginning of this month, GM was selling lots of vehicles -- but losing more than $1,000 per sale. Then in the first nine days after the discounts ended, GM's sales plunged 57 percent.
Shortly before Monday's announcement that the UAW has agreed to trim GM workers' and retirees' benefits, Delphi, the auto parts company that until 1999 was owned by GM, sought bankruptcy protection. Under terms of the 1999 separation, GM may be liable for up to $12 billion of Delphi's pension and health care benefits, which would offset GM's gains from the UAW concessions.