GM Layoffs and The High Cost of Healthcare

by Scott Shields, Mon Nov 21, 2005 at 02:28:34 PM EST

This morning, General Motors announced a "capacity reduction" that will eliminate roughly ten percent of its global workforce, all of it from plants in North America. This follows the announcement just over a month ago that GM and the UAW had reached a deal to cut $1 billion from its retiree healthcare benefit programs. When that announcement was made, I pointed to a few coinciding blog posts from Ezra Klein, Nathan Newman, and Matt Yglesias regarding the problems with employer-based healthcare and worker givebacks. My feeling was that the crisis at GM -- largely due to the company's massive healthcare overhead -- was leading us down a path to universal healthcare in the United States. The layoff announcement this morning only confirms that in my mind.

Though GM refuses to endorse a single-payer universal healthcare program for the United States, they love that same system as it exists in Canada. Dave Lindorff wrote about this paradox back in the April issue of In These Times. He says that the problem is the conservative ideology of America's executive class.

Just two years ago, GM Canada's CEO Michael Grimaldi sent a letter co-signed by Canadian Autoworkers Union president Buzz Hargrave to a Crown Commission considering reforms of Canada's 35-year-old national health program that said, "The public healthcare system significantly reduces total labour costs for automobile manufacturing firms, compared to their cost of equivalent private insurance services purchased by U.S.-based automakers." That letter also said it was "vitally important that the publicly funded healthcare system be preserved and renewed, on the existing principles of universality, accessibility, portability, comprehensiveness and public administration," and went on to call not just for preservation but for an "updated range of services." CEOs of the Canadian units of Ford and DaimlerChrysler wrote similar encomiums endorsing the national health system.

How can the same corporations that in Canada recognize the bottom-line logic of a national health system be so opposed to the idea here?

One answer is ideology. The notion of having the government take over an industry that represents about 15 percent of the U.S. economy gives U.S. executives the willies. But in backing insurance company interests, GM runs counter to both its own business interests and the sentiments of many customers.

I should note that one of the plants GM is closing is actually in Canada. Buzz Hargrove, the head of the Canadian Auto Workers, who was surprised by the announcement blamed GM's poor performance on the "unfair trade situation" between the Western auto manufacturers and Japan and South Korea who "ship into our market but they don't allow us to ship back to their market."

There's certainly a case to be made for trade policies impacting GM, but it's hard to ignore the fact that $1,525 of every GM car sold in the United States goes to paying for healthcare costs. If GM were not dealing with an employer-based healthcare system, they would certainly not be in the situation they are right now.

As the General Motors layoffs are showing us, even though it may make some uncomfortable, a clear case is to be made for universal healthcare in the United States. Simply put, it's an issue of competitiveness. There's a reason GM is cutting thousands of jobs mostly in American factories. The executives will never admit it for political reasons, but the crushing burden of healthcare costs is taking away American jobs. While universal healthcare has long been an interest of the party, it's often pushed to the back, being seen as too controversial. But now that Democrats have seemed to find their footing and the will to fight back, it certainly seems the time has come for bold healthcare proposals supported by obvious economics. This issue should be a no-brainer for Democrats in 2006 and 2008.

Tags: Democrats (all tags)

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well sure

But if you look at the candidates, there are no calls for universal health care. Hillary Clinton, the presumptive nominee, isn't calling for it. And I should note two other things about universal health care. One, it's cheaper and better than what we have now. Much cheaper (one third), and much better. Two, it would destroy a massive part of the Republican machine, the donations that come through insurance, pharma, and doctors.

by Matt Stoller 2005-11-21 02:54PM | 0 recs

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Re: well sure

At least give HRC credit for having that plan ten years ago. Whether you liked the plan or not, at least she had one. No one has been on the leading edge of this since. Ihappen to think that healthcare is a very dear issue to her still and that she's more likely than anyone (based on her track record) to do something about it if elected president.

by jgarcia 2005-11-21 05:42PM | 0 recs

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Medical IT incompatible with for-profit healthcare

There are a lot of ways in which we could save money -IF we had universal healthcare. But those same technologies become perversely evil and predatory under our current system of your-money-or-your-life commercial healthcare.

For example, new knowledge on genetics could make it possible to treat people based on their genetics..

Under the current system, what will happen is that people's genetics will make them uninsurable, which will quickly mean unemployable.

And with jobs becoming increasingly scarcer, unemployable will mean marginalized. I wouldn't be surprised if many people who are currently middle class end up very angry when they realize that their "Americanness" doesnt entitle them to employment as businesses downsize and outsize..

by ultraworld 2005-11-21 07:10PM | 0 recs

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Re: well sure

It will be interesting to see how attached to universal healthcare HRC will be. She was burned once by it and may be gun shy. On the other hand, she may view it as a winning issue, with a "I told you so" innuendo simmering in the background.

However, I'm guessing she may be last candidate to come out and support universal healthcare. This traditionally been a losing argument, and frankly I'm not certain it is not still a losing argument. If you want to talk universal healthcare for children only, that is another issue. But HRC is a smart tactician and may be reading the tea leaves.

by Eric11 2005-11-22 06:03AM | 0 recs

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Re: well sure

Not me. Bill pushed universal health care, Hillary headed it up, and they both compromised it into oblivion. And don't forget, Bill promoted, passed and signed NAFTA.

DLC's last hoorah was destroying Dean's run for Pres.

by oakland 2005-11-23 01:20AM | 0 recs

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Re: well sure

You seem to be missing some other significant issues that have caused the decline of GM. For starters, their products have been declining in quality and subsequently marketshare over the last 10 years.

It is also known for unrelenting bureaucracy, which is ironic because Peter Drucker's senimal study of GM management problems has set the standard for corporate organization in every country around the world, except for GM itself.

The worst of it is that the UAW has stepped well beyond its role of protecting the interests of its workers to the point of forcing GM to become a pseudo-welfare state. There are a number of GM factories that operate at around 10% capacity because their labor contracts dictate the facility can't be closed.

Moreover, most of these 30,000 workers that GM has put on the chopping block will continue to recieve their normal pay without actually working for up to 2 years, as per their contract.

Although I do agree in spirit with universal healthcare because it is difficult to establish a private market that prices health risk correctly, we shouldn't blame the decline of GM and Ford on the problems of the current system. Even if the US were to implement universal healthcare, its cost would merely be pushed onto all Americans in the form of additional taxation.

Ford and GM should really take some cues from the very successful factories Honda and Toyota operate in the US and completely break with the UAW.

by Robot Economist 2005-11-22 07:01AM | 0 recs

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Re: well sure

Of course GM has to take some responsibility, unions too. But you callously laying it at their own feet is like cops blaming a rape victim. It cannot be agrued. GM WOULD have lost LESS money if it wasn't funding health care and pensions. GM in China is making big profits. GM in Europe is profitable. GM in North America is losing its ass.

by oakland 2005-11-23 01:10AM | 0 recs

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There's an old joke

GM is a Pension and Healthcare firm, which happens to fund operations by selling cars.

by ElitistJohn 2005-11-21 05:29PM | 0 recs

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Re: There's an old joke

Say that again....

by oakland 2005-11-23 01:16AM | 0 recs

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Canadian closures

I heard they were closing two plants, one in St Catherine's and the other being the huge complex in Oshawa. Especially in Canada, this means curtains for most of the parts suppliers too, not to mention (probably) a very good little cafe just off the 401 in Oshawa and lots of other little support businesses in those areas. GM has wanted to close these operations for a very long time, apparently, and this is the excuse they need. The Auto Pact made them good investments, they got tons of provincial money, but they've apparently thought wages were too high there. Well, they've solved that little problem.

by Altoid 2005-11-21 06:40PM | 0 recs

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Huh?

Aren't all of these reforms scheduled to take place in 2008? Why aren't the sloth and graft whores in the unions being criticized?

The proletarians are being sacrificed for union greed.

by Reid Rininger 2005-11-21 11:00PM | 0 recs

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MN Senate Candidate Ford Bell . . .

. . . has been calling for universal single-payer health care for months. He's challenged the other candidates in the race -- Mark Kennedy (R), Amy Klobuchar and Patty Wetterling (both DFL) to take a pledge to make introducing a bill their first official act. No bites yet.

More at http://www.fordbell.com/issues/health.cfm

by privatewl 2005-11-22 01:56AM | 0 recs

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Not the only problem

It is clear that a single payer system would have many benefits including the control of spiraling costs, as well as providing health care to more of those in need.

But it is not appropriate to allow GM to weasel out of their incompetence by claiming that health care is the cause of their problems. The cost of health care may be contributory, but it is not the cause.

For more than 35 years, GM has faced serious competition from overseas automakers, but it delivers cars that are consistently inferior to those made elsewhere. It seems unwilling to meet that competition, prefering to revel in Bushian incompetence.

Toyota, which makes Camrys in Kentucky, seems to be able to survive this environment quite well. Why won't GM?

by AlphaHydroxy 2005-11-22 04:11AM | 0 recs

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This buys into the idea

That GM's costs are the source of its problems.

They are not. The problem is with the engineering and design of their products. GM cars are not noticably more expensive than the competition. Nor, it should be noted, are their labor costs higher than their foriegn competition.

The problem is bad management.

Buy the "it's the labor costs" meme and you have already bought into management's spin.

by fladem 2005-11-22 04:16AM | 0 recs

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Re: This buys into the idea

And for the union bashers, I wouldn't be so quick to bite the hand that ultimately feeds everyone. I suggest you study some history. It was unions who got kids out of coal mines, living wages and health care for workers, and generally improved working and living conditions - for all. Many people died for this so don't smear with such a broad brush.

by oakland 2005-11-23 01:15AM | 0 recs

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Health Care for All Americans

It is long over due to have a national health care system. A single payer system is not the best choice and could be worse than what we have now. Still, there is a way to have everyone in, nobody out and everyone pays their fair share.

Both parties need to recognize the financial savings that a well designed system could be for businesses and how good it would be for everyday citizens.

Mike Protack For U S Senate
www.mikeprotack.com

by Mike Protack for U S Senate 2006 2005-11-22 07:54AM | 0 recs

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the "US Automaker Healthcare Relief Act"

Or some such candy-coated name.

GM would go for this, I bet. If the US said, "how about a 2K per vehicle tax cut if you don't close your plants?"

The US would pay GM (and Ford, Chrysler) health tab, but they would also MANAGE THE PLANS.

The resulting success because of low administrative costs and quality would launch a very good debate on single-payer health care, which we should have been doing for years.

I am no fan of the Big 3, but in the short term we depend on them to hire tens of thousands of workers. Throw them this bone now, and after it is a HUGE SUCCESS, we can do it for everyone.

The Dems would be the party of big business (since this amounts to a huge corporate tax cut), except for the HMO sector.

Screw 'em.

by indianabob 2005-11-22 12:37PM | 0 recs

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Universal Healthcare

I think our best bet for moving towards national healthcare is going to have to be having the federal government acting as a catastrophic insurance provider.

This would consist of declaring that anyone who has more than $X of out-of-pocket expenses, than the federal government steps in and pays for everything over that amount.. Call it $7,500.

Insurance companies won't complain too much, as long as they're played right. They'll be making money hand over fist, because their most-expensive costs would be covered by the government, and so would drop rates. That would result in many more people suddenly being able to afford supplimental healthcare plans to cover that first $7,500.

You'd have to mandate that the insurance companies treat patients over the $7,500 exactly as they do the sub-amount patients, and start enforcing some efficiencies on the system.

Pharma prices are just insane. We should not be subsidizing universal healthcare in Canada, France, and Japan by paying markedly higher prices for drugs in the name of "Innovation". We should be taking the average price paid by those countries for drugs and telling the Pharma companies that that amount is what we'll pay.

Of course, nobody listens to me. :)

by NapalmGod 2005-11-23 09:10PM | 0 recs