What's good for General Motors is good for America

March 23, 2005 7:14 PM

GM in trouble: "If you erased the company name from the balance sheet and showed it to a forensic accountant, the recommended treatment would probably be to seek protection from creditors by filing for Chapter 11 bankruptcy. " GM's troubles are as much a result of the exploding costs of health care as they are due to the company's dropping market share. In Canada increasing health care costs (PDF with many charts) are taking a greater and greater share of government expenditures. In the US it's hurting big employers and regular people. But either way the problem doesn't seem likely to get better any time soon.
posted by bowline (43 comments total)

If you think corporations are hurting, just think about what individuals pay who have no coverage at all.

I had coffee with a friend of mine today, and he talked about suffering from a heart arrhythmia that sent him to the emergency room two months ago (don't worry, he had decaf). He had recently left a FT position but luckily still had health coverage.

If he had no insurance, he would have paid $22,000 for his three-day ER visit. He will likely be paying $2K per month for drugs to manage his condition, once his plan runs out.

After a little more research, he discovered that the cost of healthcare to his group plan is 60% less than the cost to an individual person.

GM's troubles are not due to healthcare coverage, they are due to GM not being an efficient business. If its employees were forced to cover themselves, you can be sure GM would go under even faster given its workers would mostly be sick or hurt, and their productivity would go down.

Almost 50% of healthcare costs are for bookkeeping, not for procedural care. Further, insurance companies make a large chunk of their profits from capital gains from investments, and when the market suffers, profits go down and insurance companies point fingers at everyone (malpractice, etc.) but themselves.

Healthcare is one obvious case where the free market has shown itself to be inefficient, if the goal is to keep everyone relatively healthy. I don't know what the solution is, but the free market is clearly not working.
posted by AlexReynolds at 7:34 PM on March 23, 2005

GM's other recent headache was their partnership with FIAT, they recently bought their way out of it, I think it cost 'em $2 billion.
posted by riffola at 7:40 PM on March 23, 2005

Speaking off the record as a corporate vampire (I worked on the Enron bankruptcy [think Big 4]).....GM is fucked.
posted by wah at 7:45 PM on March 23, 2005

I thought the core of their problems was bland, cheap-feeling committee-designed vehicles...
posted by clevershark at 7:46 PM on March 23, 2005

Shortly after I hired in we had a downturn (1981), then there was another scare in the early 90's. This is just number 3. Also, GM salaried employees pay for between a quarter and a third of their healthcare now. GM isn't fucked, either.
posted by rfs at 7:49 PM on March 23, 2005

My "always buy American" friend told me his latest auto purchase -- a 2004 Buick -- was in the shop again and said he would never buy a another GM product. It seems to me, you have to get it right on the product side, or suffer the forces of the marketplace.
posted by mania at 7:58 PM on March 23, 2005

I thought the core of their problems was bland, cheap-feeling committee-designed vehicles...

Exactly. Their "Awesome new lineup" is absolutely HORRENDOUS, I have no idea what in the world they were thinking with these cars. The Cobalt seems to be the only halfway decent looking car, and if it follows the GM design pattern, it will probably feel like an absolute piece of crap when you get inside and drive it.
posted by antifuse at 8:00 PM on March 23, 2005

When my fiancee was taking an HR class, the professor used GM as an example. According to him, 20% of the money that you pay towards a car goes twoards retiree pension and healthcare. I don't know if this is normal for many major corporations, but it sure sounds like a whole lot of cash that can't get reinvested into a company.
posted by Arch Stanton at 8:33 PM on March 23, 2005

As clevershark noted: they might be able to pay their health care bills if they didn't turn out mistakes like this and this.
posted by QuietDesperation at 8:41 PM on March 23, 2005

If they had any brains at all, they'd be joining the fight for National Health Care.
posted by amberglow at 9:06 PM on March 23, 2005

The healthcare issue also effects Ford and Chrysler/Benz. Since they are not in dire straights, its pro'lly not a health care related issue.

Also, since GM owns or controls many non-US operations in socialized medicine counties and they all suck and are losing market share too, it realy really reallly pro'lly isn't a health-care issue.
posted by Jos Bleau at 9:14 PM on March 23, 2005

As a non-American who doesn't really know what you're talking about in terms of the GM range, I read a lot of these comments and can't help but break into a Herb Powell voice.

"$82,000 for this monstrosity? I'm RUINED!"


Also,

Aging population + rising costs in healthcare administration + rising costs of machines that go PING! = a lot more Schiavos in the future.

Hot tip from The Henge: Don't get sick.
posted by uncanny hengeman at 9:32 PM on March 23, 2005

Yeah, forget the health care, and think pensions (Arch Stanton mentioned it).

This month's Harper's has a good article about how corps have been overestimating rates of return to reduce pension payments, inflate earnings, and boost stock prices. Chickens, roost. Roost, chickens.
posted by mrgrimm at 9:40 PM on March 23, 2005

Assessing the "legacy costs" - a nice translation of CEO speak.
posted by mrgrimm at 9:43 PM on March 23, 2005

If they had any brains at all, they'd be joining the fight for National Health Care.

Slate ran an article last year about how big business is increasingly supporting government health care systems. Businesses are slowly getting the message, but it's taking a long time. Health care is draining money from the government at all levels and draining money that businesses can invest in themselves. The sooner they try to do something about it the better. A little socialism here and there isn't a bad thing for the economy.
posted by Arch Stanton at 9:43 PM on March 23, 2005

And it makes sense for them selfishly and wall-streetwise too. It's win-win for corporations. And we do medicine (and pensions) pretty well--when Republicans aren't cutting it or trying to kill it. Medicare, Medicaid, all the children's health things in many states, Soc. Sec...
posted by amberglow at 9:45 PM on March 23, 2005

As a non-American who doesn't really know what you're talking about in terms of the GM range

In Oz, Holden. And Chevrolet / Pontiac / Buick / Opel / Vauxhall / Cadillac if you get any of those.
posted by ROU_Xenophobe at 9:47 PM on March 23, 2005

What they will probably do is drop some retirees, causing even worse PR for them, besides hurting tons of old people (who vote).
posted by amberglow at 9:55 PM on March 23, 2005

The well-run administrative beaurocracy of government over the publicly health care system alone would save hundreds of billions a year. The health care industry then needs to be retooled into being non-profit. Yes, it would cause a brain drain to some extent, but the overall level of health care would rise dramatically for all as a whole as well as be immensely cheaper. Anything to prevent ads like the 'blue horn' Viagra ones from a few months ago would be a fix in my book.
posted by Arch Stanton at 10:02 PM on March 23, 2005

GM is not flirting with bankruptcy just because of health care costs. It is in difficulty because it is a giant poorly run bureaucracy which was not in a good position to meet the challenge of a dramatic increase in costs in one area of its business.

What is not often realized by those looking at businesses from the outside is just how many of them just barely get by. A few percentages points in the wrong direction and a profitable business becomes a losing one. A couple of years of that and before you know it even a relatively well run business can run out of money.

Multiply GM by thousands of other businesses on the brink and health care cost increases could mean a scary number of dead companies.
posted by bowline at 10:21 PM on March 23, 2005

I don't know why, but this scares me. The auto industry is one of the very few American industries left. I don't care how much we get from the new economy, will still need to build widgets of some kind if the economic system is going to continue.

I don't like seeing 1/3 of the last bastion of American production in this precarious a shape.
posted by teece at 12:08 AM on March 24, 2005

Speaking off record I know first hand that we have been told not to offer as high rebates or reimbursements as before. The meeting was an upbeat explanation of how we need to "kick things up" but I got a strong impression they were worried about the goodwill being kicked out to customers. Our management team has been told to reduce approval for reimbursements and GMPP (Extended warranties) and even our primary goodwill teams have been stripped of their empowerment. This has caused a dramatic change in our policies.

Of course, I wouldn't by Ford either. Toyota is my kind of car, maybe Volvo.
posted by Dean Keaton at 1:20 AM on March 24, 2005

You realize that Volvo is owned (pwned?!) by Ford right?
posted by antron at 1:59 AM on March 24, 2005

It is in difficulty because it is a giant poorly run bureaucracy which was not in a good position to meet the challenge of a dramatic increase in costs in one area of its business.

Add to that the fact that it's heavily invested in making SUVs, trucks, and "muscle" cars, and has almost nothing in the small to middle range market worth selling, in a time when cost of debt is increasing (making it harder to buy larger items of capital) and fuel costs are increasing (making it harder to keep large vehicles.)

And, with the market turning against large ones, esp. trucks (notice how long 0% and rebates have been running for trucks? Notice how they aren't running on small cars? Hint. Hint. Hint.) this leaves GM basically screwed.

Now, I have no doubt that healthcare costs are hurting them badly. Healthcare costs are screwing *lots* of companies and people badly. But healthcare is far from GM's biggest problem. Thier biggest problem is they inefficently make products that the demand for is dropping. You can afford inefficeny when the demand is higher, but when demand drops, you get problems.

See the airlines, in particular, the equation of (# of butts flying / cost of seat)/number of seats flying. When the first term was high, you could charge lots. When it dropped, and the denominator didn't, suddenly, cost of product became lethal.
posted by eriko at 4:39 AM on March 24, 2005

Wow, did The Corner somehow take over The Blue -- a bold FPP demand for socialized medicine slapped down by one cold hard capitalist after another pointing out that health costs didn't cause GM's problems and passing them on to the government won't be their solution either.

In any event, the needs of big business aren't really a good place to argue for more government involvement. Big business health plans (if well managed, which GM's is not) can get attractive rates, can synchronize with workplace healthy living plans, etc.

It's small business formation and operation which the current health care system really hurts.

You either pay through the nose in time and money to set up a plan, or go without a plan, and thus have a terrible time recruiting decent employees.

Several times in the past few years folks I've known have folded up there businesses exactly 18 months after launching -- not because they had failed, but because that was the end of their and their first hires' COBRA eligibilities and they weren't generating enough cash to set up a family coverage plan.
posted by MattD at 4:55 AM on March 24, 2005

It would be nice if someone in this thread would address the reality that GM is going broke. Rant all you want about American lack of medical insurance, but sob stories about medical debts are not going to keep GM out of bankruptcy.
posted by ParisParamus at 5:29 AM on March 24, 2005

This is like in the early 70s, when the US automakers were "caught" making the wrong kinds of cars during an oil crisis. Except they weren't caught at all--then or now--they've been well aware of the trend swinging away from SUVs and trucks--and we're not at the every-other-day-gas lines yet, like we were back then.

If they're going broke (again), it's their fault. Don't try to get out of it by punishing people who worked for decades.
posted by amberglow at 5:38 AM on March 24, 2005

These are the same corporations that don't pay taxes right?
posted by filmgeek at 6:00 AM on March 24, 2005

I don't like seeing 1/3 of the last bastion of American production in this precarious a shape

We already saw another 1/3 vanish. The Big 3 has already become the Big 2: Chrysler/Benz was no merger, it was a takeover.

The auto industry is one of the very few American industries left.

I gave up on that precious belief the day I was hitching a trailer to a John Deere tractor and noticed the PTO was made by Mitsubishi. Japanese parts in a John Deere! I don't know what American industry means anymore.
posted by BinGregory at 6:05 AM on March 24, 2005

If they're going broke (again), it's their fault. Don't try to get out of it by punishing people who worked for decades.

amberglow, who exactly do you think gets punished if GM goes broke? Hint: It ain't just the executives.
posted by pardonyou? at 6:42 AM on March 24, 2005

I've worked a bit with GMAC, the insurance and financing arm of GM. I can't confirm this definitively, but more than one GMAC exec has mentioned that GM hasn't made money off the cars in ages. GM's primary revenue, say these financing folks, is the financing of the cars.

Scary and plausible.
posted by cloudscratcher at 6:48 AM on March 24, 2005

cloudscratcher, that's partially accurate. GM is a publicly traded company -- you can access all of their financial information, and see exactly how much money they make from vehicle operations and GMAC. The truth is that a majority of their profits in recent years are attributable to financing. It's not true that they haven't made any money from cars, but there have been some quarters where GMAC has been the difference between profit and loss.
posted by pardonyou? at 7:02 AM on March 24, 2005

Following up on my last post, in 2004, GM had a net income of $3.9 billion. GMAC was responsbile for $2.9 billiion of that, while vehicle operations generated a profit of $1.2 billion.

source
posted by pardonyou? at 7:06 AM on March 24, 2005

a bold FPP demand for socialized medicine

Oh good grief. Take off your wingnut-colored glasses.
posted by Armitage Shanks at 7:33 AM on March 24, 2005

GM's troubles are not due to healthcare coverage, they are due to GM not being an efficient business.

[from memory]
Efficient in the adult entertainment industry. Recall them owning Direct TV the largest XXX movie pay per view subscriber. Which has hundreds of different XXX movies being played at one given time. Has helped the hotel industry's profits by replacing the lower alcohol sales today. This is GM's biggest profit maker. How much health care is needed here?
Better efficient that you echoed the cry’s of Bush’s Christianity every time you saw a “hummer.”
posted by thomcatspike at 7:56 AM on March 24, 2005

I gave up on that precious belief the day I was hitching a trailer to a John Deere tractor and noticed the PTO was made by Mitsubishi. Japanese parts in a John Deere! I don't know what American industry means anymore.

But, don't many of the big Japanese companies (Toyota, Honda, and Mitsubishi, for instance) do a lot of the work here in the US? At least they're creating jobs in America, which is more than one could say for a lot of the American companies that are slowly eliminating jobs here in favor of outsourcing.
posted by Kellydamnit at 7:56 AM on March 24, 2005

It's pretty silly to blame a company's poor financial situation on any single factor. Obviously the pension and healthcare costs contribute, but if other areas were more efficient or if their revenue streams increased, those costs would become less significant.
posted by raedyn at 8:10 AM on March 24, 2005

I have no *right* answers -- just a couple of questions and notes:

If they had any brains at all, they'd be joining the fight for National Health Care.
I know I am generalizing here, but, wouldn't such a plan, if it passed through legislation, just be another valence issue ... that is, "irresponsible" legislation that mandates spending but doesn't account for where the funding will come from? How are we going to fund this? By raising taxes?

The health care industry then needs to be retooled into being non-profit.
The other side of this argument: Does this occur at the expensense of innovation? Compitition breeds innovation. In a capitalist state, altruistic motiviation is scarce. So how do you encourage this?

Notes on General Motors (from UTexas course in management): "GM mgmt has never been stellar. In 1975, Rodger Smith negotiated with the Auto Workers Association -- he said GM can’t pay higher wages, but then he goes and gives million dollar bonuses to the management execs. That’s leadership. / GM sinks $5B into the Saturn plant and they buy EDS. And then they post [one of] the LARGEST SINGLE LOSSES EVER. / GM had to close 32 plants in 1992. / GM has never been economically responsible: their Corvair would go out of control at 34mph if you turned the wheel wrong. It was a $136 fix but GM never recalled the car. This problem later cost them millions."

A good article about Toyota and the auto industry from the Economist.
posted by fourstar at 8:22 AM on March 24, 2005

For the record I just purchased a mini-van from GM. The most appalling thing for me was that as far as mini-van's go NOBODY has good gas mileage similar story with SUV's. Did I need a van right now? No, but with a 6 month old and the thought of having more children, the current vehicles weren't working. It's not like I went out and got the worst of the mini-van's for gas mileage either. I know there are some mini-van's that get/got way better mileage, but they didn't have storage or other features needed. Anyway, my rant is this: My folks purchased one of the first generation of mini-vans and I just purchased the latest generation, can you guess which one gets/got better gas mileage? That's right the one from 1986 NOT the one from 2005. So in nearly 20 years with all of the "improvements" the auto industry has made, they still can't make a car that gets better than 15-20-25 city?

Bottom line for me is that the auto/oil industry seems to look a lot like it did 25-30 years ago. What is worrisome in my opinion is that most US car makers didn't learn their lesson then or forgot the lesson then. If the car industry collapses in the US it will get bailed out by the Bush and Co, because otherwise the Oil industry will be next and the house of cards that is the US economy goes 1929.
posted by Numenorian at 8:28 AM on March 24, 2005

I know I am generalizing here, but, wouldn't such a plan, if it passed through legislation, just be another valence issue ... that is, "irresponsible" legislation that mandates spending but doesn't account for where the funding will come from? How are we going to fund this? By raising taxes?
Simple. Corporations contribute per worker. No cuts/percentages for HMOs or any other middleman. We pay in taxes what we pay now in payroll deductions and co-payments. That should be way more than enough money. And make it all tax-deductible if possible. But even if not possible, it's still cheaper than what's spent today--which doesn't cover 50 million. You can add 1% to our federal taxes too, to cover everyone else.
posted by amberglow at 10:25 AM on March 24, 2005

The HMOs where a mistake.
If you mandate that all businesses must pay into one account a certain % per employee, rather than into a for profit company hmo, you not only eliminate redundant admin effort you eliminate the high % that goes into the "profit" section of the current system.

As it stands now, if you get sick you go into debt without good insurance, and thanks to current bankruptcy changes you cant expect to get out of debt, well forever.
2 years ago i went into the ER for 3 hours. It cost $8k. Absurd.

Soon the only people that will be able to afford healthcare will be the wealthy and Terri S.
posted by edgeways at 4:27 PM on March 24, 2005

Not unless you have family that works for a sincerely good insurance company! I'm good until 26, with no extra fees whatsoever.
posted by Dean Keaton at 9:11 PM on March 24, 2005

(Hint: It sure as hell is not an HMO.)
posted by Dean Keaton at 9:11 PM on March 24, 2005