GM's $1,000 Per Truck Health-Care Tab Benefits Toyota; Why UAW Talks Are Crucial

[Ming]

GM's $1,000 Per Truck Health-Care Tab Benefits Toyota
By Jeff Green
http://www.bloomberg.com



(Bloomberg) -- The $40,000 blue Chevy Silverado pickup that Justin Crenshaw bought last month in Oklahoma City had one built-in feature that Kent Hickman's new Toyota Tundra lacked: the health-care tab for retired factory workers.

Paying the retiree health benefits adds about $1,000 to the cost of each Silverado made by General Motors Corp. Toyota Motor Corp., which will overtake GM this year as the world's largest automaker and is boosting Tundra sales in the U.S., is spared almost all such expenses, according to auto industry analysts.

The gap gives Toyota more cash to spend on improving its vehicles, helping the Japanese automaker lure buyers like Hickman, 69, a retired U.S. foreign-service worker in Castleton, Virginia. It also explains why cutting the retiree health-care bill tops the U.S. automakers' agendas in this month's contract talks with the United Auto Workers union.

``Health care is the No. 1 cost issue,'' said Kirk Ludtke, an analyst at CRT Capital Management in Stamford, Connecticut. ``If they can fix it, it would dramatically improve investor sentiment for the whole sector.''

That $1,000 penalty, applied across GM's annual U.S. vehicle sales, siphons about $4 billion a year in working capital from the Detroit automaker, said Standard & Poor's equity analyst Efraim Levy in New York. Ford Motor Co. and DaimlerChrysler AG's Chrysler incur comparable penalties on their large pickups.

A Different Time

``It really is a legacy of a time when there was less competition and the Detroit Three could pass on the costs,'' said Levy, who rates GM ``sell'' and Ford ``hold.'' ``They can't pass on those costs any more.''

That money could be spent bringing out models faster, improving quality or adding features that win back customers like Tundra buyer Hickman, who said his decision ``boils right down to quality.'' Crenshaw, a 27-year-old U.S. Air Force officer, said he chose the Silverado for its ``better performance.''

U.S. automakers' share of their home market declined to 53.1 percent in the first half of this year from 63.5 percent in 2002 and a high of 87 percent in 1962, when GM peaked at 51 percent of the market.

The difference in health-care spending is helping to loosen Detroit's grip on one of its last remaining product strongholds: the full-sized pickup truck.

The three automakers claimed 89 percent of U.S. sales of the vehicles in the first half of this year, according to Autodata Corp. of Woodcliff Lake, New Jersey, which collects industry figures. The Tundra, built in a new plant in San Antonio, had 7.7 percent, up from 4.6 percent in 2002.

Health-care costs contributed to a combined loss of $15 billion for the U.S. automakers last year. Toyota posted a $14 billion profit.

Detroit automakers estimate that eliminating the difference in health-care expenses for current and retired workers would erase half of the $25-an-hour advantage Toyota has in labor costs over U.S. automakers.

The rest stems largely from workplace practices that raise costs, such as restrictions on job assignments, and generous vacation allowances that the UAW and the Detroit companies have negotiated over the years.

Under the agreement on health benefits, GM retirees pay a maximum of about $750 a year out of their own pockets. GM covers the rest.

FULL ARTICLE

[GMusa]

Something needs to be done.. and fast!

[marshall5758]

Chevy trucks are far better than Toyota, AND cheaper!! (price them out option for option). Still, people buy the Toyota. General Motors needs better marketing!!!

Instead of taking away from the little guys that build all these trucks, how about eliminating the multi-million dollar salaries and bonus packages that GM pay their executives???? GM top execs make much more than their Toyota counterparts. Give the guy that MAKES the product a break!!
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[tamatt27]

Hell, GM's done more for their workers in regards to healthcare than the US gov't has done for the citizens... Which is not good. I do hope the Big 3 can get this situation under control...

[steverino]

his decision ``boils right down to quality.'' Crenshaw, a 27-year-old U.S. Air Force officer, said he chose the Silverado for its ``better performance.''

Obviously build better quality (which the UAW assemblers are doing) and better performance (which GM salary engineers/designers are doing). Salary & hourly pulling together can make legacy costs less of a problem by providing the customer with better built vehicles than the competition thereby commanding a premium price which can cover any some excess costs

[tamatt27]

Originally Posted by steverino

Obviously build better quality (which the UAW assemblers are doing) and better performance (which GM salary engineers/designers are doing). Salary & hourly pulling together can make legacy costs less of a problem by providing the customer with better built vehicles than the competition thereby commanding a premium price which can cover any some excess costs

So what's one thing that GM can, and should, do something about? The retired workers who are leeching off the company. Granted they were promised several things, however GM just cannot afford to support them. It's unfortunate, but I think that the retired workers should bare the most lost.

[sigma]

Originally Posted by steverino

Obviously build better quality (which the UAW assemblers are doing) and better performance (which GM salary engineers/designers are doing). Salary & hourly pulling together can make legacy costs less of a problem by providing the customer with better built vehicles than the competition thereby commanding a premium price which can cover any some excess costs

Very good point. You just have to find a way to build a product that commands such a premium and your starting out $1000 in the hole. I think GM should keep its promises to its retirees but there are ways to reduce the impact of those costs on the operation.

Secondly, GM doesn't have much pricing power in the market right now because of the massive incentives that Toyota is running. I know lots of people here are part of the "buy America" (which I also do whenever its possible) but when someone has the choice between a Tundra that's 5k cheaper than a Silverado and the Silverado, they will pick the Tundra.

All of these incentives will bite Toyota in the ass eventually, but I don't think that will happen fast enough for it to benefit GM positively.

[sigma]

Originally Posted by tamatt27

So what's one thing that GM can, and should, do something about? The retired workers who are leeching off the company. Granted they were promised several things, however GM just cannot afford to support them. It's unfortunate, but I think that the retired workers should bare the most lost.

Those retirees gave their entire professional lives to General Motors and were promised a set of retirement benefits in return for their years of service. GM could have objected to the benefits in previous union negotiations but they didn't. The problem is more due to weak management for the previous 20 years (from Roger Smith to Jack Smith/Ron Zarrella) than anything else.

[fastball]

I was very skeptical about Toyota making a serious truck untill I went to the auto show. I'm not a "truck guy", but I compared the Silverado to the Tundra and saw a few glaring issues GM needs to fix ASAP, and it sounds like fixing this health care issue will help:

The Tundra comes with STANDARD side airbags and full curtain airbags. You can't even get full curtain airbags on the GMT-900s

Toyota's interior, while a bit avante-garde for a pickup truck, uses higher quality plastics than GM's. GM has just as good fitment of all the pieces, but the quality of plastics can and should still be improved.

And lastly, I hate to beat a dead horse, but those 6 speed transmissions are probably the biggest reason the Tundra is starting to snatch a few sales away from GM. I don't want excuses GM, every GMT-900 at every trim level with every engine should have had a STANDARD 6 speed transmission the very second they were released and the first one appeared at a dealer. Not midway through the product cycle, not only offered on the top line models, but from the begining with every model. Every one of the 22 different Silverado combinations of drivetrain, cabin, and bed sizes should come standard with a 6 speed transmission, end of story.

[tom3]

Are Gm retirees not accepted in Medicare? Seems like a supplemental policy would not be breaking the bank for those who should be covered on this. How young can a GM employee retire? The retirees deserve what they were promised during their working years, but it doesn't make sense to continue private full coverage if there is a an alternative that's nearly equal.

[Havasavana]

Originally Posted by sigma

Those retirees gave their entire professional lives to General Motors and were promised a set of retirement benefits in return for their years of service. GM could have objected to the benefits in previous union negotiations but they didn't. The problem is more due to weak management for the previous 20 years (from Roger Smith to Jack Smith/Ron Zarrella) than anything else.

Amen. GM entered into an agreement and now they want to escape their responsibility. A major reason that GM is in the tank now is the behavior of their managers for previous decades. They've bankrupted many suppliers, driven dealers to the edge and beyond in some cases and still they whine that things are too tough for them. Meanwhile they bring out new car models that have insufficient acceptance by non-fleet buyers. They've sold off assets for years and screwed everybody in sight and still they whine. Let's dump the pathetic duo at the top and bring in some real managers with proven years-long records somewhere else while there's still something to save.

GM could have gotten Mulally, but chose to stick with the failures they have. Mulally has a basket case to work with, but at least he's holding those who report to him accountable in weekly meetings. They have to show up themselves; no sending a subordinate, and they have to be able to answer questions and show a plan. GMAC gone, Allison going, SUV sales declining and now the family jewels under attack by a legitimate competitor from Toyota. GM has exited the minivan business due to years of neglect, has no real competitor to the Civic or Fit and fritters away the resources on flops like the SSR and niche things like the Camaro and RWD. It'll be over soon without a govt. bailout and lot of books will explain how it happened and what could have been done but wasn't. The money owed, but not paid, to workers won't be high on the list of real reasons for the debacle.

[hunchman]

Originally Posted by fastball

I was very skeptical about Toyota making a serious truck untill I went to the auto show. I'm not a "truck guy", but I compared the Silverado to the Tundra and saw a few glaring issues GM needs to fix ASAP, and it sounds like fixing this health care issue will help:

The Tundra comes with STANDARD side airbags and full curtain airbags. You can't even get full curtain airbags on the GMT-900s

Toyota's interior, while a bit avante-garde for a pickup truck, uses higher quality plastics than GM's. GM has just as good fitment of all the pieces, but the quality of plastics can and should still be improved.

When I come across **** like this it makes me wonder how GM will ever stand a chance. These are full size pickup trucks with heavy duty frame underneath so if you're wearing your seat belt the side and full curtain airbags are a waist of time. If you want to argue about it being more safe and peace of mind.blah vlah blah then wear a full helmut the next time you go for a drive , heck put a fire suit on too while you're at it.

Hgher quality plastics eh.what a laugh. I guess toyota uses special resins from mars to make these superior plastics for the tundra. people wouldn't know the difference in plastic if they were slapped upside the head with it. Oh thats righrt you can feel it and it was softer right?

[hotrod1949]

These people all worked for GM for years, developed their retirement plans around benefits that GM promised them,and now GM wants to take these benefits away? That is so wrong. Every senior executive should have to return all bonuses and the cost of perks for the last 30 years as well, stock options, the whole bit. It was their lack of forethought that has GM in this mess.

I can agree with bargaining for reduced benefits for current and future workers, but to take from those who have completed their service is just wrong.

[racy]

Originally Posted by tamatt27

Hell, GM's done more for their workers in regards to healthcare than the US gov't has done for the citizens... Which is not good. I do hope the Big 3 can get this situation under control...

You make a good point here, which has never really been addressed. We all like to Union bash, but we shouldn't forget the solid years of GM's huge contribution to the workers and national economy. I rarely hear anyone (including myself) saying thank-you to GM for this.

[ByTheLake]

Originally Posted by hunchman

When I come across **** like this it makes me wonder how GM will ever stand a chance. These are full size pickup trucks with heavy duty frame underneath so if you're wearing your seat belt the side and full curtain airbags are a waist of time. If you want to argue about it being more safe and peace of mind.blah vlah blah then wear a full helmut the next time you go for a drive , heck put a fire suit on too while you're at it.

Hgher quality plastics eh.what a laugh. I guess toyota uses special resins from mars to make these superior plastics for the tundra. people wouldn't know the difference in plastic if they were slapped upside the head with it. Oh thats righrt you can feel it and it was softer right?

Why is it that every time a person has a decent remark about the Tundra, the GMI crowd attacks, mostly out of fear? It's this lack of open discussion that taints these forums.

Instead of attacking this person's view, why not ask him why the full curtain airbags are a selling point to him? If it's a selling point to him, there are likely many others that feel the same way. GM has to address customer desires.

I've now spent a full weekend with two different '07 Silverados, one with the 'truck' instrument panel, the other with the 'luxury' version. Neither was impressive to me, and the regardless of the PR coming from Detroit, I'm seeing precious little improvement in the quality of interior plastics. Sure, the instrument panels are shaped and colored nicer than before, but the materials, in many cases, are the same ol' hard, unattractive plastic as before.

My wife's new '08 Acadia is jam-packed with rock-hard plastic everywhere.