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November 24, 2008
Solution for GM’s
Legacy Costs? Universal Health Care
Less than a month ago, the Fiat Group announced that it
was offering a health care plan supplemental to what the company’s
workers already had. For an additional 150 Euro a year, of which the
company is on the hook for 100, workers can enroll.
If each of the company’s
70,000 blue-and white-collar Italian workers (a number cited in the
press release) participate in the program, the company’s expenditures
for health care will rise by about 7 million Euros, or about $8.4
million. Based on end-of-year production at the company’s factory at
Termini Imperese, which is expected to be at around 220,000 vehicles
total, that translates into just about $40 for additional health care
costs per vehicle.
That’s just one factory,
and just one aspect of Fiat’s production. The company – Italy’s biggest
manufacturer – owns facilities all across Italy and produces products in
industries ranging from boat engines to agricultural vehicles.
It’s important to
remember that this is coverage supplemental to the primary health care
plan in which Fiat’s Italian workers are enrolled. For that, the
company’s costs are zero.
Italian workers, like
workers in most of the rest of the industrialized world, receive
universal health care.
In other words, Fiat pays
nothing for the primary health care service offered to its workers.
This is the backdrop
against which Fiat last week criticized the possibility that the U.S.
Congress might extend aid to its own auto industry. Not a bailout, this
money was meant to bridge the storm in the financial markets and help
the companies adjust to demand that changed faster than anyone
anticipated (well, anyone who didn’t think that auto demand was heavily
tied to the price of gasoline).
The company said that
such a rescue package would unfairly tip the competitive playing field
in favor of American auto manufacturers through government subsidies.
It’s an odd criticism,
especially when Fiat’s health care costs are covered by Italy’s
government, whereas management for the Big Three last year pointed to
$2,000 as the per-vehicle price tag for employee health care costs, Fiat
pays nothing. Health care is the most basic government subsidy in most
of the industrialized world.
Some of Fiat’s criticism
is no doubt based on the hope that if GM enters bankruptcy – which the
company says it will do failing aid from the U.S. government – GM’s
operations in Europe will also falter. As of earlier this year, GM was
still turning a profit in Europe, and lost money that particular quarter
because of losses in the company’s finance unit and changes in domestic
demand. In short, what Fiat criticized as government subsidy is in
reality a desire to see the competition weakened. Where the two operate
on equal footing, it turns out that American automakers aren’t as
incompetent as advertised.
The biggest question for
the Big Three is how to turn around things domestically. Critics point
to legacy costs, or the cost to maintain health care for retirees. Much
of that will disappear after a new contract takes effect in 2010, when a
UAW-managed trust fund will take it over.
Until the industry fully
adjusts, the Big Three continue to compete against foreign-owned
automakers who burst onto the scene in the late 1990s in the American
south. (Anyone wonder why it was southern lawmakers most vocal in
opposing the rescue package?) Those automakers come with the advantage
of not only millions of dollars in tax breaks – government subsidy, if
you will – but also without the costs built up over 80 years of taking
care of retirees.
How to make everyone
equally competitive? Well, by relieving every automaker of the costs
associated with providing health care. Providing the same kind of
government subsidy that the Italian government gives to cranky Fiat –
health care for all – would get rid of that $2,000 per vehicle cost and
help provide American manufacturing a long-term solution to managing
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