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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 employee costs.


© 2008 North Star Writers Group. May not be republished without permission.


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