Another insightful view of the debacle at GM and Ford is offered up the The Economist, (subscription may be required) which notes:
“GM says that $1,500 of the price of every new vehicle it sells goes towards health care for past and present employees. The firm’s commitments are shockingly vast. It pays the health insurance of some 1m retirees and their dependants as well as its current 200,000 American workers and their families. The deal with the UAW will provide some respite. Though not all details of the deal have been disclosed, the carmaker said it would result in a cash saving of $1 billion a year and would slice $15 billion off the firm’s health liabilities towards its pensioners.
(Details of the health care deal emerged yesterday, indicating that for the first time GM employees and retirees would have to pay part of their monthly premiums, along with deductibles and hospital co-pays)
Rick Wagoner, the chief executive, called it “the single biggest cost reduction in a single day in the history of GM”, though these cuts alone seem unlikely to be enough. Analysts’ estimates of GM’s unfunded obligations (before the cuts) are around the $70 billion mark, most of them in relation to retirees’ health costs. And the firm has promised to fund a new plan for employees affected by the cuts, costing $3 billion, delivered in three instalments beginning in 2006. So it still has a mountain of cost-cutting to climb
Oct
21
