General Motors How Do You

General Motors

How do you think that GM's employee compensation with regard to healthcare got so "out of control?" How is GM similar and different from other unionized organizations? How might this be different for non-unionized organizations?

GM's healthcare costs threaten the viability of the automaker, and it is in large part due to the bargaining power of unions when demand for GMs' flagship vehicles, the SUVs, were setting sales and profit records. Paradoxically the jobs the unions worked so hard to protect are now threatened due to the exceptionally expensive healthcare costs the UAW specifically has placed on GM. Through a series of these agreements with the UAW, GM is now providing healthcare coverage for 1.1 million employees and former employees, costing the company $5.6B in healthcare expenses in 2006 (Teslik, 1). Further, the automaker states that to cover the costs of healthcare the price per vehicle needs to increase $1,500 and in 2008, could reach $2,000 per vehicle (2) an astounding figure given the rapid production cost declines and vehicle pricing at both Honda and Toyota. Exacerbating these costs is the fact that UAW members pay only 7% of their own healthcare costs while salaried employees pay 27% (Jacoby, 1). In an interview with the Detroit News, incoming president of GM estimated that healthcare costs would grow by almost 15% annually (Vlasic, 1). When negotiating with the UAW during the peak demand and sales cycles of SUVs in the late 1980s and throughout the 1990s, GM did not forecast price erosion and competition, nor did the planners take into account gas pricing and the elasticity of demand at the high end of the SUV market as a result of this dynamic either. The result were negotiations completed assuming that revenue and profits for the star products of the GM auto portfolio, the SUVs, would continue to grow and deliver profitability.

From the standpoint of assuming modest to even aggressive growth and basing its bargaining strategy with unions on the assumption of future growth, GM is very much like many other U.S.-based manufacturers. What specifically occurred with GM however was the willingness to pay for healthcare for all UAW members now either retired or let go due to lack of product sales driving production (Vlasic, 1). GM is also very similar to other manufacturers in that their reliance on unions for key skilled workers, compounded by intense political pressure not to pursue skilled talent in other nations, forced GM into a no-win situation with the unions. They could not pursue outsourcing due to intense political pressure and the corporate tax implications of a massive layoff, and re-tooling for high levels of automation in plants would be even more expensive than agreeing to the unions' demand. As a result of these and less strategic, yet just as critical factors, GM faces a question of financial viability for the first time in its history.