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Although, GM, by funding an independent trust, has managed to move retiree health care costs off the books, the residual liability remains unclear. As with the Delphi spin off, if GM must step in when the health care trust runs out of cash, this may prove nothing more than a bookkeeping rouse. Otherwise, Mr. Gettelfinger has set up his successor to deliver the bad news to GM retirees, that there is just not enough money to meet their expectations. The actual outcome will like lie between those two extremes. That aside, much of GM’s labor cost disadvantage lies in the wages and fringe benefits it pays workers making cars today--those are not legacy costs. The pact does not much reduce the premium GM pays over Toyota, except only new hires. Temporary workers will be upgraded to the existing pay structure, and according to the Detroit Free Press, only those new hires that are not directly involved in the production of vehicles will be offered the new, lower pay scale. Toyota already has the ability to differentiate pay among production workers and those that mow the lawn, and the fundamental cost disadvantage imposed by GM’s high scale for workers on the line remains. The pact does not call for new pay raises but it does provide for significant bonuses in the out years of the contract; hence, the pact raises pay but GM and the UAW hope investors won’t notice. Other disadvantages will also continue to apply. For example, the agreement constrains GM investments, such as commitments to make certain products in the United States, that Toyota and other Asians do not face. The same goes for burdensome work rules and limits on locating and selecting suppliers to maximize supply chain efficiency Overall, GM was very very uncompetitive before this deal and is now just very uncompetitive. The pact’s ultimate impact will depend on how the agreement is applied to Chrysler and Ford. Those companies can less afford to continue the madness the UAW imposes. If they buy into this pact, GM may continue to hold is own while Toyota and the other Asian manufactures eat up Chrysler and Ford. It’s the old story of the bear chasing hunters in the woods. The fastest hunter does not have to worry, because the bear will eat the slowest runner. Peter Morici discusses the US economy on US TV and National Public Radio: CBS Evening News: September 22, 2007 MarketPlace: September 22, 2007 Professor, Robert H. Smith School of Business, University of Maryland, College Park, MD 20742-1815, 703 549 4338 703 618 4338 Cell Phone http://www.smith.umd.edu/lbpp/faculty/morici.html http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm © Copyright 2007 by Finfacts.com |
