Two perspectives on General Motors

In today’s Boston Globe, Derrick Jackson suggests that GM could save itself by cutting back on the sales of its most profitable line of vehicles (SUVs). His next great proposition is that because General Motors cannot control health care costs for its workers, national healthcare is the answer. To borrow an expression, if you think health care is expensive now, wait until it’s free.

Sometimes it’s altogether possible that there are problems in America that do not require a massive new government program. It’s true! For a more proximate review of General Motors woes, check out Robert Samuelson’s “The fate of ‘Made in the USA’”:

In 2004, GM's average selling price of $26,479 was $435 lower than in 2002, reports the consulting firm J.D. Power and Associates. Unfortunately, the resulting revenue pinches profits or pushes high-cost producers, such as GM and Ford, into the red. True, GM's distress (and hence Delphi's) stems partly from unappealing vehicles that don't sell well even at lower prices. Since 1999, GM's U.S. market share has dropped from 29.6 percent to 26.4 percent. But high labor costs are also a huge problem. GM and Delphi's hourly wages average about $27 under similar contracts with the United Auto Workers (UAW). Counting fringe benefits and retiree costs (health care and pensions), these soar to $65 for Delphi and $74 for GM.

Since 1948, the UAW and GM, Ford and Chrysler have crafted contracts that turned the companies into mini-welfare states, providing above-average hourly wages (today's average for all manufacturing: $16.60), rich fringe benefits and strong job security. For example, laid-off UAW workers essentially get full salary and benefits indefinitely. With limited competition, companies could pass along common labor costs to consumers and compete on styling and performance. No more. The protected market has given way to imports and foreign firms with nonunionized U.S. plants. Price competition is fierce.

Now comes the reckoning. The market and the welfare state collide.

The realities forced upon General Motors are not unlike the chasm between federal entitlement promises and the ability to pay for them. Washington would do itself credit (for once) to grasp the comparison now rather than later.