President Obama’s GM Test – Good or Bad Consequences Last Decades

JimofPennsylvan

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Jun 6, 2007
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President Obama has a huge test he faces with General Motors if GM doesn’t get its labor and debt costs down by this month’s deadline so going forward it can be readily competitive and profitable. The test is if these costs reductions aren’t achieved does the U.S. government give GM the billions in loans it has requested anyway thus choosing short term benefits, saving thousands of jobs stemming from GM, but sentencing America to a repeat of GM’s last twenty fives years of history where it has been an unprofitable and sick company or does it force GM into bankruptcy allowing the legal power of bankruptcy to produce the needed labor and debt cost reductions to make GM financially healthy but likely leaving GM permanently a much smaller automaker? If President Obama is faced with this test, if he is interested in doing what is best for the American people he will take the latter option and force a bankruptcy restructuring! He may save tens of thousands jobs short term by choosing the non-bankruptcy option but if he chooses the bankruptcy option over the long-term, after the financial unsoundness of the company catches up with it, he will end up saving thousands of jobs and those jobs will be stable and well paying and the company will end-up adding stability to the industry, economy and the communities which it touches. This GM problem along with basically the same Chrysler and Ford problems has been very polarizing and divisive to the nation, it would be a real tragedy for the country if the President takes steps with respect to GM where the American people will have to face this “whether or not to bailout GM” issue again? By this month’s deadline, if GM’s costs issues aren’t resolved the President should come out and say that the American government is going to stop throwing good money after bad with respect to GM, the automobile industry is too competitive and this business is too important in terms of jobs and wealth creation to the country, the government will forcibly fix the business through bankruptcy!

Hopefully though President Obama will not have to face this test, hopefully GM will get its costs issues resolved. On the current GM bondholder situation quite simply the situation is the GM bondholders have a decision to make are they going to cooperate and bring about a restructuring of GM outside of bankruptcy or are they going to force the Government to decide the above bankruptcy/no bankruptcy option? Evaluating what has been reported in the media about GM’s pursuit to restructure itself outside of bankruptcy with respect to its union, the United Auto Workers union has been quite remarkable in a positive sense in its behavior. The only area that seems where ordinary Americans could find fault with the UAW that would be apparent would be in the area of healthcare. Quite surprisingly the media has been rather silent on this topic with respect to GM/UAW relations when back in December that was the big issue and rightfully so because this is a big business expense. Public opinion was that GM’s workers health care benefits were premium/cadillac health care benefits which kind of wrankled a lot of American people because it didn’t seem quite fair to asks American taxpayers to pay tens of billions of dollars to bail out a company who would use some of that money to pay for health care insurance for its workers which was dramatically better that the health care plans many Americans were living with.

The majority of the American people can accept the UAW requiring good health care coverage for their workers but the fact of the matter is that GM’s UAW workers have premium/top of the line health care coverage evident in their limited co-pay provisions and their low premium provisions. The American people legitimately recognize this as over economically burdensome on the automaker, uncompetitive and unsustainable on the automaker or any automaker over the long-term. The American people aren’t expecting the UAW to accept a high-deductable health insurance plan which creates enormous pressure for participants to forego needed health care treatment (high-deductable health care plans should only be the option chosen by any worker for any business when the alternative is no health care coverage at all). What most U.S. taxpayers are looking for from the U.S. automakers unions is that they accept mainstream co-pay and mainstream premium share arrangements in their healthcare insurance plans. In GM’s case, not only would this save on a significant current costs for GM but it would also hold down health care cost increases in the future on GM thus allowing the company to be long-term competitive. This is a very important issue because health care costs, not even considering the issue of workers being judicious in the seeking of health care, rise significantly higher than the inflation rate year over year and this will certainly continue albeit to a marginally better degree because their isn’t the political will in Washington to gore the oxes of the major players in the health care industry it would take to get health care rises in line with the inflation rate such as pharmaceutical makers, medical equipment makers, doctors, hospitals, etc.. As referenced earlier mainstream co-pays and premium shares give workers fair incentives to hold down health care costs and from an ordinary American’s standpoint it will give there workers the motivation to be voting this issue come election time and help put elected officials in office that will take the needed action to get yearly health care cost increases in line with inflation and solve this problem for America.
 
There is no way GM will be able to reduce costs in any significant manner other than through bankruptcy. The whole pension plan, as it was set up, was plain stupid. Now, GM retirees are going to get the shaft one way or the other. The only reason I feel for them is that they were promised and expected to collect these benefits. The problem is the benefit structure was never viable.

An employee who started working at age 18 was eligible for full retirement benefits after 30 years. In other words, at age 48, they get the full package. So GM ends up paying some of these people for 17 years before they even hit 65. Who was the rocket scientist that came up with that plan?

The bottom line is someone is going to get hurt. No amount of bailout money will save GM or Chrysler in their present form, unless the government just picks up the tab for all of their employees retirement benefits. Guess what? I'm not supporting that under any circumstance, and neither will the vast majority of Americans.
 
Why doesn't GM just declare bankruptcy itself, rather than letting uncle make that decision? If they don't fix the basic problems no amount of money will help it will just prolong the inevitable, wasting billions in the process.
 
There is no way GM will be able to reduce costs in any significant manner other than through bankruptcy. The whole pension plan, as it was set up, was plain stupid. Now, GM retirees are going to get the shaft one way or the other. The only reason I feel for them is that they were promised and expected to collect these benefits. The problem is the benefit structure was never viable.

Probably spot on. It might have been, but ONLY if GM's sales continued to climb, hence putting more and more new workers into the system to suppor the retirees



An employee who started working at age 18 was eligible for full retirement benefits after 30 years. In other words, at age 48, they get the full package. So GM ends up paying some of these people for 17 years before they even hit 65. Who was the rocket scientist that came up with that plan?

Probably the same people who give our MILITARY retirement after 20 years, I expect.

The bottom line is someone is going to get hurt. No amount of bailout money will save GM or Chrysler in their present form, unless the government just picks up the tab for all of their employees retirement benefits. Guess what? I'm not supporting that under any circumstance, and neither will the vast majority of Americans.

Likely correct.

Given that few Americans have retirement packages at all, and those which do seldom have packages as good that UAWs.
 

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