A Tax On Bad Management


U.S. Car Makers Stand to Gain From Bush Plans – WSJ.com:

“Though many factors have contributed to the industry's woes, soaring health-care costs are a big part of the problem. The Detroit giants are paying the price for years of buying labor peace by agreeing to provide rich health-care and other benefits to their unionized workers. GM, for example, has said its health-care costs average as much as $1,200 for each car it sells in the U.S.”

There are two separate factors here: 1) healthcare in the U.S. is too costly, in general, but 2) GM gave away super generous benefits, such as the UAW workers making zero contribution, zero co-pays, etc.

As the article puts it, the company was “buying labor peace.” It's too bad GM, etc. couldn't get labor peace by treating employees with respect day-to-day and over time. The wounds from how GM management treated UAW workers (generally speaking, and I saw this first hand in the 1990's) were so deep, that they had to try to spend their way out of it. Were the UAW folks to think “Management treats us like garbage, but at least I don't have to pay for healthcare.” I guess that's labor “peace,” if peace is defined as management and the UAW not nuking each other out of business.

I look at the “high healthcare costs” that GM is suffering as a “tax on bad management” basically. I don't feel much pity for them. They made the bed they are now struggling to get out of. I've been away from GM too long…. is the company doing any better at treating employees with respect and collaborating with them? Or is it still old-school GM at the plant level? I'd like to hear your comments if you're closer to GM than me.

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1 Comment
  1. Josh says

    Good way of describing it. I’m reminded of the peace deal brokered between Israel and Egypt: the US basically bribed the two countries not to fight for a few billion a year. Of course, Israel could have paid Egypt, or vice versa, but in this case some third party, the US, took a look at the external cost of the conflict and stepped in. Is there an analogous action in our policy towards domestic manufacturers? If the government were to step in and subsidize healthcare, what concessions would we expect from GM and the UAW?

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