Retirement and Health Care compensation in the US automobile industry

Retirement and Health Care compensation in the US automobile industry

Introduction

Recently there is a growing crisis in United States automobile industry. Troubled with ever increasing gasoline prices, crushing legacy health and pension costs, aging industrial plants and workers, and a product line missing in diversity, United States automakers are losing market share and profit. The reaction from automobile industries has been to cease workers, reduce investment, and offer sudden discounts that make up sales but terrorizing profitability further.

Despite periods of profitability and growth, U.S. automakers have lost large swaths of the global and domestic markets to foreign competitors over the last thirty years. Yet the economic importance of the auto industry is undeniable; roughly one in five jobs in the industrial Midwest is dependent upon General Motors alone.

If the industry's financial crises deepen in part because of legacy health care costs, the demand for public intervention to ensure the survival of this important sector of the economy will grow. And, given the strategic, historical, and cultural importance of the U.S. auto industry, the political leadership of both parties is unlikely to stand by much longer. Any emergency relief in the form of public investment to revive the U.S. auto industry, however, should guarantee an equally significant public benefit. An initiative to relieve automakers of retiree health care costs could easily be designed not only to address the immediate crisis in health care financing, but also to ensure accountability and progress on broader public goals, by creating strong incentives for investing in modernization, creating and retaining domestic jobs, and reducing U.S. dependence on oil.

The question for policy makers, elected officials, and taxpayers is what form should such action take and what guarantees and accountability should taxpayers demand, in order to ensure such an investment generates quantifiable public benefits.

U.S Automobile Industry

Today's domestic automotive industry is at a crossroads. With declining market share, high cost structures and greater competition, Chrysler, Ford and GM (collectively, the "Big Three") need to orchestrate significant changes to stem the decline and ultimately increase market share, as well as to protect their important highly dependent supplier base.

For starters, the Big Three will require significant concessions from the United Auto Workers ("UAW") and other unions in order to become competitive within the growing global original equipment manufacturers ("OEM") community. Without these concessions, the Big Three will continue to suffer under a cumbersome cost structure that many of their OEM competitors do not share. Global competitors such as Toyota will continue to steal market share from their U.S. counterparts given their greater investment in research and development on a per platform basis (Flint, 2007).

While the global consumer market for automobiles is increasing with the development of road infrastructures and a burgeoning middle class in countries such as China and India, additional OEM entrants (i.e. Chery from China and Tata Motors from India) will demand their piece of the global automobile pie.

The outcome for the domestic automotive industry is ambiguous ...