The Difference between GM and Toyota: The Health Care
China Hand’s got a great post describing the biggest difference between GM and Toyota–the health care they pay workers (or not) in their home country. The argument (click through to read it) that GM had to cede the sedan market is one that accords with discussions about business models I’ve had.
Some excerpts:
Assume that a bridge loan to help the Big Three weather the downturn is going to happen, perhaps when the current crop of congresscritters has left Washington and the bailout can be hung around the neck of the Democrats and the Obama administration.
Maybe in February, we can have a serious discussion about fundamental problems and systemic solutions.
And the whole debate might not hinge on greedy unions, electric cars, CAFÉ standards, on brain transplants for auto executives.
It should be about national health care.
A key difference between GM and Toyota isn’t unions.
It’s national health care in their home markets.
[snip]
The interesting little secret about Toyota is that, like GM, its home base operations are not especially profitable, even with the health care subsidy.
Japan is an expensive place to have a factory. When bonuses are factored in, Toyota and GM workers both make yearly incomes in the $60,000 range.
Even with massive exports of Japan-built cars, the Japanese operations account for about 1/3 of global profits while posting 50% of worldwide sales.
In the first quarter of FY 2006, Toyota’s home operations brought in about US$1 billion of its total profits of $3.23 billion.
That’s roughly what GM was paying per quarter on retirees’ health care.
Read the whole thing.
Pardon the interruption EW – Mukasey Collapses During Speech:
Pardon my interrupting your interruption of the thread, but – I found this titillating:
Mukasey collapsed 15 minutes or so into a speech to the Federalist Society. I figured FoxNews to be all over that sort of event, and sure enough its website has the AG’s prepared remarks.
For the most part, those are the usual “you’re great, all of you, we all are, and no one appreciates us” Nixonland crap, then the usual “no attacks since 9/11″ pablum, apparently as part of Bush’s Proxy Legacy Tour. But the speech ends on an attack on an unnamed “person” who “chooses to rely” on stuff in the New York Review of Books rather than, you know, stepping up like a man and going toe to toe with Bushlaw like lawyers do, with cites and stuff – I don’t want to get into that here, but being a lawyer in the area myself, its a crappy point.
So I went over to NYRB, and all I saw that seems to fit is Professor David Cole’s review in the December 4 issue of Philip Bobbit’s combination grand theory of the modern state versus terrorism plus deeply detailed, exhaustively footnoted, painful hauling of the Bush administration over the coals about as many times as one can bear for so degree of incompetence so far beyond incompetent, I’m not sure if the word’s been devised yet to describe it [Bushie?].
If I’m a loyal Bushie believer, its bad enough to read how Bobbit proves Bush, Cheney et al into monumental morons in his Terror and Consent, but the reviewer himself now has a book out that he’s co-authored arguing from a lawyer’s perspective how monstrously misconceived is the entire Bushlawish basis for the full range of gross tools they used to torture, invade everyone’s privacy, and terrorism the domestic civilian population to pat us all down to see if we’re carrying any concealed terrorists on us.
And given Ashcroft’s being largely oblivious of all that, Cole’s book concentrates on Gonzales and Yoo and those folks – plus the Attorney Generally charged with the cover up, Mukasey.
I’m not claiming there’s a cause-effect thing going on here; and I’m not wishing the AG poorly; but there’s some poetry in the works here.
Pardon me piling onto your interruption of MD’s interruption of the thread, but may I just oh-so-briefly point out: Attorney General … Federalist Society … praying lawyers. The beams, they cross.
Hmmmm @ 8:
Whole even looks to me like an apt metaphor capturing state of the country, I’m afraid.
AP account of this, as printed in ABQJournal this morning, added one more poignant (IMO) detail of this circumstance:
Looks to me like object lesson in price one pays for selling their sole. Can’t help but wonder how many other Bushies gon’a be having coronaries in coming months.
Yeah, what’s the support for this statement? Not saying it is not true; maybe yes, maybe no. Strikes me as a partial part of the issue at best though.
Two things (based on business cases I’ve heard about in another Big 2.5 company).
The case each brand manager makes for hte profitability of the car is going to be different for GM than for Toyota, on account of those health care costs. If a program is not profitable, it won’t go–or it’ll go with disincentives to making it sell (because if you sell too many of them, you’ll have a net loss).
I know of at least two times where another US maker has dropped a nice sedan for profitability reasons that, if it were made and sold by Toyota, would like eke a profit.
You apply that systemically, and you’ve got no sedan market GM is actually trying to make sell well, aside from meeting CAFE standards and trying to get first time buyers into the GM family.
Read via WSJ that Mukasey apparently awake at George Washington Univ Hospital.
WRT health care for Japan’s Toyota work force. Thanks for pointing this out.
I can only assume that our government officials and traditional media are actively ignoring this fact or completely uninterested in discovering it for themselves.
Thanks for pointing it out for the rest of us.
Okay, I see what you are saying. I guess I just had viewed this as more simplistic, i.e. the domestics have a higher profit margin on the big iron.
Ian had a post up the other day in which it came out IIRC that the Big 3 deficits were in all cases smaller than their health care expenditures for the same period. In other words, if we had national health care, they’d all be profitable today.
Geez, how much sense does a thing have to make?
Many people have made the point that GM’s health care bills amount to about 1500 to 2000 dollars per vehicle that they sell.
They say if we had National Health Care then GM wouldn’t be paying that money and would therefore be profitable. So they think that an Obama National Health Care Plan would be GM’s, Ford’s and Chrysler’s salvation.
Now here is my problem.
That is not true as I understand it. Obama would still require each company that was not paying for it’s employees health care to pay a health care tax instead. Supposedly that will be less than some companies now spend on health care, and there is worry that companies might drop their programs and just pay the tax instead.
But GM would still be paying for it’s employees’ health care to some degree, and I think it would be quite the major part, so I think there would not be much difference in GM’s fortunes.
I would like some comment on that, because it has been puzzling me why people are saying the opposite. What is it that I am missing???
As for what is happening in Japan, or China, though that is interesting, I don’t think that really matters here in America.
Only a problem if you assume the total cost per insured person would remain the same. Single payer produces economies of scale.
Three points. Yes, Obama’s plan is not a single-payer healthcare, which would really fix this.
Second, it’s not so much that GM has to pay for its workers who are currently building cars. It has to pay for its workers who have retired, and have health benefits but are not making cars. There are something like 3 employees getting health care for every one assembling cars. In addition to the national health care, per se, it also has to do with when Toyota got to this country. Most of its factories are new–10 or 20 years old. That means there are very very few retirees associated with those factories. Whereas in Ford, there are two generations of people, at least, associated with still active factories getting benes.
Finally, you need to consider the things a car company does in its home country. Design and engineer work, and manufacture of new models (until a market builds up in a particular country). That’s still an awful lot of jobs for each country, and GM has to pay those 75,000 people (say) healthcare, whereas Toyota has to pay much less. So for things like the Fit and the (until 2010, when a US plant will open) Prius, both of which have really shitty margins for Japanese, at least they’re not paying health care costs on top of their shitty margins for those cars.
bmaz, Isn’t this a problem across most businesses and driving not only manufacturing, but service industries to outsource to other countries?
Yes.
SOme service jobs you can’t outsource to other countries and with things like phone centers and programming, it’s still a matter of paying really cheap wages.
But it’s also what killed our domestic steel and shipbuilding industries. You’d think by now someone would have noticed and tried to fix the problem.
Healthcare costs for steel?
Really dilapidated, very inefficient US steel plants were much more a culprit in that one then case w/Detroit today. US STEEL management over their domain was almost as bad as BushCo’s over theirs. Despite foreign “dumping” of product here in late 80’s-90’s, their (especially Japanese) facilities were far superior to ours.
Right.
But you’re missing how investment works, on this as in the auto industry.
With steel, as with autos, as with shipbuilding, teh burden of legacy costs meant these industries were competing against newer entrants, but instead of investing in R&D, tehy invested in healthcare and pensions.
OBVIOUSLY an industry that doesn’t invest in R&D and is competing against plants that are 30 years newer, with newer technology, are going to fall behind. But if you relieved them of the costs that their competitors weren’t paying, you might expect them to match their technological advance.
With all due respect Marcy, US steel invested nothing in plants for decades before they had any significant competition. Yes they had legacy costs. They also had near monopoly. And during this time, they smoked cigars and sipped fine whiskey… and not much else.
By the time Japanese steel arrived, it was too late.
And FWIW, on subject I mentioned in other thread (good unions and bad): Steelworker’s Union was the later, and I don’t mean that in a small way. They had more task exemptions for more different grades & specialties, damn near needed a team to turn a pump… that is, if you could catch one not on break time.
I saw a lot of it up close and personal as welder/machinist on site in Fontana. It was literally shocking… amazing to me they got anything done.
I felt so bad about continuing the pre-emptive interruption, I read the link, and the even better link from the link.
Utterly friggin brilliant stuff. Why aren’t we hearing more on this, instead of Shelby et al? Oh yeah…
So; it’s the Obama Bailout plus the Frank New Plan plus the Waxman-Kennedy national health care program by April, or sneak the whole auto industry upstairs through the Detroit-Windsor border point and sue for custody of the products.
Excellent point, the european manufacturers are also happy to let the profits from US made cars made in nonunion shops help pay for national health back home. One of the advantages of an economy that makes stuff, and sells it on a global market.
Well remember that GM and Ford do a lot of manufacture overseas and use the profits they make there to shore up things here. GM would already be bankrupt if not for its success in CHina.
That was the weird thing at Congress earlier in the week–everyone was worried about GM using bailout money to make cars in Russia or China. What they missed is that GM is making a profit in those places, just not here.
I was about to write:
but your answer here is much more sophisticated than the post you linked to.
emptywheel,
on your 3 points-
Ok we have taken care of point 1 concerning active workers and have agreed Government Healthcare would probably help, at least some, but not much.
Point 3 about home countries, I don’t even want to talk about because I don’t know what can be done or should be done.
On your point 2. I understand about the pensioners. That is a tremendous problem that was developed in a time when GM and it’s workers were very well off. Contracts were asked for and given and now there is just not enough money anymore.
As I think I remember, at least some of those Autoworker pensioners can’t even have their health care plan modified by a new contract. When they retired, it was frozen at the then contract terms in force.
In other words, these people don’t even have co-pays, and the courts said that their deal couldn’t be changed to where they had to have them. What we call ”a pretty good deal if you can get it,” but today it is a dinosaur that is sinking down in the tar pit.
If GM doesn’t go bankrupt, then the retirees will be just like the active workers. I just don’t think that can continue without drastic changes in coverage.
If GM does go bankrupt, then those people will lose the right to access GM for those health care funds. If the Union still has money then that might be accessed.
The US Govt will work it’s formula and back up the pensions these people lost, but as I understand, that will not pertain to medical care.
The retirees will then be responsible for their own medical care using the Union, or whatever they can get from the Government and medicare if they are 65. With their pensions they would not probably be eligible for medicaid normally, and so as well off individuals will have to pay for insurance in some plan the Obama team has not yet released..