Health costs burden GM by $4 billion, CEO says

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Health costs burden GM by 4 billion, CEO says

• February 11, 2005
• BY TOM WALSH
• FREE PRESS COLUMNIST

http//www.freep.com/money/business/walsh-gm11e_20
050211.htm
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GM and Toyota

• General Motors Corp. spends 4 billion a year
  more than its largest global competitor, Toyota
  Motor Corp., for employee and retiree health
  care, GM Chairman Rick Wagoner said Thursday.
• In other words, no matter how well GM runs its
  business, it can hardly hope to compete
  effectively for the long haul with such a huge,
  health-care cost gap. The fact that Toyota is
  renowned as the planet's most efficient car
  manufacturer doesn't make the task any easier.
• Toyota made about 10 billion in profits in its
  fiscal year ending in March 2004 GM made 3.8
  billion in calendar 2004. GM sold nearly 9
  million cars and trucks worldwide last year
  Toyota expects to sell 7.3 million in its fiscal
  year ending next month.

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Health Care Costs

• Wagoner, in a speech Thursday to the Chicago
  Economic Club, cited health-care costs, currency
  manipulation by Japan, and lawsuit abuse as three
  critical challenges to the competitiveness of GM
  and other U.S. manufacturers.
• He said GM alone spent 5.2 billion in 2004 on
  health care for its 1.1 million employees,
  retirees and dependents, up from 4.8 billion in
  2003.
• When asked after his speech how rapidly rising
  health-care costs affect GM, Wagoner replied,
  "Look at basic profit. We spend 4 billion more
  each year that the No. 2 global manufacturer
  doesn't pay. Over time that has an impact."
• GM will suffer major competitive consequences, he
  suggested, "if we have to pay 4 billion more
  than our major competitor out of our pocket. We
  run the business pretty good, but we don't run it
  that much better that we can just eat that cost."

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Incidence Who Pays
Demand
Wage
Supply

• Suppose you offer a health benefit worth 2/hr,
  that costs exactly 2/hr.

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• Demand curve shifts down by 2. Why?

18

• Supply curve shifts down by 2. Why?

100
Labor
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Who Pays
Demand
Wage
Supply

• Whats the end result?

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Benefits

• Who pays?

18
Wages
100
Labor