General Motors Death Watch 67: GM ED MIA?

Robert Farago
by Robert Farago

I once complained to my accountant about sky-high UK petrol taxes. An oil-producing nation with the highest gas prices in the world? What's that all about? He laughed. "Bitching about the petrol tax is like complaining about a mosquito bite when your carotid artery's been severed." This Sunday, The Detroit News ran a story about GM's $17m Viagra bill. Reporter Brett Clanton justified the titillating take on GM's health care provisions by claiming "company executives" use the factoid to illustrate runaway costs. Be that as it may, Clanton's story is nothing but an inane distraction from GM's death by a thousand cuts, both literal and figurative. Or is it?

The Detroit News seems to have missed the fact that GM workers go to their doctor, get scrips for Viagra, then re-sell the erectile dysfunction medication on the street. Insiders tell us that a large part of GM's $17m Viagra bill ended-up in UAW workers' pockets. In fact, the Viagra story could very well be the tip of a huge drug re-selling scandal (Vicodin, Oxycontin, etc.). And again, that's without considering the REAL story: all the tens of millions of dollars spent on unnecessary tests and procedures– blithely commissioned by doctors and patients who have no incentive to minimize GM's health care bill.

Of course, GM CEO Rabid Rick Wagoner is tackling this whole health care cost situation head-on, right? Back in October, GM and the United Auto Workers (UAW) negotiated a "historic health care giveback." According to the agreement, some 475,000 retired union workers will now make co-pays, capped at $752 per family per year. The health care deal also stipulates that all 118,000 active UAW members must defer 17 cents an hour in cost-of-living increases, and 83 cents an hour in general wage hikes (which were scheduled to take effect next September).

Bottom line? GM could save roughly $360m a year from the co-paying retirees and $245m from the hourly workers (40-hour week = $2,080 per clock-puncher per year). Put the numbers together and GM trims a total of $605m– roughly 11%– off their $5.6b annual health care bill. Unfortunately, in the last three years, US health care costs have risen by around 10% per year. So the GM – UAW health care deal only saves the company 1% of the additional money they WOULD have paid– not the money they're currently paying.

Or does it? The agreement caps the co-pays of individual UAW retirees' (workers without participating families) at $370 a year. And any UAW retiree with a pension of $8000 or less continues to pay nothing. Although the UAW won't break out the number of individual retirees, union officials claim that 74,000 "low income" members qualify for no-cost health insurance under the new plan. If you remove these workers from the above equations, you reduce GM's savings by around $55m, lowering their total reduction to around $550m. That's less than 10% of GM's total tab. So it's a wash, or if you prefer, GM's health care deal with the UAW lets them tread water– until inflation catches up.

Of course, there's more (or less) to this agreement than meets the eye. When the health care deal went down, The General agreed to create a $3b fund ($1b over three years) to cover the co-pays of workers who couldn't afford them. Do the math: GM plunks down $3b to save itself $550m a year. I make that and five-and-a-half year's savings paid in advance. Obviously, there's a whole lot of tax law and actuarial stats in all this, but the fact remains that the UAW's "givebacks" were GM's "pay forward." And though GM's new plan initiates at least some kind of accountability, the UAW's gold-plated health care coverage continues apace.

And while we're at it, who gets the interest on this $3b fund? Five percent interest on $1b is $50m; times three is $150m. Neither GM nor the union will answer this question, but if the cash goes into the UAW's coffers, what effect will that have on the UAW's motivation to play ball with GM come contract negotiation time in '07? Should they get that far. As everyone now knows, a Delphi strike could scupper the mothership. Of course, the union would need a pretty large strike fund to bring Delphi/GM to its knees. Money that GM's health care deal could be putting into union coffers.

Meanwhile and anyway, neither UAW members nor this writer considers Viagra a "lifestyle" drug. Pfizer's erectile dysfunction medication is critical to its users' mental well-being and the cohesion of their family unit. Making Viagra jokes about GM's ED patients (should they exist) is cruel. Besides, if GM's PR department has suddenly decided it's open season on sexual chemistry, what of Rick Wagoner's testosterone levels? Surely Generous Motors should pay for the drugs Wagoner needs to increase his testicular fortitude, and sort out his company.

Robert Farago
Robert Farago

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  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
  • GregLocock Car companies can only really sell cars that people who are new car buyers will pay a profitable price for. As it turns out fewer and fewer new car buyers want sedans. Large sedans can be nice to drive, certainly, but the number of new car buyers (the only ones that matter in this discussion) are prepared to sacrifice steering and handling for more obvious things like passenger and cargo space, or even some attempt at off roading. We know US new car buyers don't really care about handling because they fell for FWD in large cars.
  • Slavuta Why is everybody sweating? Like sedans? - go buy one. Better - 2. Let CRV/RAV rust on the dealer lot. I have 3 sedans on the driveway. My neighbor - 2. Neighbors on each of our other side - 8 SUVs.
  • Theflyersfan With sedans, especially, I wonder how many of those sales are to rental fleets. With the exception of the Civic and Accord, there are still rows of sedans mixed in with the RAV4s at every airport rental lot. I doubt the breakdown in sales is publicly published, so who knows... GM isn't out of the sedan business - Cadillac exists and I can't believe I'm typing this but they are actually decent - and I think they are making a huge mistake, especially if there's an extended oil price hike (cough...Iran...cough) and people want smaller and hybrids. But if one is only tied to the quarterly shareholder reports and not trends and the big picture, bad decisions like this get made.
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