Unfunded pensions a problem (Free Trade ping)

Here's a test question for you, and if you get this one right, go directly to the head of the class.

What's the single biggest cost in the making of a Chevrolet? Is it steel, technology, electronics, design or what? I bet that most of us don't know that the biggest cost component is medical care for retired workers.

As the Financial Times reports, "on each one of the 5.5 million vehicles churned out by GM's North American factories, health care for pensioners costs more than $1,300, well above the steel cost."

Few people think of General Motors when they list the world's biggest health-care providers, but the company, in their workforce, demonstrates the impact of the aging baby boomers.

A few weeks ago, I commented on the tragedies surrounding the politicization of virtually every issue. It leads far too many of us to conclude that all economic outcomes are the product of political choices. The corollary is that if we don't like the outcomes, all we have to do is change the governments. If it were only that simple.

Most of us acknowledge that the aging baby boomers will have a profound impact on virtually every aspect of life. But we have done so little prepare, how big a concern can this be? Think about it. After all the debate, reports and commissions over the past several years, can you name one meaningful change to health care initiated by our governments?

It's clear far more energy has been spent protecting the status quo than preparing for the massive increase in spending demanded by an aging population, expensive labour agreements, technological and pharmaceutical developments. No political party or philosophy will be spared the problem, but all proposed changes bring predictable howls of protests.

Health care reflects our attitude in so many other areas in which we have no shortage of wants but are not prepared to pay for them. This led Roy Romanow to comment that the biggest challenge to health care is the unrealistic expectations of Canadians.

While the public allows the Canadian government to gloss over $3.5 trillion in unfunded liabilities, private business is not so lucky. General Motors' total post-retirement benefit liability is a whopping $51 billion US and that number does not take into account the health-care obligations. What should concern GM shareholders is that the liability is expected to grow $4.5 billion US this year alone, which is twice estimated profits.

Greenwich Associates estimates that nearly 30 per cent of American corporate pension schemes were in deficit at the start of 2002. Watson Wyatt, a firm of actuaries and investment consultants, estimates that in Europe, one-third of the 300 largest listed companies have pension-fund deficits totaling about $220 billion US.

There is little doubt that just as escalating health-care costs are going to squeeze out other program spending, many private corporations are going to feel a major drain on revenues and cash flow as they make up the unfunded pension liabilities. What's amazing is how little the equity investors seem to be concerned about this very expensive issue.

The current onslaught of liability problems will in some instances make it clear that in the near future, the business will be run for the benefit of retirees as opposed to shareholders. Not an attractive proposition, but one that doesn't seem fully factored into the market.

This is an article from a Canadian newspaper, so it is not clear if the costs they cite are in $US or $Canadian. For example, the $1300 per car health care costs might be $1300 (US) or $950 (US). Still, it is sobering to think about that.

Thanks.

As the Financial Times reports, "on each one of the 5.5 million vehicles churned out by GM's North American factories, health care for pensioners costs more than $1,300, well above the steel cost."

Just one more reason the Detroit car makers are increasingly unprofitable. Unions are evil.

3 posted on 08/27/2003 5:21:09 AM PDT by Texas_Dawg (Your little sob stories are very touching... really... but they make for lousy fiscal policy.)

5 posted on 08/27/2003 5:44:42 AM PDT by Texas_Dawg (Your little sob stories are very touching... really... but they make for lousy fiscal policy.)

I may be wrong but I believe the entire Federal emoloyees pensions are unfunded and are not carried in the budget information!!
It would make G.M.C.'s problem yesterdays news.

No it's not. If you made the effort to know some union people you would discover that there are many union members who are very conservative. There is a constant battle between the left and the right within union ranks. An example would be the Teamsters support of George W. Bush. Both the Teamsters and the Carpenters Union have left the AFL-CIO over its political direction.
Among conservatives there are many areas of disagreement on issues. When you get outside the core pricipals of the conservative movement you find a great deal of discussion on the issues.

If you made the effort to know some union people you would discover that there are many union members who are very conservative.

Did I say anything about the union people? I said "unions". The whole of what they create.

9 posted on 08/27/2003 6:00:07 AM PDT by Texas_Dawg (Your little sob stories are very touching... really... but they make for lousy fiscal policy.)

Without the members there aren't unions. You are offering a distinction without a difference. All you accomplished was to stick your foot further into your mouth.
On the whole what the unions have created is to be lauded, primarily the middle class of American society.
From my point of view the two main political parties and American business leaders are working mightly to destroy the middle class by radical trade policies.
If you believe being a conservative puts you on the same page as American business you are wrong. American business has no loyality to our nation anymore. It simply seeks the greatest profit without regard for the welfare of our nation and society as a whole.

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