Overly Generous Motors in need of repair

Poor products and mounting costs created by union pressures have left General Motors in need of repair.

Last week, the automaker announced it would lay off 30,000 workers by 2008. In the last quarter, GM lost more than a billion dollars and its corporate bond rating has been downgraded to junk status.

Theories abound as to why GM is faltering. Some blame the company's decline on an unappealing line of cars; others point to the high cost of dealing with labor unions and their demands for overly generous health benefits and pension plans. Both factors contribute to GM's woes.

For example, health-care expenses add an average of $1,500 to the cost of each GM vehicle. The automakers employees, who don't pay health-care deductibles, contribute only 7 percent of their healthcare costs compared to the 27 percent to 32 percent paid by the average salaried employee in the U.S.

UAW representatives are eager to blame GM's troubles on Japanese automakers and car buyers who purchase a Toyota or Nissan. However, most foreign-owned automakers are non-unionized and therefore not subject to the costly liabilities demanded by many union contracts.

In addition, most foreign automakers actually contribute to in-sourcing by building plants that create jobs in the U.S., like the Toyota plant in Georgetown. These facilities are filled with well-paid employees who receive generous benefits.

American's buy these companies products because they like the design, efficiency and value. GM will only be able to rebound and compete in today's global economy if it can design better cars and control costs, including addressing the costly problems caused by burdensome union policies.

Sources:

Free-trade drives the auto industry by Sara Fitzgerald, The Heritage Foundation

GM's woes are homemade, not imported by Daniel Griswold, Cato Institute