Japanese Cars, American Retirees May 19, 2006
Japanese automakers put health and pension burdens squarely on the workers, a distinct advantage over their American counterparts.
They built a string of manufacturing plants in the South, employing tens of thousands of local workers. They hired American designers. They spent millions on ads to trumpet their growing roots in communities across the country.
“Being a good corporate citizen starts with hiring lots of good citizens,” one Toyota ad says.
Yet as they built up their operations, the Japanese “transplants” have worked hard not to resemble an American car company in one vital respect: how they treat their retirees.
“We want to avoid commitments when we have no control over their costs,” said Pete Gritton, the head of human resources for Toyota’s United States manufacturing operations. “We can’t build in things in such a way that we won’t be able to keep our commitments later.”
Until recently, the issue has mostly been academic for the Japanese car companies. Most of the American factory workers they started hiring in the mid-1980’s are still working.
But age is creeping up on them. All three Japanese companies are anticipating that the ranks of retirees will swell over the next several years. Toyota’s American arm, for example, has just 258 retired production workers (G.M., by contrast, has more than 400,000 retirees).
But things will change over the next five years. In 2011 and 2012, a combined 1,700 workers will be eligible for retirement at Toyota ? about 6 percent of its current labor force.
Their retirement will contrast in a crucial way with their counterparts who have retired from the Big Three auto companies in that they will bear much more of the costs and the risks of retirement on their own.
This difference adds up to an important cost disadvantage for the Big Three as they fight to regain market share.
The benefit packages offered by Detroit’s three carmakers to its blue-collar workers, negotiated over time with the United Automobile Workers union, pretty much fit a standard model. Retirees receive a pension check every month, which varies with the number of years served.
An average worker who reaches retirement age at G.M. will get a monthly pension check worth about $50 for every year of service, up to a maximum of about $1,500 a month, which accrues after 30 years of service, according to a G.M. spokesman, Jerry Dubrowski. Retirees with 30 years of service get a supplement that brings their monthly check up to about $3,000 until they reach 62.
Moreover, until last year, when General Motors and the union cut a deal for retirees to cover co-pays and deductibles, G.M. covered retirees’ health care expenses.
With benefits like these, it’s no wonder that G.M. was once known as “Generous Motors.”
But these days, health care costs are causing enormous financial headaches for the Big Three. G.M. has an unfunded liability of $85 billion in today’s money to cover future health care costs for workers and retirees. That is seven to eight times the market value of the whole company.
General Motors estimates that health care costs add about $1,500 to the cost of each vehicle it makes in the United States. Chrysler claims a health care cost of $1,400 per vehicle. Ford says its burden is $1,100.
G.M.’s pension plan has also been a drain. Since 1992, G.M. has plowed $56 billion in stock and cash into it. It is hoping to reduce its burden by offering all of its 105,000 U.A.W. workers buyout packages worth up to $140,000. It is still unclear how many plan to accept the offer.
“The higher legacy costs are reflected in a less modern product,” said George E. Hoffer, a professor of economics at Virginia Commonwealth University who has studied the auto industry. “They had to cut costs somewhere else and they cut costs in retooling.”
Japanese companies face little of this burden in Japan, where the government covers retirees’ health care and pays a bigger share of workers’ pensions.
Toyota expected to pay out about $700 million in pension benefits in fiscal year 2006, which ended in March. That’s less than a tenth of what G.M. expects to pay on its pensions this year.
In the United States, retirees of the Japanese companies pay part of their health care costs. And the Japanese companies’ pension obligations are a fraction of that of the American carmakers.
- Posted in : Uncategorized
- Author : arnold
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