Loss disguised in VictoryPosted on:10/20/2005
Written By: Lalit Goel
|By merely transferring the healthcare costs onto the employees and retirees and savings itself $1 billion per year the company may have won short term victory and relief; the jury is out if this will stop hemorrhaging and turnaround the GM fate.|
On the same day the world largest auto maker, General Motor, reported a loss of $1.6 billions dollars on $47.2 billion revenue it also reached an agreement with the GM UAW on healthcare costs. The cash savings by transferring higher portion of the healthcare cost to employees and retirees are estimated at approximately $1 billion per year.
The company expects to spend $5.6 billion, representing less than 3% of the revenue, on healthcare this year. GM 3% healthcare expenditure dwarfs the national healthcare expenditure of $1.7 trillion dollars representing 17% of national GDP. Clearly, GM has done better job compare to rest of the nation in healthcare cost containment.
By merely transferring the healthcare costs onto the employees and retirees and savings itself $1 billion per year the company may have won short term victory and relief; the jury is out if this will stop hemorrhaging and turnaround the GM fate. The healthcare cost is not a large part of the problem facing GM it is the absence of products with performance that the customers want.
While GM and other US auto makers continue to suffer and loose market share, Toyota, Honda, and others continue to gain market share and remain profitable. The loss or gain in market share coupled with maximum utilization of resources ultimately drive profits or losses.
Instead of forcing worker to accept concessions and passing the healthcare cost onto their most valuable assets, the employees, there may be other ways to lower the total cost of healthcare i.e. offering flexibility to their retirees to choose from offshore medical care providers (healthcare services costs in India are less than one third of U.S. costs), give employees choices to self insured for ambulatory care (not same as consumer driven healthcare plans) and insure them for unexpected events. In doing so, GM may clear the path for reducing the healthcare costs that are permanent, substantial, do not impose financial burden to their employees and retirees.