Either I have not been paying attention, or the recent sale of Chrysler has received a paltry amount of news coverage. I read a story about it in the latest Time magazine that was quite interesting and contained many facts that I had not yet heard.
Here are the highlights:
Nine years ago (can it be that already??) Daimler-Benz (as in Mercedes) bought Chrysler for $36 Billion.
This month Daimler PAID Cerberus $675 Million to become the new owner of Chrysler. What Cerberus brought to the table was a plan to pay $7.4 Billion to help cover the $18 Billion that Chrysler owes for the health care of its retirees.
As the author of the Time article put it, the Detroit Three (no longer the Big Three, as Toyota has surpassed Chrysler in US sales) have become health benefits companies with a side interest in making cars (a side interest that loses them money - Chrysler has lost $2 Billion in the first quarter of this year).
Other factoids of interest: GM is currently valued at $18 Billion, while its pension fund is worth more than $100 Billion. GM has 3 retirees being supported (including health benefits) by the company for every 1 current worker (for Chrysler the ratio is 1.3 to 1). GM is no longer the largest private employer in the nation, but it is the largest purchaser of health care. A GM or Chrysler vehicle has about $1500 of health care costs rolled into its sales price, while a Honda or Toyota has around $350 (Ford is only a little better off at $1200). The Detroit Three are some of only 13% of private-sector US employers who offer health care benefits to retirees.
I have no idea how the Detroit Three will be able to succeed competing against companies that are not saddled with these huge financial obligations, but one thing is certain: if the UAW doesn't start coming up with some pretty creative ideas it will soon have no members who are actually working anymore. At some point they are going to have to settle for a level of compensation more in line with what Toyota's and Honda's US workers get - not as sweet a deal as what the UAW has provided in the past, but reasonable compensation none the less. While a sweet deal is great, a fair deal is much preferable to no job at all after your employer dries up and blows away.
2 comments:
Sorry, but we've been off leading our hands-on-the-rope tour of New York, sans internet coverage (or free coverage).
Yeah, this is one of those subjects which interests me no end, though I tend to look at it from a production point of view. But I've heard some of your retirement burden figures before, and they do make it clear that the domestic industry is saddled with an unworkable business model. I've been long aware that (in my opinion) we're just not competitive product-wise with the Japanese, and maybe the European, companies; but I've not spent enough time thinking about what burdens the company is trying to carry with those products. In the circumstances, maybe they're to be forgiven for cutting a few corners in an attempt to find that additional thousand bucks.
It's a prime example where the line between the good and the evil of unions is blurry and confusing.
And, of course, it makes me wonder how much of this burden my own industry--the implosion of which I've much lamented here--has been digging itself out of.
I'm curious to see what becomes of Chrysler post-sale.
Dude! I know one of the main honchos at Cerberus. Does that make me famous by proxy?
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