GM (GM) is getting close to a deal with the UAW which will allow the auto company to lower its annual expenses by $1 billion. It will also lead to the layoffs of another 20,000 GM workers. Every time the government participates in saving a company, it seems to make unemployment worse. The labor concessions are part of a plan to bring down the No.1 US car company’s breakeven point which should trigger billions of dollars in additional government aid.
According to The Wall Street Journal, retired GM workers may also be hurt. “The Detroit auto maker expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39% equity stake in the reorganized GM.” If the company’s shares fall, the UAW will have trouble funding pension and healthcare benefits. Under those circumstance, the burden on federal and state social services would almost certainly rise. The aid for the elderly and ill will have to come from somewhere.
What is not clear is whether the costs of putting 20,000 more people out of jobs and potentially spending hundreds of millions of dollars on healthcare for over a million retired GM workers is justified by the savings the the car company will realize. If domestic vehicles sales stay as low as they are now, the argument is academic.
What is clear is that the government’s aid to American car companies is created new costs by helping to cut current ones.
Douglas A. McIntyre
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