General Motors is staring down the barrel of a gun.
The company’s marketshare is sinking like a lead balloon. As a matter of fact, GM’s stock price hit its lowest level in 18 years, as the once great automaker remains locked in an ongoing battle against high costs, fierce foreign competition and unhappy investors.
This isn’t new. General Motors had it coming as the company’s marketshare has been dropping for some time. In fact the company’s market cap hasn’t been as low as it is today since 1982.
So what’s the problem?
Well, General Motors virtually shot itself in the foot in the 50s and been slowing losing blood since then.
In 1950 the UAW negotiated with GM for pension and healthcare. GM’s benefits were among the best in the country. And that’s all well and good for workers, but horrible for the company.
Today General Motors spends $5.2 billion each year on health care alone for 1.1 million people. That’s equal to $4,727 annually per person.
And of course this expense gets passed onto the consumer. $1,525 worth of health care costs is built into every GM vehicle. Oh and you can add another $675 per car for pension costs. That’s over $2K extra that the consumer has to cough up.
And I’m sorry to say that the generation of people who don’t mind paying a little extra to buy American is slowly fading away. Americans today want economical, quality vehicles. And they’re finding that in foreign cars. It’s just the way it is.
Why are GM’s health care and pension so expensive?
When the UAW contracts were negotiated there was no stop-gap measures put in force. And now General Motors is paying the price.
Here’s a glaring example of the problem GM (and the US) faces:
General Motors oldest retiree will be 110 years old this year.
The employee worked for GM for 32 years and has been collecting pension and health benefits for the past 47 years.
And when this employee dies his spouse will get a partial part of his benefits.
And like I said before that’s all well and good for the retiree, but bad for business.
General Motors just reported its worst financial quarter in 13 years. The company posted a net loss of $1.10 billion, or $1.95 per share. In the first quarter of 2004, GM earned a profit of $1.2 billion, or $2.12 per share.
The $1.2 billion profit was made from selling products that were helped along by incentives.
If that $5.2 billion health care cost weren’t there, General Motors would report a gain for the year.
And if America isn’t careful, it’ll find itself in the same predicament as GM.