Big 3 Find More Level Playing Field Abroad
The Big Three U.S. automakers complain that huge pension and medical bills put them at a cost disadvantage with their Asian and European rivals. But overseas, where these companies compete in many of the same markets, the financial imbalances tend to even out.
Both General Motors Corp. and Ford Motor Co. make money overseas. For the first nine months of this year, GM posted a $300-million profit from its foreign auto operations, while Ford booked $415 million.
But overall, GM and Ford no longer make a profit on their auto operations in North America. Part of the problem is that many of their offerings simply don’t click with buyers in the United States -- the world’s biggest car market.
However, Ford and GM also are at a disadvantage when it comes to pricing. With much of their auto production located for decades in the U.S., they have built up a huge pool of retirees to support. The cost of healthcare and retirement adds $1,600 to the sticker price of each GM vehicle and $1,000 to every one sold by Ford.
Although foreign automakers are opening more plants in the U.S., they are comparatively new and have a smaller number of retirees. For example, Honda Motor Co., which opened the first Asian-owned auto factory in the U.S. in 1982, has about 1,400 U.S. retirees from its auto unit, versus GM’s 520,000.
It’s because of this disparity that American automakers complain about their so-called legacy costs -- pension and healthcare bills. But overseas, the Big Three compete on a more level playing field because foreign governments pick up much of the cost of workers’ healthcare and retirement bills.
In China, for instance, all businesses -- including American auto companies -- pay proportionally the same into government-run pension and health plans. And companies are no longer responsible for workers once they retire.
China is the fastest-growing major auto market and has attracted all the big carmakers. GM is the country’s second-largest automaker, behind Volkswagen. And like its rivals, about 35% of GM’s payroll costs in China go toward pension, healthcare and other benefits.
Wages for autoworkers range from $1,000 a month that some VW workers in Shanghai reportedly get to as low as $75 a month for obscure Chinese auto companies such as Chery Automotive.
GM pays its workers about $350 a month in direct wages and contributes an additional $150 toward each worker’s health insurance, pension and other benefits, according to Jia Xinguang, chief analyst at the China National Automotive Industry Consulting and Development Corp.
Exact pay figures are unavailable because it’s a fireable offense in China for a worker to reveal pay and benefit information.
Talk about pay and benefits isn’t frowned upon in Mexico, however, where a dozen automakers build vehicles. GM, DaimlerChrysler, Nissan Motor Co. and Ford are the biggest, accounting for 97% of the 1.5 million vehicles made there in 2004.
Ford assembly worker Jose Toledo Garcia earns about $2.15 an hour to help build F-Series pickup trucks at its plant in Cuautitlan, just outside of Mexico City. Ford also pays about $500 a year to help fund his retirement plan, a 401(k)-type system into which all Mexican workers also pay a portion of their weekly earnings.
The yearly tab for Toledo’s healthcare right now is about $1,000. Ford and Toledo each pay half. And there is no co-pay.
Ford’s financial responsibility ends when Toledo hits the mandatory retirement age of 65. After that, the government bears his pension and medical costs.
And it’s the same for every other automaker in Mexico.
The financial picture is much the same in Germany, where nine car and truck makers, including the Big Three, have factories.
In Germany, the typical autoworker earns 2,940 euros (about $3,500) a month, about 21% of which goes toward healthcare, pension and unemployment plans. Employers match these contributions.
German healthcare is universal. There are small monthly premium payments and a small co-payment for prescriptions. As in most other foreign countries, an automaker’s responsibility for health insurance and pension payments stops when a worker reaches retirement age.
American auto executives routinely complain that protectionism policies limit their ability to penetrate many overseas markets, especially in Japan. But in terms of wages and benefits, GM, Ford and Chrysler compete overseas more equally. Ford built 46% of its vehicles last year in 20 foreign countries; GM was right behind with 43% of its production in 22 other countries.
But in the U.S., the Big Three laments about the legacy cost of supporting retirees. Union contracts call for hourly autoworkers to pay about 7% of their medical insurance, with the companies picking up the rest.
The Big Three’s production cost in the U.S., including the cost of supporting retirees, is about $75 an hour per worker, according to a recent Canadian Auto Workers Union study. For foreign automakers with plants in the U.S. -- without the same retiree costs -- the average is $60 to $65 an hour, the study found.
“When things were going good for them and they had bigger market share, GM and Ford never complained about these costs,” said research analyst Bruce Belzowski at the University of Michigan’s Office for the Study of Automotive Transportation.
Actual hourly U.S. auto production costs are pretty much even, but it’s the size of the American companies’ retiree pool that creates the imbalance, analysts say.
When Toyota, Honda and other foreign firms have built cars here for a few more decades, they too will have big retiree populations to care for, said David Cole, director of the nonprofit Center for Automotive Research in Ann Arbor, Mich. This has helped raise again the debate over a national healthcare insurance plan, which many in the auto industry advocate.
Ford will pay $3.6 billion this year, up 13% from 2004, for healthcare for 550,000 active and retired workers and their dependents. GM figures it will pay almost $6 billion.
“It’s a problem of the old versus the new. We’ve seen it hit the steel and airline industries,” Cole said. “And it is starting to show up in ... other segments where we’ve got old, established employers with lots of retirees trying to compete with newcomers.”
Times staff writers Marla Dickerson in Mexico, Don Lee in China and Bruce Wallace in Japan and researchers Cao Jun in China, Jinna Park in South Korea, Christian Retzlaff in Germany and Cecilia Sanchez in Mexico contributed to this report.