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Reason 4,127 Why the American Auto Industry is in Trouble January 22, 2006, 7:09 pm

Posted by quintapalus in Industry.

Tomorrow is being called “Black Monday” by Ford Motor Co. employees because it is tomorrow that Bill Ford, Jr., CEO of Ford, will be detailing the massive restructuring plan that is slated to include up to 25,000 job cuts and 10 plant closures. Detroit News has a long article about it here, but just to give you the typical structural problems that American auto companies like Ford are facing, check this part out:

Even if Ford boarded up all of its American factories tomorrow, it would still have to pay the 87,000 United Auto Workers members who labor in them, while also continuing to cover health care and pension costs not only for them, but also for twice that many UAW retirees and their dependents.

Think about that for a second. I can disagree, yet still understand, having to pay the 87,000 workers; they are operating under a mutually agreed upon contract. However, it’s the TWICE AS MANY retirees and dependents that Ford still has to take care of part (in terms of pensions and health care) that gets nuts. These are people that no longer contribute to any amount of the revenue that the company takes in, yet their benefits are taken right off the top. Now, I am not saying to throw these people under the bus, but who thought this was a good idea in the first place? And, with health care costs going up by double digit percentages every year, this problem is far from being at its worst. There is simply no way for Ford, or GM for that matter, to compete with companies that aren’t stuck with paying for huge amounts of people who no longer work for them.
I have discussed at length previously why defined benefit plans (i.e., pensions) are horrible and that they should be phased out as soon as possible by employee contribution plans (i.e., 401(k)’s), but if there is any good that can come of this, it is that it will give us a good preview of what to expect in the main event of the fight card: Social Security and Medicare.



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