James Quinn writes:
The agreement to end the first US nationwide automotive strike in 31 years, which saw General Motors’ then 73,000-strong US workforce walk out, was the final death knell in the company’s 101-year history.
The strike had occurred not over the future of those employees however, but rather of the fate of GM’s 460,000 retired workers whose continuing eligibility for healthcare benefits had placed a $50bn (£30bn) noose around GM’s neck.
The deal to end the strike saw GM management swap those liabilities in favour of the creation of an off-balance sheet healthcare trust, worth $20bn.
Although the agreement ended the short-lived strike, it placed an additional one-off burden on GM’s already ailing balance sheet, forcing the company into a situation from which it could never recover.
While GM’s average hourly labour cost was in excess of $80, rivals like Honda and Toyota were paying roughly $30-an-hour less, and so could produce the same or arguably better cars for less. By 2007, GM lost $38.7bn, the largest loss in the history of the US car industry, and one that led it in part to its doomed aforementioned September 2007 contract with the UAW.
The reason the 2007 UAW contract was such a drain on GM’s finances was because it made a commitment to pay $20bn directly to the UAW to set up the healthcare trust. Although a reduction in the total sum owed, previously GM had been servicing the healthcare costs at around $5bn a year, but now was being forced to make a lump-sum payment.
GM’s balance sheet at the end of March 2009 shows it had $172bn of debts and just $82bn of assets. Those debts include $24bn of pensions, $22bn of union-related long-term healthcare costs , not to mention $28bn of long-term debt. It even owed its suppliers $18bn.
Such a position was not sustainable
Ya think? The same group of union morons that killed GM now own roughly 20% of it. The Obama regime is stealing $50 billion from you (it will end up being much more) to “bail out” an insolvent corporation that has no interest in removing the disease that caused its demise to begin with.