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Help with health care costs, factory changes would save jobs | EPI Viewpoints

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Help with health care costs, factory changes would save jobs

By  Ross Eisenbrey

What a difference a few years and elections make.

In 1980, when Chrysler teetered on the verge of bankruptcy, Congress, the Carter administration, the company and the United Auto Workers went into overdrive to save its 109,000 jobs. The union took wage cuts, executives reduced their own pay and closed redundant plants, and the federal government guaranteed repayment of $1.5 billion of private sector loans. The deal worked. Twenty-five years later, Chrysler still produces cars, trucks and minivans in the United States, the loans have been repaid, the U.S. government made money on the deal, and a generation of workers at Chrysler and its supplier firms maintained their middle class living standards.

Today it’s GM in serious trouble, and many analysts forecast bankruptcy sometime in the next two years. But rather than seeking to preserve jobs, communities and U.S. manufacturing, Congress is moving to hasten GM’s demise, or at least its bankruptcy. No one in the Bush administration is talking about how government can help. Instead, the administration wants legislation that will punish GM for its poor credit rating by forcing it to divert millions of scarce dollars to its already well-funded pension plan.

Worse, the administration is negotiating a trade deal with Thailand that could remove the only substantial barrier to a flood of Japanese pickup truck exports to the United States. Thailand is already the biggest Asian exporter of pickup trucks, and the Japanese companies that assemble them there plan to increase production substantially. Only a 25% tariff, which offsets undervalued Asian currencies, keeps those vehicles out of the U.S. market. To give up that tariff would jeopardize 100,000 American autoworkers’ jobs, including tens of thousands at GM.

The causes of GM’s woes are well known. A bad product mix and enormous health care costs for its retired employees, together, have slaughtered GM’s sales and profitability. GM unwisely focused its production on gas-guzzling SUVs and pickups in the belief that American customers would always want them, even with the risk of rising fuel prices. Now that fuel prices have soared higher than anyone anticipated, America’s love affair with the SUV has cooled. Even when sales were strong, the $72-billion cost of health insurance for 650,000 retirees and their spouses cut deeply into the company’s profits.

The government could help GM — and the nation’s economic future — if only it cared as much as Congress and President Jimmy Carter cared in 1980.

First, it is vitally important for the government to share GM’s health insurance cost, which no globally competitive manufacturer can afford. Overseas competitors do not face these costs because the governments of all other industrialized nations provide health insurance to their citizens.

For every two active employees, GM has five retirees; with their younger work forces, the Japanese carmakers in the United States have virtually none. GM’s retiree health insurance fills a critical social need for hundreds of thousands of Americans, but it also puts the company at an impossible competitive disadvantage.

Without first forcing GM or any other manufacturer into bankruptcy or pension termination, Congress ought to provide, at least, a 65% tax credit to subsidize retiree health insurance, much as it already subsidizes health care for employees whose pension plans have terminated. It should, at most, lift the health insurance burden off U.S. employers entirely by providing health insurance for American citizens.

The National Commission on Energy Policy has produced another promising option that deserves congressional support — a tax credit to cover two-thirds of the tooling and equipment investment costs to convert domestic production from conventional powertrains to fuel-efficient hybrids and advanced diesel (HAD) vehicles. This conversion will not only save precious energy resources and reduce pollution; it also is critical for saving jobs.

Foreign automakers, and even GM, are investing in hybrid production overseas. Depending on consumer uptake, more than 200,000 jobs will be lost over the next 5 years if HAD powertrains are all built abroad. A tax credit that induces GM and other U.S. manufacturers to source half of their HAD powertrain production here could save 60,000 jobs, at a cost of $1.1 billion.

Unless Congress acts quickly, the problems facing GM and the other U.S. automakers will spiral out of control. Without government intervention, the actions they will take to save themselves will leave hundreds of thousands of American families with a bleak economic future. If Congress acts with the kind of resolve it showed in 1980, the entire nation will benefit from a stronger auto industry.

Ross Eisenbrey is vice president and policy director of the Economic Policy Institute in Washington, D.C.


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