Jim Henley puts his finger on the key point in the discussion of compensation plans for hourly workers at the Big 3 auto makers:
as a general rule, you can’t shrink your way out of fixed costs, which is what the retiree-expense is.
Why is this the key point? A shrinking market share was inevitable for the Detroit automakers. Their dominance of the U. S. market was once near-total. There was no place to go but down. Selling more American-made cars overseas wasn’t an option—countries were moving to protect their own workers and industries by bringing auto manufacturing home rather than buying American-made cars overseas. And as long as a shrinking market share was inevitable assuming higher fixed costs in the form of such generous retiree pension and health care plans was a losing proposition.
I have no idea why some people are bound and determined to defend Detroit management on this issue. It was a bad decision;it was worth going to the wall for. They didn’t go to the wall over the issue and, well, here we are.
It’s fair to say that the deferred income that these hourly retiree pension plans and healthcare plans represent are now a boat anchor around the necks of the auto companies. It’s not fair to blame it on current hourly employees.
Excellent point and I’d go further: It’s almost certainly not fair to blame it on former employees either – certainly not completely. There was an auto worker on the radio the other day pointing out that it the typical pattern was for management to offer extra retirement benefits in lieu of some raise figure. I suspect the plan by management was generally: a) to be dead before the bills came due; or b) to weasel out of the pension obligations when the crunch came; or c) a miracle!