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Health costs burden GM by $4 billion, CEO says

Health costs burden GM by $4 billion, CEO says. February 11, 2005 BY TOM WALSH FREE PRESS COLUMNIST. http://www.freep.com/money/business/walsh-gm11e_20050211.htm. GM and Toyota.

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Health costs burden GM by $4 billion, CEO says

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  1. Health costs burden GM by $4 billion, CEO says February 11, 2005 BY TOM WALSH FREE PRESS COLUMNIST http://www.freep.com/money/business/walsh-gm11e_20050211.htm

  2. GM and Toyota • General Motors Corp. spends $4 billion a year more than its largest global competitor, Toyota Motor Corp., for employee and retiree health care, GM Chairman Rick Wagoner said Thursday. • In other words, no matter how well GM runs its business, it can hardly hope to compete effectively for the long haul with such a huge, health-care cost gap. The fact that Toyota is renowned as the planet's most efficient car manufacturer doesn't make the task any easier. • Toyota made about $10 billion in profits in its fiscal year ending in March 2004; GM made $3.8 billion in calendar 2004. GM sold nearly 9 million cars and trucks worldwide last year; Toyota expects to sell 7.3 million in its fiscal year ending next month.

  3. Health Care Costs • Wagoner, in a speech Thursday to the Chicago Economic Club, cited health-care costs, currency manipulation by Japan, and lawsuit abuse as three critical challenges to the competitiveness of GM and other U.S. manufacturers. • He said GM alone spent $5.2 billion in 2004 on health care for its 1.1 million employees, retirees and dependents, up from $4.8 billion in 2003. • When asked after his speech how rapidly rising health-care costs affect GM, Wagoner replied, "Look at basic profit. We spend $4 billion more each year that the No. 2 global manufacturer doesn't pay. Over time that has an impact." • GM will suffer major competitive consequences, he suggested, "if we have to pay $4 billion more than our major competitor out of our pocket. We run the business pretty good, but we don't run it that much better that we can just eat that cost."

  4. Incidence – Who Pays Demand Wage Supply • Suppose you offer a health benefit worth $2/hr, that costs exactly $2/hr. 20 • Demand curve shifts down by $2. Why? 18 • Supply curve shifts down by $2. Why? 100 Labor

  5. Who Pays Demand Wage Supply • What’s the end result? 20 Benefits • Who pays? 18 Wages 100 Labor

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