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Health care issues for GM (Delphi)

Benefits

One of the most important and challenging issues facing employers in the United States today is the cost of health care. Remembering what you read in the article about GM, reflect on the following observation from the National Review in November, 2005:

Delphi may be the world's largest maker of car parts, but that's just a hobby. Its balance sheet looks more like that of a pension fund and a health-insurance provider. Delphi's unions have negotiated such generous benefits for their aged that a worker who makes $25 an hour costs the company $65 an hour once he retires. Delphi's pension obligations alone are estimated at $8.5 billion, roughly $4.3 billion of which is unfunded. It is not surprising that this cost structure has driven Delphi into Chapter 11 bankruptcy, and it will not be surprising if others follow: GM is thought to have unfunded pension obligations totaling some $31 billion. There are several lessons here. The first is that unions gain nothing in the long run by extracting promises their employers cannot keep. Second, defined benefit pension plans-in which companies pay a guaranteed sum to retirees-are less likely to remain solvent than defined-contribution plans-such as 401(k)s-whose payouts depend upon market performance. Finally, the Delphi debacle should call to mind the granddaddy of underfunded defined-benefit plans: Social Security is Delphi writ large, and if we do not reform it, we should expect it to meet a similar fate (National Review, p. 6).

Imagine you are sitting at the bargaining table representing GM. You are collaborating with union representatives to develop a health insurance strategy for the next three years.
The assignment is as follow

(1) Selects three important health care issues to negotiate for the GM labor contract.
(2) Explains why these issues will be important over the next 3 years.
(3) Explains why these issues will be important for GM and union representatives to agree upon.

Uses references to support your statements about the importance of your selected health care issues.

Solution Preview

The response address the queries posted in 1135 words with references.
//Before writing about the problems faced by the Company, we will write about the products and services provided by it to the customers. Then, we will write about the biggest problems faced by the Company, while managing its operations in the global market place. //

GM is mainly engaged in automotive production & marketing and financing & insurance operations. General Motors designs, constructs, and markets vehicles worldwide. GM has its leading operation presence in North America. GM's finance and insurance operations are primarily related to General Motors Acceptance Corporation (GMAC) which is a wholly owned subsidiary of GM. It provides a wide range of financial services, including automotive finance and mortgage products and services (Management's Discussion and Analysis of Financial Condition of General Motors, 2005).

The biggest problem of GM is their elevated cost of pension and healthcare liabilities. This liability includes workers and retirees in the US, which add $3,500 to the price of each vehicle. Unions of GM fear that under bankruptcy, GM could cancel worker contracts to sharply reduce its liabilities.

In the fourth quarter of 2005, GM recorded a charge of $5.5 billion as an approximation of contingent exposures relating to the Chapter 11 filing of Delphi Corporation. This includes under the benefit guarantees for certain former GM U.S. Employees who transferred to Delphi in association with its 1999 spin-off from GM (Management's Discussion and Analysis of Financial 2005).

GM is not only struggling to cope with its pension and healthcare liabilities but also confronting the difficulty of being under funded. GM deficit is $10bn but its certified figures suggest it is under funded by $31bn. Problems described for GM view its present assessment that a Chapter 11 process will result in both a termination of Delphi's pension plan and complete elimination of its Other Postretirement Employee Benefits ...

Solution Summary

The response address the queries posted in 1135 words with references.

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