Les Jones

Health Care > Healthcare Costs Take Down Delphi

Michael Barone looks at the healthcare and pension liabilities that led to Delphi's bankruptcy, and that are threatening US automakers:

The workforces of the Big Three are much smaller than they once were, so the companies have many more retirees to provide for than active workers.

That seems to be the bane of most retirement benefit programs. They're generally structured as Ponzi (pyramid) schemes with new members paying the benefits of retired members. That works great during the boom years when money is rolling in and the economy is growing.

The problem comes during an economic retreat. When the pyramid gets upside down a small workforce has to support a larger retired workforce, and the numbers don't add up. That imbalance drove Delphi bankrupt and may yet bankrupt Ford and GM, and things aren't looking good in European countries with big social programs and sub-replacement birthrates that are causing the population to turn ever grayer.

The LA Times has a relevant article about problems in Europe (via InstaPundit, who has thoughts on the collapse of the industrial welfare state in the US).

By most measures, France is in crisis. The unemployment rate has been stuck at around 10% during Chirac's 10 years in office, and annual growth has been sluggish. The French spend less time on the job than most Europeans because of a 35-hour workweek, high youth joblessness and increasingly early retirement ages.

As a result, the budget deficit has ballooned. A massive national bureaucracy strains to preserve costly health and welfare programs, entrenched labor protections and generous perks: A motorman for the state railway can earn about $90,000 for a 25-hour workweek with free healthcare and retire at 50.

It's safe to safe two things here. One, paying someone on the railroad $90,000 a year for a 25 hour work week and letting them retire at 50 is unsustainable. Two, once people get those kind of government jobs they won't give them up without a fight. France is going to have to go through a painful collapse before the country has the will to make big changes.

UPDATE: GM workers today agreed to reduced healthcare coverage that will save the carmaker $3 billion per year.