Originally Posted By: TurboLuver
So if GM does go bankrupt does that mean they will no longer be obligated to all the retirees in the form of pensions and benefits?
It's quite possible! What would probably happen is that the government pension garantee corp would take it over. The pensioners would get some benefits, but it probably wouldn't be pretty.
(Quite frankly, what GM (and so many other companies, GM is just the biggest and ugliest example) did with this ought to be illegal- for years and years, they have leveraged their cost of production against the future. It's great that they offer good benefits to their workers- but they did it wrong. They basically created a Ponzi scheme whereby the workers of the past (the current retirees) are being paid off by the sacrifices of the current workers, and the shareholders of the past got paid off in exchange for the shareholders of now. GM created a scenario where they would have to keep expanding, or have to reduce costs so much, that it was unsustainable. It's not fair to anyone involved.
Defined benefit plans ought to be illegal. It should have to be defined contribution. If a company wants to offer retirement benefits, they should have to book the cost when it is incurred- while the employee is working. Or, from the other perspective, the FULL cost of producing a car needs to be reflected at the time it is produced. The cost of labor should include the wage + the contribution to the retirement plan. Any other way is dishonest and as we are learning, doomed to failure. And it's going to keep happening as other companies see their retiree costs skyrocketing.
Originally Posted By: Audi Junkie
REAL cost of labour, to produce and assemble EVERY little part...10% of total cost??? Gimmie a break.
Well, yes and no. A friend of mine works for a GM supplier. (He is not enjoying his job right now...) According to him, the number of man-hours for final assembly of a car is something like 19. But because of outsourcing, much of the labor that goes into the vehicle is obscured. When they buy a door assembly, the labor that goes into that doesn't count against them.
But yeah, labor as a pure component isn't all that large of a percentage of the cost of an item being produced. I worked for a retail food giant as a manager for a while. During a Saturday lunch rush, labor might run 5%. Which seems crazy small. But when you account for the labor that went into the whole day, setting up in the morning, closing down in the evening, it gets to 10% pretty fast. When I first started in management, I was shocked at how low it was. But then I started getting the P&L statements and seeing the budgets. Costs in manufacturing (which a restaurant is, on a very small scale) are unbelievable. Just imagine what it costs to get a payroll out. To install timekeeping systems. To fill out the forms! It's crazy. Oftentimes, in an average restaurant, the difference between a profitable month and a loss month was literally counting minutes on every shift of every daypart, the difference between turning the equipment on at the last possible second, and not wasting product.
Same with manufacturing. The cost of setups, of holidays, of breakdowns, of training start to add up.
