SENTINEL WATCH January 16, 2006 Issue

OBLIGATION/INNOVATION: NOT AN EITHER/OR QUESTION

CHANNING WALKER

GENERAL MOTORS, never far from the headlines in the United States, recently captured them again. The automaker is losing money and had to announce cutbacks to its workforce. The company feels it must shrink into a leaner, more nimble car company.

Good idea, say experts. But the cutbacks won't solve one particular financial issue. GM has an enormous financial obligation to its now-retired former employees, who not only collect pensions, but also receive healthcare benefits that are sometimes quite costly.

Back in the glory days of GM, there were four workers for every retiree. Now, these figures are almost reversed. Today retirees outnumber current workers. And the financial obligation to those retirees adds about $1,500 to the cost of every new vehicle. By comparison, the comparable cost to Toyota is only around $300. And this expense translates into GM having to allocate a lot of money that could otherwise be invested in research, development, and innovation (The News Tribune, November 27,2005).