Houston Democrats

General Motors, the world's largest automaker, along with other American car manufacturers, like Ford, have been suffering from poor sales, primarily attributed to the sustained upturn in gas prices.

GM has announced that customers will receive the discount normally reserved for employees if they purchase a new GM car or truck until July 5. The incentive does not include the Chevrolet Corvette and GMC medium-duty trucks. In some cases, customers could get $7,000 to $8,000 off a new vehicle.

Paul Ballew, GM's executive director of global market and industry analysis said:

Our challenge in the marketplace is breaking through with consumers. It's vital for GM to break through the clutter. Our products are better than they are perceived.

I'm not sure how GM explains the seemingly large number of recalls on its products, while foreign makers don't seem to have as many. Regardless, GM is suffering from an extreme aversion to marketing smaller vehicles that get better gas mileage that are in increasing demand.

During the first quarter of this year, GM has lost $1.3 billion. Sales in May fell 5.4% from the same time a year ago, and total sales for 2005 are off 6.7% from 2004. Since last year's GM shareholder's meeting, its stock has lost about half its value.

Like GM, Ford is following suit on increasing incentives on certain vehicles, as its sales have dipped 5.6% during the first five months of 2005. Ford is offering additional incentives on vehicles with poor sales, including the Explorer and the Expedition. Sales have plummeted on these vehicles, the Explorer by 25% and the Expedition by 22%. Ford has increased its incentive on the Expedition to $5,000 (up $1,000). The rebates on the four-door Explorer, the Focus small car and Ranger small pickup have increased by $500. Ford is also offering a new option of a 60-month, no-interest loan and a $1,000 rebate on the Explorer and Expedition. The incentives will expire July 5.

Now that doesn't sound like desperation does it?

In another act of desperation, GM announced it will cut 25,000 jobs in the United States over the next three years. This amount is in addition to 12,000 jobs that will be cut in Europe over the next two years.

General Motors Corp. announced today it plans to cut 25,000 jobs in the United States over the next three years by closing various assembly and component plants, a move brought on by both a cooling of the American love affair with the mighty SUV and rapidly spiking health care costs.

Rick Wagoner, chairman and chief executive of GM, told the shareholder's meeting:

We have high structural, or fixed, cost basis and so when we lose revenue, it drops quickly to the bottom line. And last quarter, we lost revenue, due to lower retail sales.

Wagoner's statement is basically code for the fact that GM has a large number of pensioners with substantial health care benefits the corporation must cover. This is a similar argument to the one that major airlines are using, one that United Airlines has already successfully used to dump millions in retiree costs onto the government.

Investors were pleased by the announcement by the 37,000 job cuts, and believe that they will help GM to maintain its competition with foreign car manufacturers.

However, Standard & Poor's has demoted GM's bond ratings to junk status. S&P states the biggest problem GM faces is the declining demand for gas guzzling SUVs, upon which GM has depended for much of its market share and to hold back foreign competition over the past ten years. However, SUV sales may rise later in the year as customers replace some older vehicles. I'm not sure why anyone would want to purchase another SUV gas hog, but it's a personal decision.

While some of these changes may be welcomed by investors. I don't see how they are anything other than a temporary stop-gap measure. Rising health care costs is a major problem for most companies, especially long-lived ones like GM. GM claims it is being
"swamped" by health care costs, but if they continue to rise, then the health care cost for current employees will continue to rise, likely to necessitate further layoffs, and benefit cuts to maintain competitiveness.

If companies believe so fervently that health care plans are sinking their chances at competing on the world market, than why do they not support a national health care plan? It seems it would be in their interest to do so. After all one of the major differences between US companies and those in Europe and elsewhere is that universal health care is provided by the government. I think in the end, it will be corporations that will end up pushing the United States to a national health care system.

In a free market, which conservatives so proudly espouse, companies are governed by economics, not social values. If companies face competitive losses due to employee health benefits and pension plans, then they will cast them off. It's a matter of numbers that ignore the individuals and families who will suffer from the decision. The US is facing many cases of corporations cutting these sorts programs. As airlines, car companies, among others cut their health plans and pensioners, others that may not have made such cuts will come under pressure to do the same to maintain their own competitiveness. We're essentially facing a massive, unsustainable domino effect. Clearly, this is a failure of a free market system. Eventually, another health care system will have to be developed, one that I think will involve the government in the form of a national health care plan.

Some may call national health care socialism or communism, but I like to think of it as a basic, guaranteed right backed by the government. While, I believe capitalism has served the United States and other nations well and don't wish to do away with it, it does have its flaws. There are certain cases where the government can step in to provide a service that private companies are unwilling to support. I don't see anything wrong with that. I'm sure many people who currently abhor any idea of national health care will change their opinion when they are let go or have their health benefits reduced. I know corporations will layoff and cut health care benefits before they accept liquidation.

The articles from the Washington Post:

"Weakened GM and Ford Broaden Incentive Plans"

"General Motors Cutting 25,000 US Jobs"