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Originally Posted by DarrylS
Perhaps the discussion regarding "legacy costs" will ensue... have always found it interesting that there has never been this discussion regarding congressman, fireman, police officers, the military.. all of which have liberal early retirement plans...
Perhaps it is the view that because all of these come from the public sector, there is a never ending source of funding... or that the public will just keep on paying.
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You are right about the neverending funding (except California, which has found a way to legally mandate both that they never raise taxes, and that their pensions are generous... that didn't work out so well...)
But seriously: responsible government is perfectly capable of taxing an amount commensurate to pension responsibilities, or can overpromise or undertax or both.
There is another difference, however. Compare the historic curves of the military versus the auto industry as well as the funding source.
While it's true that nobody dares to say $100,000 of the $4.4 million cost of this or that piece of military hardware goes to legacy costs (and though these numbers COULD be provided I am sure, I just made these up,) let's think about where the "legacy" costs are on the age curve as of the present meltdown.
For the military, WWII was the cause for an explosion in manpower. The ones who stayed for 20-year military careers incurred "super legacy costs," in the military system. (i.e., it's career military who receive pensions and lifelong health care.) In the post-war years there was an immediate decrease in manpower, and thereafter the military's ranks have bounced around but mainly fell, due to a) reliance on first, nuclear deterrence, and more recently, technological "leverage" such as stand-off weapons, which decreases manpower, and b) the lack of a conventional threat on a par with the WWII axis nations.
For the auto industry, you had the post-war boom in American prosperity and auto worker commitments, going from the late 40s through the sixties. That is an enormous amount of time, not a blip. Pensions and health care were promised throughout the system, predicated on the infinite-growth model (sound familiar, Wall-street/housing market followers?) They wrote their contracts modelled on the growth of the industry at the time the contracts were being written, in the 40s and 50s, and once the Union gets something they are slow to give it back (keeping gains for workers is their job.) Although they'd made concessions prior to the collapse of 08, it definitely takes writing very clearly scrawled on the wall for the union to cut into its members' pay.
(Granted one way to kick that can down the road is to get current pay to rise or continue at the same rate, and say "but we got you more pension benefits" or "but we got you better medical benefits.")
Come the 1970s, and the Big 3 are looking at these ugly little tin cans called "Toyotas," and thinking "American's don't want those damn things or anything like them... they're 2 different species, cheap little fuel-efficient aberrations and true manly growling beasts that Americans really want." One oil-embargo later, and suddenly the US auto industry has a gargantuan workforce and declining market share.
In addition, the market changes. Those sneaky imports were built on the premise that the engine does NOT turn into a pumpkin after 100,000 miles, with everything else breaking along the way.
The US business model had been planned obsolescence. There was a form of collusion going on: We all agree that everything has to break, and the consumer is broker in the broken places. Somebody comes in from the outside and says "no it doesn't."
We often discuss US/foreign competition as if the seminal event were the crash of 08, but it was more the oil crisis of the early and mid 70s.
Well long story short, no planned obsolescence and cars that run longer and longer, in combination with significant (and formerly absent) foreign competition, all add up to fewer domestic auto jobs.
To compete we run leaner, and make certain we will be (relatively) early adopters of available technology. Early enough, at least, that the industry did not collapse in the 80s and 90s due to roboticization. Oh-oh. That's more disappearing jobs.
Now let's talk about how these legacy costs are absorbed. We like to express them as the percentage of a car that only pays for things like health care and pensions.
Another way to discuss the trouble is that the big blob of workers at the peak of the industry date from the 50s and 60s, when autoworkers numbered in the millions, not the low hundreds of thousands. There are a tremendous number of them, and many had 30-and-out arrangements (similar in kind if not in degree to the military's unparalelled 20-and-out system.) So there they are, retired in some cases for as long as they worked, in great numbers, concentrated in the age cohort who were active workers from the late 40s through the 60s.
What costs does Toyota have for that time period? Negligible by comparison because their market share was at that time negligible.
What legacy costs does the military have, just for example? Again negligible, because the number of career military personnel is a fraction of all who served during the biggest "bubbles" in military service, and because the peaks were comparatively short-lived. We grow the military to millions for wartime, and shrink it down for peacetime or "little wars." There were no "down" times for decades in the auto industry.
The future is not yet written for Chrysler, although one can look at the early indicators. One thing worth taking note of is that people die.
As people die, legacy costs die with them. Straight-life annuities stop being paid. Joint-and-50%-survivor annuities are cut in half. Health care costs disappear.
Since the great mass of legacy costs are limited to an age cohort, the costs will decrease as that age cohort dies off. We're probably supporting zero people who retired in 1950. We probably have a few who retired in 1970 (if they started at age 20 and worked 30 years they were born in 1920.) Soon we'll be into the ones who were
not replaced by foreigners and/or robots, a smaller cohort, as Chrysler's "active legacies."
Similarly the legacy costs of companies that blossomed in the 70s and 80s will begin to take their toll.
Now, let's look at this from the point of view of a "race to the bottom": Clearly the solution from a competition point of view is 100% unemployment, or the closest we can accomodate that target. If there actual IS a human worker, he should be low-paid and have no retirement or health care provisions. Then we'll have cheap cars AND big profits for the corporations. Since there are no workers, or very few, we won't have to worry too much, because there's nobody to GET the health care, right?
Repeat this process throughout the economy, and you end up with a
reducto ad absurdum of what has happened over the decades. We still cast about for the next replacement industry, because we pretended for the last 20 years that we would become a "post-industrial" economy. Instead of making things, we'd just polish each other's shoes and buy and sell each other's property and paper, and other peoples' too. Also we could make web pages and sell stuff that other people made. Oh, and sue each other and of course, take care of each other when we're sick.
That seems a flawed model. We don't have any money to pay for the lawsuits and the health care and the damned bank fees and bonuses, because it turns out that you really have to make something as the backbone of an economy.
Okay screed over. I am sure this all added up to something... the basic gist is, legacy costs are legacy costs because they respond to very large cohorts of people who are no longer working and who were eligible for benefits. So while it's true that auto industry legacy costs reflect some historic events that exist throughout society, the auto sector specifically represents people who made the PRODUCTS in use in the "wonder years," NOT SOLELY those BORN during the "wonder years." So there's a gap between what happened there and what is happening to, say, entitlement programs, although some of those may be coming due too, if more people give up and retire than stay in the workforce unexpectedly.
Hope there's something like useful info here, but good point, Darryl.
PFnV
Chrysler on the Brink of Failure
Linear Mode
