Wheels come off due to health care costs

What is the main cost of producing a new car for the US automotive giant General Motors? It is a question I could routinely ask of my introductory economics class this autumn when we think about the basics of supply. The likely answers might include the cost of steel, wages of assembly workers, glass and rubber, design costs and the expense of fixed capital machinery for the production line.

In fact the answer is health care!

Speaking at the launch of the UK motor show in London, a senior executive at General Motors has admitted that the cost of providing health care adds from $1,100 to $1,500 to the cost of each of the 4.65 million vehicles GM sold last year and that GM spends more on health care than it does on marketing its vehicles.

It is a good example of how providing employee benefits can add substantially to the overheads of a business and affect competitiveness in a truly global industry. GM has for many years offered fully paid health insurance, retiree medical coverage and pensions. But as the ratio of retired to current employees continues to rise (it is now nearly two to one) GM is scrapping healthcare cover for all its retired workers and for their families from the beginning of next year.

The trade unions are furious but the very survival of the business in in question. As Paul Ormerod tells us in his excellent book “Why Most Things Fail”, the vast majority of the industrial giants at the turn of the last century are no longer in business.

More here on GM’s cost-cutting strategy from BBC news

Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Measuring Inflation in the UK [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Unit 1 Micro: Price Elasticity of Supply [13 May 2012]
Unit 1 Micro: Public Bads [12 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Made in China - but not quite so cheaply…... [7 May 2012]
Unit 1 Micro: Climate Change Policies - Finding the Right Mix [30 Apr 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 3 Micro: Quiz on Business Costs and Profits [11 Apr 2012]
Unit 3 Micro: Revision on Contestable Markets [8 Apr 2012]
Unit 3 Micro: Revision on Monopoly Price and Output [6 Apr 2012]
Unit 3 Micro: Monopoly and Economic Welfare [6 Apr 2012]
Unit 3 Micro: Revision on Scale Economies and MES [5 Apr 2012]
Unit 1 Micro: Revision on Price Elasticity of Supply [5 Apr 2012]
Unit 1 Micro: Revision on Producer Subsidies [2 Apr 2012]
Unit 3 Micro: Revision on Scale Economies, Technology and Prices [1 Apr 2012]
Unit 1 Micro: Nottingham introduces workplace parking tax [1 Apr 2012]
Unit 3 Micro: Revision on Fixed and Variable Costs [31 Mar 2012]
Price of Stamp increases to 60p [27 Mar 2012]
Unit 1 Micro: Breaking Down the Cost of Gas [4 Mar 2012]
The Economics of Climate Change - Stern 5 Years On [21 Feb 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
Unit 1 Micro: Video Clips on Negative Production Externalities [29 Dec 2011]
Economics of Deforestation [20 Dec 2011]
Unit 3 Micro: Hope Bikes - A Commitment to Excellence [30 Nov 2011]
Unit 4 Macro: Does UK Manufacturing have a Future? [30 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Unit 3 Micro: Unilever hit by rising costs [6 Nov 2011]
Unit 1 Micro: Costs and Benefits of a Super Sewer for London [1 Nov 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 3 Micro: Ofcom gives stamp of approval for flexible pricing in mail [21 Oct 2011]
Unit 2 Macro: Economic Importance of Investment [19 Oct 2011]
Unit 3 Micro: Tesco Behaving Badly - Price Anchoring [17 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Unit 3 Micro: Science Cities and External Economies of Scale [29 Sep 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 4 Macro: Bangladesh and Comparative Advantage in Textiles [19 Sep 2011]
Unit 3 Micro: Fixed and Variable Costs [18 Sep 2011]
Unit 3 Micro: Short Run Costs of Production [6 Sep 2011]
NHS spending good, private provision bad? [5 Sep 2011]
Starter Activity: Health Economics [1 Sep 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
Where there’s muck there’s brass [6 Jul 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Inflation [24 May 2011]
A2 Micro: Price Discrimination [19 May 2011]
Unit 3 Micro: Monopsony Power in Markets [19 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: High and Low Marginal Cost Products [19 May 2011]
Unit 3 Micro: Perfect Competition [19 May 2011]
A2 Micro: Outsourcing [18 May 2011]
A2 Micro: Business Growth [18 May 2011]
A2 Micro: Innovation Efficiency and Welfare [18 May 2011]
A2 Micro: Moving Away from Profit Max [18 May 2011]
Unit 3 Micro: Diseconomies of Scale [18 May 2011]
A2 Micro: Minimum Efficient Scale [18 May 2011]
A2 Micro: External Economies of Scale [18 May 2011]
A2 Micro: Economies of Scope [18 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
Regulation, legislation and competitiveness - The Bribery Act [5 May 2011]
A2 Micro: EU Aviation - State Aid and State Ownership [28 Apr 2011]
Wiki Revision: A to Z on Monopoly [23 Apr 2011]
A2 Micro: Changes in Costs and Profits [23 Apr 2011]
Key AS Micro Terms: Taxes and Subsidies [18 Apr 2011]
Key AS Micro Terms: Costs and Profits [16 Apr 2011]
Unit 1 Micro: Information Failure [15 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
Unit 3 Micro: Solar Panels and Economies of Scale [11 Apr 2011]
AS Micro: Prices for New and Second Hand Cars [9 Apr 2011]
UK Minimum Wage rises by 2.5% in October 2011 [8 Apr 2011]
AS Macro Key Term: Aggregate Supply Shock [6 Apr 2011]
AS Macro Key Term: Inflationary Pressure [5 Apr 2011]
OCR F585 June 2011: Competitiveness [31 Mar 2011]
Progress towards low carbon economic growth [18 Mar 2011]
Patent Box or Innovation Box as Innovation Stimulant? [2 Mar 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
Intense focus on cutting emissions is dumb argues Lomborg [16 Feb 2011]
Combining monetary and fiscal policy to curb inflation in China [16 Feb 2011]
Economics Q&A: What factors help to explain rising food prices? [14 Feb 2011]
Economics solar power government subsidies [8 Feb 2011]
The 25 Countries Whose Governments Could Get Crushed By Food Price Inflation [5 Feb 2011]
EU Economics: Hopes for a low carbon future in Europe [3 Feb 2011]
James Dyson on Innovation [1 Feb 2011]
Changes in Real Prices [24 Jan 2011]
The Externalities of Plastic [24 Jan 2011]
Economics Q&A: Tragedy of the Commons and Market Failure [18 Jan 2011]
Economics Q&A: How might rising food prices affect food retailers and manufacturers in the UK? [16 Jan 2011]

ECONOMICS TEACHER RESOURCE NEWSLETTER

Join over 6,000 other Economics Teachers in the UK and around the world who receive the tutor2u regular Economics Resource Email Newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops + loads of great ideas for teaching economics from our blog authors.