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Hey NYT: Ford's Problem Is Pensions & Health Insurance

In coming years, companies will increasingly wake up to the reality that our health insurance and pension systems aren't just killing Americans - they're ruining corporate America as well.
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Talk about missing the point completely.

The New York Times devoted parts of three pages in its Sunday Business section to a 3,500-word dissection of the problems at Ford, yet amazingly failed to mention even once the words at the heart of the auto industry's troubles: pensions and health insurance.

What an incredible waste of space and, as is far too typical in the press these days, a blown opportunity to do some quality journalism that addresses the real financial issues facing this country.

The story opens with an ostentatiously over-written description of William Ford's office that proves one thing - the reporter was granted access to William Ford's office. And it continues along those superficial lines for an astonishing length. Essentially it concludes that Ford's problems were caused by a failure to adapt to more fuel efficient technologies and a lack of innovation in design. Nothing we haven't heard before.

But roughly a third of the way through the story there's a startling quote from respected auto industry consultant John Casesa on the future prospects of Ford and General Motors: "Both these companies could fail. That's how fundamental the problems are in Detroit."

Why are the problems in America's auto industry so urgent all of a sudden? The designs coming out of Detroit have been lackluster for decades. So the recent shift in driving fashion from gas guzzlers to fuel efficiency has these companies on the brink of ruin? How many people do you actually know who've traded in their SUV for a Prius? And the last time I checked there still was a strong demand for pickups and other trucks, which are enormously profitable for U.S. automakers.

No, I think there's something else at work here.

Tom Friedman may be one of the most annoying columnists on the planet, but he has come up with an apt slogan with his whole "world is flat" thing. Simply put, his central point is that through technology companies are increasingly competing on a "flat" global playing field. For us, the problem is our older established manufacturers, like Ford and G.M., which employ large numbers of Americans and have countless retirees, are saddled with billions of dollars in costs for pensions and health care. But their international competitors are not.

See, we're alone among developed countries around the world in having health insurance and retirement systems that are almost entirely reliant on the private sector (as shown on p. 9 of this study by the Organisation for Economic Co-operation and Development.) So a typical American manufacturer or industrial outfit automatically has to deal with expenses that in other countries would be covered by the government. This puts our companies at a competitive disadvantage globally. And the sad part is, the longer an American firm stays in business, and the bigger it grows, the larger that disadvantage becomes. That's some reward for success.

For example, as the Times itself pointed out in May, Ford estimates that it adds $1,100 to the price of every vehicle it sells to pay for health care for its employees and retirees. At General Motors the figure is $1,500, and at Chrysler it's $1,400. General Motors alone expects to spend at least $5 billion on health care this year. And the figure keeps growing. Meanwhile, in its most recent financial statements Toyota described its expenses for health and pension benefits as "not material."

Perhaps this might explain why the problems in Detroit have become so dire, so quickly?

You should expect to hear more about this in the coming years as companies increasingly wake up to the reality that our health insurance and pension systems aren't just killing Americans - they're ruining corporate America as well.

I just wouldn't expect to read about it in the Times.

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