Junk
The news out this afternoon is that the debt of General Motors (GM) and Ford (F) has been downgraded to junk bond status. GM and F have a very large problem right now. Nobody wants to buy what their selling namely big trucks and SUVS. $50.00 gas fill-ups will do that to your sales. The automaker’s problem is largely rooted in their costs. On smaller cars & midsize sedans they simply can’t compete with the Japanese. Thus their bread and butter for the past 10-15 years has been the big gas guzzlers where they had some cost and sales advantage.
GM & F both have huge healthcare costs. I’m told that number per vehicle is something to the tune of $1,200 per car. GM’s medical bills will tally over 5 billion this year. Whether that’s exact or not is anybody’s guess. It is though correct to suggest that this places Detroit at a huge disadvantage vis-à-vis say Toyota.
Now like Social Security, healthcare has traditionally been considered an untouchable. In my view {that you always follow the money} we have seen whole industries blossom in insurance and medical cost containment whose sole purpose is to pass the buck of these costs onto somebody else. Detroit would prefer that somebody else be the states or the federal government.
For both companies and governments, healthcare is beyond the constraints of Adam Smith’s economic invisible hand in that 1} it is not subject to price competition. Its consumers-sick people-don’t bid out hospitals or doctors like they might a remodeling job. 2} its consumers and their families do not generally worry about costs when they need its services. For example, when you take your kid into an emergency room at 2:00 AM you generally don’t ask what it will cost before you try to fix whatever is wrong.
As we see this slow unwinding of the social contract between institutions and individuals, just as with Social Security the costs inherent in the system will eventually make it so that individuals are put more in charge of their own affairs or government in some form will be forced to do the funding.
No individual or client positions in either F or GM.
GM & F both have huge healthcare costs. I’m told that number per vehicle is something to the tune of $1,200 per car. GM’s medical bills will tally over 5 billion this year. Whether that’s exact or not is anybody’s guess. It is though correct to suggest that this places Detroit at a huge disadvantage vis-à-vis say Toyota.
Now like Social Security, healthcare has traditionally been considered an untouchable. In my view {that you always follow the money} we have seen whole industries blossom in insurance and medical cost containment whose sole purpose is to pass the buck of these costs onto somebody else. Detroit would prefer that somebody else be the states or the federal government.
For both companies and governments, healthcare is beyond the constraints of Adam Smith’s economic invisible hand in that 1} it is not subject to price competition. Its consumers-sick people-don’t bid out hospitals or doctors like they might a remodeling job. 2} its consumers and their families do not generally worry about costs when they need its services. For example, when you take your kid into an emergency room at 2:00 AM you generally don’t ask what it will cost before you try to fix whatever is wrong.
As we see this slow unwinding of the social contract between institutions and individuals, just as with Social Security the costs inherent in the system will eventually make it so that individuals are put more in charge of their own affairs or government in some form will be forced to do the funding.
No individual or client positions in either F or GM.
posted by CR English at 10:19 PM
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