Toyota Motor Corp. not only does cars better than the big three...General Motors, Ford Motors and DaimlerChrysler, Toyota is now showing the big three how to manage legacy costs.
Legacy costs are when a company provides medical and pension plans according to how good their employee medical packages are.
General Motors must charge an extra $1500 for each car it produces in order to pay these costs for its 400,000 retired workers. Ford charges $1400 and DaimlerChrysler $1100.
Not only must GM, Ford and DaimlerChrysler charge more for their cars in order to pay on pensions, the big three cannot conduct the R&D they need to keep up with the Toyotas and Hondas....a vicious cycle to say the least.
Toyota does not have the same problem.
Here's why.
1. Toyota has been in the US a much shorter time. Only 258 workers have retired, and they retired early. Toyota won't see its first 25 year veterans retire until 2013.
2. Toyota uses a defined-contribution pension plan instead of defined benefit plan. Employees pay into the fund toward their post-retirement packages.
3. Toyota is able to predict future financial burdens whereas the Big Three cannot.
4. Toyota is operating its own medical center at the new San Antonio plant - the best way to cut health costs is to find the problems early and treat them sooner. Preventative maintenance is cheaper than corrective.
Toyota does management better, too.
What do you think?
Bill Belew on Business in Asia
More Posts about the Business of Education
