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Downsizing and Labor Union Costs

This is paper seeks to write a four-paragraph minimum essay related to Terminal Course Objective (TCO) #3. An article entitled “GM, Delphi, US autoworkers’ union agree to massive job-cutting program” is selected, which is related to the business costs, or the cost curves, or market structure. The paper is to stay focused on the economic issues of the TCO. This paper dwells mainly on the relevance of Fixed and Variable Cost in business decision making and in the economy. Analysis and Discussion

The General Motors was reported to be facing a downsizing of its world force to as to minimize its Labor Union cost which has affected every the company forcing to report a loss in its 2005 income statement as contrasted to pre-2005 levels. One of the strategies that would bring back the company to where is shine in performance is to address to labor cost problem The concept of Fixed and Cost and Variable cost is a topic that is much discussed in accounting and business management subjects and which has a significant effect also on the health of the economy.

From the point of view of a corporate executive earning profit is known objectives. Earning profit for the corporation bears much to the very purpose of financial management in corporations. Business entities use resources or assets to run the business and by employing assets costs are incurred. Cost incurred is factored in for profitability computation since they should be deducted from revenues to arrive at profit. Talking about fixed cost and variable cost in business entails segregation of variable costs from fixed costs.

Fixed does not vary with production while varies with production. Please see appendix A for the graphical relationship of fixed cost to variable cost. To apply the concepts with the General Motors, it would mean that Labor Unions costs for the company have become a burden since as the employees get older in the company their claims for benefits become higher and the only high labor costs of General Motors has an inevitable effect on its profitability.

These labor cost has become in a sense a fixed cost for General Motors since whether the company produces a big volume or not for sale, it will still have to face the reality of having to pay the labor cost to big number of employees who have become big and strong in number because of unionism making GM less competitive with its Japanese counterparts like Honda and Toyota which have manifested better profitability.

Realizing therefore that labor costs have become burdensome, reduction of number employees which could mean reduction of fixed cost for General Motors is a requirement if the company wants to bounce back and have the chance of facing up its competitors which are more flexible. White said,” The United Auto Workers (UAW) union has concluded a deal with General Motors and its former parts company Delphi Corporation that paves the way for a major contraction in the US auto industry and the permanent elimination of tens of thousands of jobs. ” This most recent development is a welcome move for the general motors.

When increasing business cost is seen in its effect in the economy, it pushes the price levels of prices and therefore it could be inflationary for an economy like the United States. Conclusion Business entities are components of any economic program of any economy in the world. The recent developments in the world have put almost every company competing in a bigger arena around the world. In our case, the General Motors used to be profitable but because of big labor cost, it loses its supposedly competitive advantage of economies of scale having become a big corporation over the years.

Work Cited

     White, J (2006), GM, Delphi, US autoworkers’ union agree to massive job-cutting program, {www document} URL http://www.wsws.org/articles/2006/mar2006/gemo-m23.shtml, Accessed September 20, 2006.

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