General Motors and Starbucks: business models and strategies

Healthcare is one of the most important and hotly contested issues within the American corporate landscape. While some companies are providing exceptional health care provisions, others are being buried under the weight of healthcare expenses on company wide level. Two companies are moving in polar opposites on the healthcare divide. Starbucks, one of the nation's fastest growing companies is continuing to invest tremendous revenues into employee healthcare and is one of the nation's leading employers. General Motors in contrast is steadily cutting healthcare benefits while attempting to maintain their company afloat. The following will examine the legitimacy of these two company's policies.

General Motors, for the 74th consecutive year is the world's largest car company, however in recent years it continues its slide towards negative profitability as the company continues to lose billions per year. GM's CEO blames much of their problems upon healthcare, the company argues that they are a "welfare state." In 2003, GM's pension fund needed an infusion from the largest corporate debt offering in history. Furthermore, to cover its 1.1 million employees, GM must spend an estimated 5.6 billion dollars in 2005, which averages to 1,525 dollars per car produced. This cost is greater than the actual steel used within car manufacturing. The immense GM healthcare bill accounts for a majority of its 1.1 billion dollar losses in the first quarter of 05. The fact is that healthcare, especially for a company that has been in existence for the past century, has much more financial obligations in terms of healthcare than younger companies. As a result, its financial burden for healthcare expenses truly inflates its overall costs. This is the primary reason for its decision to cut many of its benefits, and to reduce benefits to retired workers. GM's corporate culture influences its stance of healthcare, their industry is facing dramatic cutbacks and as a result, employees are willing to accept cuts in order to help the company stay above financial water.

Howard Shultz's Starbucks is one of the nation's fastest growing companies, it also has committed itself to providing top-notch healthcare coverage for all of its employees. Starbucks has committed to provide healthcare coverage to employees who work at least 20 hours a week. This year, the cost will add up to over 200 million dollars for coverage of its over 80,000 employees. Schultz's perspective, differing from GM is that the company's healthcare accounts for its very low employee turnover and high productivity. However, their generosity is even now bringing down their bottom line, Starbucks is attracting older workers who no doubt join the company for its healthcare benefits. As a result, Shultz notes that Starbuck's future healthcare costs will dramatically increase. Starbucks has seen that their insurance costs have had double digit increases in each of the past four years, and that this growth is completely "non-sustainable." Part of the reason that Starbucks is able to maintain its current healthcare policy is the relative newness of the company and its current lack of retirement healthcare costs. As a result, although their current benefits are generous, their future prospects could be equally bleak as GM's if it continues down this benefits roadmap.