Health care a challenge for Detroit automakers
Thursday, January 13, 2005
Airline companies and steelmakers have been driven into bankruptcy by a crush of runaway health care and retirement benefit costs.
"That has not gone unnoticed by me," General Motors Corp. Chairman Rick Wagoner told reporters during press previews this week at the North American International Auto Show in Detroit.
So could automakers, facing similarly bruising costs, be next?
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Not likely. But the fact that executives and industry experts are discussing such a possibility shows how critical the situation has become.
Among Detroit automakers, GM faces the most daunting challenge of continuing to provide health care benefits to workers and retirees. The automaker spends more than $5 billion a year to insure 1 million workers, retirees and their family members. Its costs are growing at near double-digit annual percentage rates.
Plus, GM has the most retirees of any automaker - 2.5 of them for every active worker.
All of that translates into $1,000 of health care built into every GM car and truck. Japanese automakers pay just a fraction of that on health care because they generally have younger, healthier workers and hardly any retirees.
Wagoner has said Washington must help lift the burden on employers struggling to pay the health care costs of their workers and, indirectly, the costs of those who have no insurance.
But the GM chairman said at the auto show that he expects little action from the federal government this year. "We have to act like no one else is going to solve it - we are - and that's tough to do," Wagoner said.
Some critics say that's the way it should be, arguing that automakers got themselves into this mess by negotiating rich benefits for workers and retirees with their unions and they shouldn't expect the government to bail them out.
But that argument ignores the fact that virtually all employers, from the nonunion small businesses to industrial giants like GM, are struggling to afford health care.
"This isn't just an auto industry issue. This is an issue that permeates the economy," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
Cole emphasizes he's not predicting that an automaker will file for Chapter 11 bankruptcy. But he says conditions are ripe for a bankruptcy filing.
Ford Motor Co. and GM are losing money on their auto operations, in large part because of health care costs that prevent them from investing enough in new products.
A Chapter 11 bankruptcy filing would allow an automaker to ditch its labor contract and arbitrarily reduce wage and benefit costs for workers and retirees.
But Wagoner argues that the corporate and societal costs of an automaker filing for bankruptcy might be too great.
"Whether it's responsibilities to retired employees, current employees, shareholders, customers, I mean a lot of people get hurt in that," he said.
And, he notes, numerous Chapter 11 filings in the airline industry have done little to fix that industry's woes.
Wagoner and other GM executives say the automaker will chip away at costs by doing such things as pressuring drug companies to reduce prices and educating workers on being better consumers.
At this point, Chapter 11 is too strong a medicine to fix what ails GM.
"Our intent is never to let that happen," said John Devine, GM's chief financial officer.