DETROIT, July 14 — The Big Three automakers, which open contract talks with the United Auto Workers union on Wednesday, are making a bigger issue out of reducing medical costs than they have in years.þþBut the union has staked out health insurance as untouchable. ÿWe're not going to share costs,ÿ said Ron Gettelfinger, the U.A.W. president, at a recent news briefing.þþInstead, many in the automobile industry think, the union, knowing the competitive pressures that Detroit is under, may give ground on issues like wage increases, plant closings or work rules. The matter of controlling medical costs would remain largely untouched.þþHealth costs have been soaring for many employers. In other industries, businesses have generally passed along more and more of the costs to workers and retirees, if they maintain benefits at all. Not so in the auto industry, where union leaders have negotiated some of the most substantial medical benefits in the country for their members.þþWhat is more, in contrast to recent years when sport utility vehicles and pickup trucks were highly profitable, vehicle prices are falling, if one factors in the effect of interest-free financing and rebates as high as $4,000. þþProposals in Congress to add prescription drug coverage to Medicare would help the likes of General Motors, the largest automaker and also the nation's largest buyer of popular drugs like Viagra, Prilosec and Nexium. A recent Goldman, Sachs report referred to the proposed drug plans in Congress as the ÿautomaker enrichment act.ÿþþBut even this change would barely scratch the surface of the Big Three's health cost problems. For G.M., which is also the largest private buyer of health care in the United States, such a plan might trim $2 billion from the $57 billion health care liability it projects in coming years.þþAs contract talks open, few expect anything like a strike over health care payments because both sides have too much to lose. G.M. and the other big American producers, Ford and Chrysler, could little afford a strike in the face of bruising competition from foreign automakers like Toyota and Honda. And as the Big Three go, so goes the U.A.W., whose membership has dwindled to fewer than 650,000 at the end of last year from 1.5 million active workers in the late 1970's. þþÿThe balance of power has shifted to the unions' favor because they have the power to shut the companies down, and these companies, because of international competition, are very fragile,ÿ said Douglas A. Fraser, a former president of the U.A.W. and now a professor of labor relations at Wayne State University.þþÿThere would be devastation if there were shutdowns even for a few weeks,ÿ he said. ÿBut the union knows the competitive landscape and will exercise that power with intelligence.ÿþþIn the late 90's, the booming sales of high-margin sport utility vehicles and pickup trucks helped mask sharply rising health care costs. But now, the hold of the Big Three on the sport utility and pickup truck market is under assault from far more profitable Japanese automakers, which have better reputations for quality.þþThat has left domestic automakers fighting to hold ground, offering incentives three times as large as those of Toyota, Honda and Nissan, yet still watching their market share diminish in a sputtering market. þþThe absence of a national health system in the United States means that the Big Three take on social responsibilities that the governments in Japan and Germany bear. Gary Lapidus, a Goldman, Sachs analyst, referred in his recent report to the Big Three as ÿH.M.O.'s with wheelsÿ that only happen to make cars. G.M. alone provides medical coverage to nearly half a percent of the United States population, when dependents are included. þþAnd although Toyota and Honda assemble in the United States most of the cars they sell here, their plants are much newer, their work forces younger and their retirees number in the hundreds, not the hundreds of thousands that depend on the Big Three. They are also not unionized, except in joint ventures with the Big Three.þþWhile the out-of-pocket health costs of auto workers have not risen in years, many American workers have seen quite the opposite, and even white-collar Big Three employees can pay several hundred dollars a month in premiums and other out-of-pocket expenses. Auto union members enrolled in H.M.O.'s and P.P.O.'s generally pay $10 or less for prescriptions or visits to the doctor. Everything else is covered. þþAs a result, many analysts think that the domestic auto industry is in a bind similar to the one that crippled the domestic steel industry. Both feature shrinking companies burdened with health and pension obligations to armies of retirees, as well as labor contracts originating in a time of much less global competition.þþUwe Reinhardt, a Princeton University health care economist, calls the Big Three ÿa social insurance system that sells cars to finance itself.ÿþþIt's insane to think that a company embedded in a fierce global competition can function as a social insurance system,ÿ he said. ÿIt is a crazy, anachronistic idea. It's an idea that worked in the 60's, but lost its validity beginning in the 70's when the car market became global.ÿ þþThe Big Three and their major suppliers spend some $9,000 and up per active worker annually, according to Mercer Human Resource Consulting, compared with $5,758 at the average large company. That rises to about $15,000 for retirees not covered by Medicare, including benefits for dependents, and $3,500 to $4,000 for retirees eligible for Medicare. þþFor G.M., the problem is most acute. The company has 2.5 retirees for each active worker in the United States, a function of its domestic market share shrinking to less than 30 percent today from 60 percent in 1960. Ford has one retiree for each active worker in this country. þþLast year, G.M. had medical expenses of $5 billion and Ford $2.8 billion. Drug costs reached $1.4 billion for G.M. and $800 million for Ford.þþBoth Toyota and Honda declined to provide similar breakdowns of their health costs, but no one disputes that they are far lower. Seventy percent of Ford's $2.8 billion health bill went to retirees, a burden foreign automakers have yet to contend with in this country.þþMany Big Three retirees opt for expensive traditional plans that let them choose any doctor. Last year, 72 percent of Ford's blue-collar retirees were enrolled in traditional plans, compared with 23 percent of its active workers.þþAt large companies nationwide, 6 percent of active workers pick such plans, according to Mercer, and Toyota said its North American factory workers were in line with that figure. þþG.M.'s medical cost is equivalent to about $1,200 a car in this country. þþSo what could G.M. do with that money? A substantial job ÿdramatically upgrading the appearance and the feature portfolio,ÿ said Joseph Phillippi, an analyst at Auto Trends Consulting in Short Hills, N.J. Start with a sunroof, which costs a few hundred dollars, Mr. Phillippi said. Or, ÿ$1,200 would buy you the top-of-the-line navigation system,ÿ he said, adding that such a feature generally costs a consumer $2,500 ÿand they could give it to you for free.ÿþþÿOr it could be used to dramatically improve the overall level of the powertrain of the vehicle,ÿ he went on ÿor you could pour a lot of that money into sharply upgrading the interior. You could go from vinyl to leather.ÿþþBut how do you ask factory workers who perform grinding physical labor to retreat from hard-won health benefits? More difficult, how do you ask retirees?þþÿIt's a killing job,ÿ Mr. Fraser, the former union president, said of the stresses and strains of auto work. ÿWhat an auto worker wants is peace of mind and security, and health care is security.ÿþþGregory Stack, 46, a union member who is a car designer for Chrysler and once was a G.M. factory worker, said the problem was with the health system itself — runaway drug costs, malpractice suits, unnecessary surgery. þþÿOnce we do give up some aspect of our benefits,ÿ he said, ÿit will continue to escalate. We're the highest of all industrialized nations on health care spending. It is not a sustainable model, but it won't be solved by being placed on the back of the U.A.W. rank and file.ÿþþFor many analysts, the health care problem is emblematic of the Big Three's broad problems and also an incentive for auto manufacturing to shift to countries like China, where hourly wages can be counted in pennies, or even Canada, which has a nationalized health care system and far lower costs. þþÿWhen the industry lived in a cocoon and could price to reflect its cost, these were not issues,ÿ said Maryann Keller, a longtime auto analyst. ÿBut now, the union has to be worried what the cost of production is in China because that's what's relevant to the ability of G.M. to support its benefit structure 10 years from now.ÿþþHealth care is only one piece of the competitive puzzle. G.M. recently undertook one of the largest sales of corporate bonds, worth $17.5 billion, and used the bulk of the proceeds to offset a $19 billion pension deficit.þþToyota and Honda also benefit from currency and quality advantages. And while G.M. has been making significant advances in quality, it takes years for consumer perceptions to catch up. þþMs. Keller said, ÿIf G.M., Ford and Chrysler can't find a way to make huge margins on some of their production, like they did with sport utilities in the late 90's, there is absolutely no way they can afford to pay these benefits.ÿþþ
Source: NY Times
