Health costs to top auto talks

The Baltimore Sun

When the Big Three sit down later in July to hammer out a contract with workers, reducing health care costs is expected to be Job No. 1 for the automakers.

General Motors Corp., Ford Motor Co. and Chrysler Group together had about $90 billion in underfunded retiree health benefits at the end of last year. The car companies, which have been losing ground in the U.S. market to Asian rivals in recent years, say they must reduce those so-called legacy costs to stay competitive.

"If your market share decreases and your competitors have a cost advantage because they don't have the same legacy costs, all of a sudden you're in a very tight spot - which is where we find the Big Three today," said Bruce Belzowski, a researcher at the University of Michigan Transportation Research Institute.

Talks on a deal to replace the current four-year agreement with the United Auto Workers - which expires Sept. 14 - will begin officially July 20 and 23 with traditional "handshake ceremonies" between the various negotiating teams.

But the posturing has been going on for weeks, with the two sides laying out their respective arguments in background sessions with reporters and detailed briefing books.

The automakers point out that they are providing health care coverage for 2 million current and retired employees and their dependents.

GM alone spent $4.8 billion on health care last year - second, it says, only to AT&T; Inc. among U.S. corporations. That money could have built four assembly plants or launched six new vehicle programs, GM says.

By contrast, the companies say, foreign automakers that have set up vehicle plants in the United States - with almost exclusively nonunion workers - have about 1,200 retirees on their books.

"Based on the magnitude of the cost, health care will continue to be a discussion point for GM and the UAW," said GM spokesman Dan Flores, who called the difference between U.S. and Japanese health costs "a significant competitive gap."

How much the UAW will be willing to give up isn't clear.

Under current leader Ron Gettelfinger, the union has agreed to contracts that have required workers to pay premiums for health insurance that used to be free.

In June, UAW members working for bankrupt parts supplier Delphi Corp. ratified a contract that included concessions on wages and worker health care costs.

"The UAW has proven through the Delphi deal that they are willing to compromise and negotiate, taking a more pragmatic approach than has been seen from the union in the past," consulting company Global Insight said in a report last Thursday.

There's no guarantee, of course, that flexibility will extend to the workers at GM, Ford and Chrysler.

Younger workers, in particular, might have expectations that are hard to reconcile with today's industry environment.

"They look at folks who retired in the past and don't always understand that they are operating under a different set of rules," said Sandy Ageloff, head of Towers Perrin's Southern California health and welfare practice.

As the talks near, stories have started to circulate among the rank and file about tension mounting inside local union offices. Tales of screaming matches between workers and bargaining officials have become common, and the anecdotes of physical conflicts between the two are growing.

"People are tired, tired of giving things up," said Gary Walkowicz, 57, a Ford employee who has worked at the company for 32 years. A resident of Detroit, he works as a repairman at the Ford Truck Plant in nearby Dearborn.

"It's obvious that the companies are pushing real hard for the concessions," Walkowicz said. "No one's talking strike yet. But I'm ready to speak out against the concessions. And so are a lot of others."

Although a strike would be devastating to the automakers - especially Ford, which lost a record $12.6 billion last year - economists say it wouldn't have the effect on the U.S. economy that it once did.

"The last time I can remember that a strike at one of the Big Three automakers caused a national recession was in 1970," said John Lonski, chief economist at Moody's Investors Service.

Indeed, the Big Three are really not so big any more. GM, Ford and Chrysler are now referred to within the industry as the Detroit Three, reflecting the rise of Japanese automaker Toyota Motor Corp. into the top ranks of the domestic car market.

The American companies, once so dominant that they accounted for almost all U.S. auto sales, now account for half of their home market. Their sales are on track to fall for the eighth consecutive year, the first time that has happened since the Great Depression, Lonski said.

The Big Three's decline is reflected in the UAW's dwindling membership rolls, which have shrunk from more than 750,000 in the mid-1990s to fewer than 540,000 today.

Workers are bracing for the worst.

"We cringe every time Gettelfinger mentions something that's going to be discussed in the negotiations," said Gregg Shotwell, a 28-year veteran of GM and Delphi in Detroit, "because it means that something else is about to go away."

Martin Zimmerman and P.J. Huffstutter write for the Los Angeles Times.

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