In Auto Talks, No Cure-All for Health Care Costs
Friday, February 27, 2009
The health benefits for retired autoworkers may be the envy of most Americans. For $11 a month, a retiree gets medical, dental, vision and prescription drug coverage.
It's a deal, however, that's not likely to last long.
As General Motors, Chrysler, the autoworkers union and the Obama administration enter negotiations and plot the future of the U.S. auto industry, one of the most delicate issues they face is what to do about the health benefits of an estimated 800,000 retirees.
The rising cost of health care is one of the key burdens confronting the companies as they try to avoid collapse, all parties acknowledge, illustrating the drag that health care can exert on the U.S. economy.
GM's announcement yesterday that it lost $30.9 billion in 2008 made the issue more urgent. Frozen credit and falling consumer confidence kept people away from car dealerships, forcing the nation's largest car company to burn through its cash reserves. In the fourth quarter alone, the automaker depleted $6.2 billion of its reserves -- a rate of about $67 million a day.
Although the union and Detroit's three automakers recently settled on a new wage agreement, they still must resolve the question of how to cut or rearrange their $30 billion in obligations to retiree health. To retain $17.4 billion in emergency federal loans, the companies are seeking to win union concessions on benefits and complete viability plans before a March 31 deadline.
"The company promised good health care to its workers, and it's a promise I hope they'll fulfill," says Raymond B. Bailey, 78, a former GM plant electrician who helped the union protect the program in federal court. "We depend on it."
He and his wife, Dorothy, a retired nurse's aide who is covered by the plan, acknowledge that the benefit is more than what many Americans get and that "some people don't like us for that."
But he noted, "we worked for it."
For a company of GM or Chrysler's magnitude, the size of its health obligations to its retirees, let alone its current workforce, are staggering. Based on life expectancies and expected medical costs of its current and future retirees, GM and the union figure the company still owes about $20 billion into its retiree health fund; Chrysler owes about $10 billion.
Put another way, the Center for Automotive Research once estimated that GM's liabilities to retiree health care amounted to more than 40 percent of its sales in 2007.
"It's a huge part of their problem," said Kristin Dziczek, a research manager at the center. "Going into the recession you had to be pretty strong to survive, and unfortunately these companies were hamstrung by the costs of retiree health care. If there were national health care, we wouldn't be talking about any of this."