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GM: Repair health care
CEO urges U.S. to help ease skyrocketing tab: Automaker lobbies up to 16 states to cut costs
CHICAGO -- General Motors Corp., facing a $1 billion increase in medical costs this year, is taking the offensive on health care.
In a speech to the Chicago Economic Club today, GM Chairman and CEO Rick Wagoner is expected to call on government and business leaders to urgently push for broad reforms to the U.S. health care system.
GM foots the health care bill for 1.1 million workers, retirees and family members, which cost the company about $5.8 billion last year. The automaker expects the tab to grow to almost $7 billion this year, severely cutting into its bottom line.
In addition, GM North America President Gary Cowger plans to launch a tour in the next few weeks to meet with the governors of 14-16 states to lay out the competitive threats posed by spiraling health care expenses and other issues, and ask the states for help in containing costs.
Health reform will be the centerpiece of Wagoner's speech, but the CEO also will outline several issues he contends place U.S. firms at a severe disadvantage to foreign rivals, including runaway litigation costs and trade issues such as the value of the dollar versus the yen, according to people familiar with the plans.
While Wagoner will not call for a federal takeover of the health care system, he is expected to challenge business leaders, Congress, the Bush administration, the health industry and consumers to work together to mitigate health costs.
"Clearly, the American industry has a disadvantage in terms of health care cost because in Japan and Europe, those costs are socialized," said Michael Flynn, director of the University of Michigan's Office for the Study of Automotive Transportation.
"Whether it is appropriate for private companies such as GM to be asking for government relief on health care could be a matter for debate," Flynn said.
In the speech, Wagoner will support the establishment of a "consumer driven" health system that encourages people to seek out the most cost-effective care and drugs, and rewards those who do.
He's also likely to advocate a national plan to address catastrophic health expenses.
GM has long employed a wellness approach toward curbing health care costs among its employees by encouraging the use of generic prescription drugs, which are less expensive than name brands, smoking cessation, and fitness programs. But any gains have not been enough to outpace increases in the costs of drugs and medical care.
"Health care costs are not in our control," said GM Vice Chairman and Chief Financial Officer John Devine last month in discussing the company's 2004 financial results. "We have to get them back to a reasonable level. It's a huge drag from a cash standpoint."
The company's health care burden is one reason it faces a possible downgrade of its credit rating to junk bond status, which would be a costly black eye for the world's largest automaker.
GM is not alone in feeling the sting of rising health care costs. Ford Motor Co. and DaimlerChrysler's Chrysler Group also face huge and growing health care burdens. Other industries also are feeling the pinch.
Almost half of 1,400 chief financial officers surveyed said they expected health care costs to account for the biggest increase in the costs of doing business in the next 12 months, according to a study published in December for Robert Half Management Resources, a California-based management agency.
Detroit's automakers are intensifying their lobbying efforts in Washington with a message: America needs a healthy Big Three. The companies, through a lobbying arm, recently distributed a brochure to every member of Congress touting their contributions to the U.S. economy.
But foreign automakers also are flexing their muscles in Washington. Since 1999, Toyota Motor Co.p., Honda Motor Co. and Nissan Motor Co. have nearly quadrupled the amount they spend on lobbying in the United States, according to Bloomberg News. Further adding to their clout, most of their 11 U.S. assembly plants -- which employ 55,000 workers -- are in Southern states where Republicans, who control both houses of Congress, are gaining strength.
While Detroit automakers would like to see reform of the health care system immediately, Flynn said the demand comes at a time when the Bush administration is focused on other issues such as Social Security reform and paying down the deficit.
"It's hard to imagine that anything is going to happen in the next year or two. But at a certain level, this is a problem that's going to continue to plague the Big Three for many years to come," Flynn said.
"They know nothing will be done in the next four years. But Rick Wagoner may still want to push and hope that something will be done in six or eight years."
As part of his theme of leveling the playing field for American companies, Wagoner also will highlight the recurring issue of fair trade -- more specifically what he contends is an artificial weakness of the Japanese yen and other currencies against the U.S. dollar, which makes imported products cheaper.
GM has complained about currency levels for several years, calling on the federal government to take action but has not yet been successful. The automaker says the situation gives foreign competition such as Toyota and Honda an unfair price advantage, even on products they build in North America since many of their parts are imported.
Wagoner's speech also will address tort reform. Among his suggestions, he is expected to call for better controls on damage awards in medical malpractice cases.
Health care also is high on the agenda of Cowger's tour, although it is not directly related to initiatives included in Wagoner's speech. But he also is expected to ask the governors to push for renewal or increases in tax abatements and other financial breaks offered to manufacturers in an effort to increase their competitiveness against foreign competition.
Detroit News Staff Writer Brett Clanton contributed to this report. You can reach Ed Garsten at (313) 322-3217 or egarsten@detnews.com.
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