Detroit Free Press (Yuck) BY JEFFREY McCRACKEN http://www.freep.com/money/autonews/autos6e_20040806.htm
TRAVERSE CITY - John Devine, the finance chief at General Motors Corp., stared into a crowd of hundreds of auto executives, suppliers and insiders at an annual forum for auto bigwigs. He took a question from the audience and finished with this: "We're not there yet, but nothing is more important to us. Nothing."
The "it" for the world's largest automaker was not vehicles, truck sales, UAW relations, or China.
The "it" that was so important at this high-profile seminar held in the state that put America on wheels is health care and what to do about the soaring cost of it.
Devine was not alone. Several executives or industry experts wondered aloud if the time is right for a national health care plan.
"I spent a lot of time in Canada, and I used to think their health-care plan was a bad idea. Now after being back here I'm not so sure," said Larry Denton, CEO of Dura Automotive Systems Inc., a Rochester Hills-based auto supplier. "We're about the only modernized country not doing it and the companies here pay a 30-percent penalty because the rules are different."
At a gathering where one would expect the discussion to center on hot new cars or advances in lean manufacturing, instead executives, government officials and suppliers spoke about ever-escalating health-care costs and how they threaten the entire U.S. auto industry, especially Detroit's automakers.
A confluence of events, including a growing number of auto retirees, higher prescription-drug bills, a contested presidential election and the influx of foreign automakers that don't have to pay directly for health care have pushed the issue to the forefront for anyone in the industry.
The squeeze comes as health care increases costs inside the industry, but new car and truck buyers have so many vehicles and so many automakers to choose from, often they'll buy only when the vehicle comes with a rebate of several thousand dollars or low-interest financing.
"All of us in the industry have a mutual interest in getting this taken care of," said Jim Padilla, chief operating officer at Ford Motor Co. "It's getting to the point where it's unaffordable for all of us to provide health care."
Combined, GM, Ford and the DaimlerChrysler AG's Chrysler Group estimate they spent $9.9 billion in 2003 to provide health care to nearly 2 million workers, retirees and dependents. GM had the biggest tab by far at $4.8 billion and expects that to grow about 8 percent to $5.1 billion in 2004. Overall, the bills Detroit's three automakers pay are rising from 8 percent to 12 percent a year.
At this seminar, where the theme was "surviving the perfect storm," health care was likely the issue most frequently cited as the proverbial menacing storm cloud.
"The auto industry, more so than any other segment of the U.S. economy, is wrestling with all the demons of today's troubled health-care industry," said Mark Finucane, a speaker at the conference who oversees Ernst & Young's health-care practice. "Health care threatens the long-term future of the auto industry, if not all manufacturers in America."
He and others noted GM and its two Detroit rivals spend more on health care than they do on steel, at GM on average about $1,400 per vehicle, according to various studies, versus about $650-$700 for steel per vehicle.
Rising health-care costs are blamed for everything from why Wall Street doesn't want to invest in auto-related stocks to why domestic automakers cheapen their interiors with more plastic than foreign rivals.
In one session, Michigan's director of economic development, David Hollister, blamed rising health-care costs for hurting funding for K-12 and higher education, thereby jeopardizing the state's ability to offer educated workers to automakers and suppliers.
"Medicaid is the fastest growing part of our budget and ends up threatening everything else we do," said Hollister.
As those who work for a GM or anyone else in the industry are well aware, increasingly employers are shifting more and more of their bills for prescription drugs, office visits or other medical costs to employees.
"For those of us that have to pay these bills, it's clearly a huge burden," said Devine, noting GM covers 1.1 million employees, retirees and dependents. "For us, compared to some of our competitors, it's like trying to run around carrying 50-pound bags."
Devine and others were short on detailed solutions. They said no one thing or one group would solve the problem alone.
"I wish I could give you a top 10 list, but it's longer than that," he said. "We work hard every year to keep the price increases down. The solution has to involve the companies, the employees, the health-care providers, the states and the federal government. The federal government is important because they employ a lot of people, just like us."
Devine expressed support for any federal legislation that helps limit or cap the cost of catastrophic health care.
He cited some Republican bills in the Senate and a proposal by Democratic presidential candidate John Kerry to have the federal government reimburse employers who pick up some portion of catastrophic cases.
By GM's estimate - and that of outside health-care studies - 1 percent of the health-care cases make up 20 percent of all health-care costs.
Officials at the conference were split on whether nationalized health care was the answer - or whether it could even happen in the United States.
"I think it's inevitable. I think we are on the road to some form of nationalized health care," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, the seminar organizer.
Cole noted that five years ago health care was a rarely mentioned issue at his event, but now "with so many more retirees and the Big 3 losing market share to the transplants that don't have all these retirees, there's more and more talk about it."
Cole said he thought President George W. Bush would have a chance to get some sort of national plan passed with a Republican Congress, but that Kerry - like President Bill Clinton in the early 1990s - would face stiff resistance from Republicans.
Others said regardless of who was in office, the state of U.S. health care is so bad, there is a lot of sentiment for a radical change.
Almost no one is happy with the system, despite the country spending $1.4 trillion on health care - or 14 percent of the nation's gross domestic product.
"Now that the manufacturers are so interested in this problem, there is a new dynamic and this isn't some obscure academic issue. When you guys get involved, all see it is something that keeps you from competing with the world, that makes a difference," said Finucane, the Ernst & Young health-care expert.
"Nearly everyone is unhappy with the health-care system, including the doctors, nurses and patients that use it. The problem is it's so disorganized that changing it is a nightmare."
Contact JEFFREY McCRACKEN at (313) 222-8763 or mccracken at freepress.com.
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