From Detroit Free Press

DETROIT — At a time when cost-cutting pressures have strained relations between automakers and suppliers, General Motors Corp. Chairman and CEO Rick Wagoner said Tuesday that the two sides must cooperate to rein in soaring health-care expenses.

Wagoner also said public bickering and complaining between automakers and suppliers won’t help Detroit automakers take back some of the market share they have lost.

Wagoner’s speech to a breakfast crowd during Auto-Tech, a conference of suppliers sponsored by the Automotive Industry Action Group, is the latest in an executive push for easing health-care costs — an issue that is among the top priorities for voters this election year.

Wagoner brought up the issue earlier this year at the Mackinac Policy Conference. GM’s finance chief, John Devine, said at last month’s Traverse City Management Briefing Seminars that it was the most important problem the company faces. Last year, Ford Motor Co. Chairman and CEO Bill Ford said it was the biggest issue that the company faces that it can’t solve.

And Tuesday, Wagoner said automakers and suppliers need to pool their influence to address a problem that is eating up billions of dollars that should be spent on making the nation’s automakers more competitive.

“By working together to improve the quality and reduce the cost of health care, we can free up literally billions of dollars that can be reinvested in our companies, in areas like research and development, new product programs and new customer services,” Wagoner said.

He noted that GM spent $4.8 billion on health-care costs for its 1.1 million employees, retirees and dependents last year. Wagoner estimates the company spends $1,400 per vehicle on health care, considerably higher than many of its competitors.

Health-care costs for automakers remain high despite the Medicare drug bill that gives seniors prescription drug coverage and is expected to save automakers and suppliers millions this year. GM expects annual increases of 14-18 percent in health-care costs.

“The costs are increasing so much and plus you have an aging workforce out there,” said Erich Merkle, an auto analyst with Grand Rapids, Mich.-based IRN Inc. “By contrast, the new domestics don’t have those same issues because they don’t have that large of a retired population. And they have a much younger workforce than the Big Three,” he said.

During a question-and-answer session Tuesday, Wagoner said: “If we all are aware of the facts and first and foremost communicate them as an important competitiveness issue, not just for the auto industry but for the whole U.S. economy, we can get the attention of policy makers.”

The automakers could use the clout of their suppliers, said Neil DeKoker, president and CEO of Troy, Mich.-based Original Equipment Suppliers Association, in driving down the cost of health care.

But the strategy to unite to fight rising health-care costs prompts a broader question of suppliers and automakers collaborating at a time when automakers, also known as original equipment manufacturers (OEMs), are forcing suppliers to cut costs.

“Together, we are making progress. But while making progress in today’s industry is good, the truth is, it’s not good enough,” Wagoner told the crowd of suppliers Tuesday. “All around us, as both suppliers and OEMs, we face global competitors who are committed to advancing as fast as, or faster, than we are. And they will not hesitate to pass us by. If we pause to fight among ourselves, the competition will eat us alive.”

He’s right, said John Henke, president of Birmingham consulting firm Planning Perspectives Inc., which recently released a study saying suppliers are increasingly unhappy the Detroit automakers.

“As a matter of fact, the competition has been eating them alive,” he said, referring to Detroit’s automakers. “They’ve been losing market share to the foreign domestics.”

“Clearly the time is right to try and turn the relationships around. And obviously if it can be done, everybody can benefit by it,” Henke said.

Health care may be the issue automakers and suppliers can agree on.

“There’s so many issues out there right now that divide the automakers from the suppliers. They’ve had such an adversarial relationship in terms of the auto industry putting out these huge incentives. Someone has to pay for them, so they go back to their supply base,” Merkle said. “This is probably one area where they could both agree.”

Copyright 2004 Detroit Free Press. All Rights Reserved.

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