Automakers' health care costs to exceed savings from concessions

Health care expenses for General Motors and Ford Motor likely will increase at a rate that exceeds savings from health care concessions made by the United Auto Workers in agreements reached in 2005, according to a report issued on Monday by credit rating company Fitch Ratings, the Wall Street Journal reports.

According to the report, a 6.5% increase in health care costs in 2007, continued output declines and the return of liabilities to GM and Ford will consume savings from the agreements "quickly."

The report estimates that GM will spend $1,783 in cash for health care expenses per car in 2007, a 7% increase from 2005, and that Ford will spend $1,064, a 20% increase from 2005.

The report also estimates that health care expenses per car for Ford will decrease by about $100 in 2008 because of "a recent blue-collar attrition plan that targeted cutting complete ties with younger employees," the Journal reports.

However, health care expenses per car for GM will continue to increase in 2008 because a similar plan announced by the company seeks only to "nudge workers into retirement," according to the report.

The report warns that UAW might not agree to additional health care concessions in the near future.

According to the report, "Even a 50% reduction in GM's health care costs by 2009, a level of savings unlikely to be conceded by the UAW in the upcoming talks, would still leave GM with a severe cost disadvantage versus the (foreign) manufacturers."

GM, Ford and UAW officials were unavailable for comment on the report (Spector/Stoll, Wall Street Journal, 2/26).