GM’s Cave-In on Health Care Signals Trouble for Car Industry

(Bloomberg) -- If General Motors Co.’s negotiations with the United Auto Workers are any indication, Detroit’s automakers may not have a prayer in their effort to rein in rising health-care costs.

As GM was nearing the expiration of its labor contract with the union last week, the carmaker sought to have hourly workers pay 15% of their health-care costs, according to people familiar with the talks. But by the time the company presented the UAW with a deadline offer, GM walked back the proposal and called for keeping contributions steady at about 4%, said the people, who asked not to be identified discussing private discussions.

GM’s Cave-In on Health Care Signals Trouble for Car Industry

The quick cave on health costs still wasn’t enough to ward off a walkout by 46,000 GM employees. The episode is a bad omen for Fiat Chrysler Automobiles NV and Ford Motor Co., since the UAW typically tries to pattern contracts reached with Detroit carmakers after one another. Ford is expecting the insurance bill covering its 56,000 hourly workers to exceed $1 billion for the first time next year, Bloomberg News reported in March.

“Asking for 15% more toward the health care without handling the other issues the UAW wanted was an unusual tactic that didn’t work,” said Arthur Wheaton, director of the Worker Institute at Cornell University. “It may have actually encouraged the membership to say: ‘You know what, if they don’t want to be serious, we’ll go out on strike.’”

IssueGM’s WantsUAW’s Wants
Pay2% raises in two years of the contract, and 2% lump-sum payments in the other two yearsA step up from the 3% raises and 4% lump sums GM agreed to under its 2015 union contract
Health careInitially pushed for union members to pay 15% of their health-care costsMaintain the roughly 4% share of costs that members currently pay
TempsAbout 7% of factory jobs are filled by temps; the carmaker would like to be able to increase thisLess use of temps and clearer path for these workers to be made permanent full-timers
Entry workersMaintain hourly wages for new hires and allow them to reach top-scale pay in eight yearsExpedite the time it takes for entry workers to reach top-scale pay to four years
InvestmentOver $7 billion into eight facilities, including to make EV batteries at Ohio factorySeeking a vehicle for the plant in Lordstown, Ohio, to build

Health care has long been considered the third rail of automotive contract talks, with workers zealously clinging to their plans. They see them as hard-won benefits that help make up for the wage concessions and jobs given up over a decade ago when GM and Chrysler went bankrupt and Ford went through wrenching restructuring.

The three companies’ hourly employees contribute between 3% and 4% to their coverage, compared with 29% for the average American worker, according to a October 2018 study by the Kaiser Family Foundation.

In an unusually detailed description of what it offered shortly before the strike began, GM said its workers will “retain nationally-leading health care benefits.” Union and management negotiators bargained until the early evening Tuesday before calling it quits, then reconvened early Wednesday morning.

GM shares fell as much as 0.7% to $38.01 on Wednesday. The stock is up 14% this year.

Coverage Cut-Off

The preoccupation of the UAW’s chief GM negotiator with health care in the first two days of the union’s first national strike against the automaker in 12 years underscores just how significant medical benefits are for both sides.

The company confirmed to the UAW on Tuesday that it cut off coverage for its striking workers, Terry Dittes, the vice president of the union’s GM department, wrote in a letter obtained by Bloomberg. UAW attorneys are looking into whether the company is allowed to suspend coverage immediately, or if it was supposed to keep footing bills for members until the end of the month.

“GM’s failed attempt to hurt our members and force us into a bad agreement was cold, heartless, and immoral,” Brian Rothenberg, a spokesman for the union, said in a statement Wednesday. “We will not allow our members and their families to experience the added burden of worrying about their health coverage while on strike.”

The Detroit carmakers contend the packages they’ve been providing put them at a disadvantage against rivals with non-unionized factories. Without changes in coverage, the growth in health-care costs over the life of the next contract would be the equivalent of a $3 hourly wage increase.

Sanders Versus Biden

The generous plans negotiated by unions also are making their way into Democratic presidential candidates’ arguments over the future of U.S. health care policy. Front-runner Joe Biden argued during the latest debate that Sen. Bernie Sanders’ Medicare for All Plan wrongly assumes that if the government were to nationalize insurance, employers would boost their employees’ pay rather than pocket the savings.

“For a socialist, you’ve got a lot more confidence in corporate America than I do,” Biden said last week.

Nationwide, health expenditures are projected to grow by 5.5% annually from 2018 to 2027, more than twice the rate of inflation, according to a study by the Centers for Medicare and Medicaid Services.

Bargainers at Ford and Fiat Chrysler are now watching for what comes next and hoping GM might have an alternate proposal for reining-in medical expenses. If the company doesn’t, they’ll have to get creative.

“GM may punt on this issue, and Ford may have to come up with something more innovative,” Wheaton said. “If the UAW comes back on this issue, it will only be done in exchange for something big.”

©2019 Bloomberg L.P.

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