GM tightens defense against hostile acts

Wednesday, October 04, 2006
GM tightens defense against hostile acts
Bill Vlasic / The Detroit News





General Motors Corp. changed its corporate bylaws Tuesday to possibly thwart hostile actions by large shareholders such as billionaire investor Kirk Kerkorian.

The moves came after GM's board of directors met to consider the ongoing alliance talks between GM, and Renault SA and Nissan Motor Co., as well as Kerkorian's recent request that outside advisers be hired to study the deal.

The board made no statement Tuesday night about a possible GM-Renault-Nissan deal, which is under discussion by the three automakers until an Oct. 15 deadline. "We do not plan to issue a statement tonight on the status of discussions with Renault and Nissan," GM spokesman Brian Akre said late Tuesday.

But the board did make amendments to GM's bylaws Tuesday that could hamper a major shareholder such as Kerkorian, owner of a 9.9 percent stake in GM, from rallying other shareholders to influence the automaker's management.

With alliance talks between GM and Renault-Nissan seemingly making little progress, Kerkorian said last week that he still sees a "strong opportunity" in a possible link-up of GM with the French and Japanese companies.

The 89-year-old financier turned up the heat further by announcing plans to boost his GM stake to 12 percent, and encouraging the GM board to hire independent advisers to study the proposed three-way alliance.

While the GM board did not address Kerkorian publicly Tuesday, the directors made several moves that are typically used to block aggressive shareholders.

One change was to require any shareholder planning a "consent solicitation" to inform the company ahead of time in writing.

A consent solicitation allows stockholders to act by written consents to proposed stockholder actions in lieu of voting in person or by proxy at an annual meeting. Billionaire investor Carl Icahn has used consent solicitations in seeking the removal of board members of companies in which he owns a large stake.

A corporate legal expert said GM's move would require a shareholder -- such as Kerkorian -- to alert GM management before soliciting other shareholders to support the idea of an alliance with Renault-Nissan or another action.

"A consent solicitation can be used as a sneak attack," said Peter Henning, a Wayne State University law professor and former enforcement official with the U.S. Securities and Exchange Commission.

Consent solicitations "can be used by outsiders to force change at a company," Henning said.

On Tuesday, the GM board ruled that it must receive a written notice of a planned consent solicitation, and that the board has 10 days to consider the "validity" of the request.

Also, the shareholder behind the consent solicitation must reveal whether the move is a prelude to a proxy statement -- a device often used by dissident investors to change the composition of a board of directors.

Henning said the changes are "designed to be an early warning system" for GM of a potential shareholder revolt. He said it also indicates that GM is worried that other major shareholders may back Kerkorian's lead in forcing change on the company.

"It's a defensive measure," he said. "It's a standard anti-takeover, anti-proxy move."

The GM board also on Tuesday adopted a majority voting rule for uncontested director elections.

Majority voting requires directors to be elected by a majority of votes cast and not simply a plurality.

GM's board also rejected a proposal to allow small groups of shareholders to gain larger voting rights. The measure would have given each investor a vote for each share owned multiplied by the number of directors to be elected.

The so-called "cumulative" voting could allow a large shareholder to throw all of its votes behind a single board candidate.

Cumulative voting had been approved by a 54-percent vote at GM's annual shareholder's meeting this year. But the board said Tuesday it "chose not to adopt" the process because it "could create the potential for small groups of stockholders to overcome the interests of the majority."

GM's move comes at a time when Kerkorian and his board representative, Jerry York, have a substantial influence over the company.

There was no immediate comment Tuesday from Tracinda Corp., Kerkorian's investment firm.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.








© Copyright 2006 The Detroit News. All rights reserved.

GM ditches deal

Thursday, October 05, 2006
GM ditches deal
Talks over: Little gain seen in Renault-Nissan alliance; Fight brews: Kerkorian aide may resign from board
Bill Vlasic and Christine Tierney / The Detroit News







DETROIT -- General Motors Corp. turned its back Wednesday on an international alliance with Renault SA and Nissan Motor Co. and set the stage for a potential confrontation with billionaire GM shareholder Kirk Kerkorian.

The decision by GM to reject a Renault-Nissan deal could lead Jerry York, a top Kerkorian deputy, to resign from the GM board, according to people familiar with the situation.

While GM Chairman Rick Wagoner said GM's board had unanimously rejected a Renault-Nissan tie-up, York and Kerkorian were said to be in sharp disagreement with the automaker's decision to end the alliance talks.

If York decides to leave the board, he would be free to lead an aggressive push for change at GM and possibly launch a proxy fight to recast its board. Reached Wednesday night, York declined to comment on his plans.

Wagoner said the alliance benefits would have been heavily skewed toward Renault and Nissan, and GM could not afford to lose focus on its North American turnaround, which he said was gaining traction following a $10.6 billion loss in 2005.

"It would have potentially been a distraction to our current turnaround efforts," he said in a news conference at GM's headquarters in Detroit. "We felt the complexities of working with three companies could, in fact, slow us down."

But Kerkorian, owner of a 9.9 percent stake in GM, made it clear in a statement that he felt rebuked by the GM board's refusal to hire outside advisers to analyze the merits of an alliance with Renault-Nissan.

"We believe that General Motors' participation in a global alliance with Renault and Nissan would have enabled GM to realize substantial synergies and cost savings," said Tracinda Corp., Kerkorian's investment firm. "We regret the board did not obtain its own independent evaluation of the alliance."

The decision by GM, Renault and Nissan to terminate alliance talks Wednesday came after two-and-a-half months of intense, high-level negotiations led by Wagoner and Carlos Ghosn, chief executive of Renault and Nissan.

The talks, which were initiated in July by Kerkorian, broke down last week over major disputes as to how each of the three companies would benefit financially from a global alliance.

In a joint statement issued Wednesday, the three automakers said they "did not agree on either the total amount of aggregate synergies or the distribution of those benefits."

Wagoner said GM believed it would receive far less value from an alliance than Renault and Nissan. He also said that Renault-Nissan refused to pay a premium price for a significant minority stake in GM.

"When you added it up, it wasn't a good value for GM shareholders," Wagoner said.

GM shares plunged as much as 5.2 percent on initial reports of the end of talks, but rebounded later in the day Wednesday to close down 9 cents to $33.32 in trading on the New York Stock Exchange.

Industry analysts said the termination of negotiations was not surprising, particularly after Wagoner downplayed the benefits of an alliance after meeting with Ghosn last week at the Paris Auto Show.

What's next?

But Wall Street wondered aloud what Kerkorian may do next to force change at GM.

"The major question now is will Kirk Kerkorian exert greater pressure on (GM) to form an alliancepossibly in a proxy fight," said John Murphy of Merrill Lynch.

Kerkorian has indicated he may boost his stake in GM to 12 percent.

The 89-year-old financier, who attempted an unsuccessful takeover of Chrysler Corp. in 1995, could then try to rally other large shareholders to support changes in GM's management or its board.

Talks snag over purchasing

The alliance talks had riveted the automotive world since mid-July, when Wagoner and Ghosn agreed to a 90-day study of the merits of GM joining the partnership that Renault and Nissan formed in 1999.

But the talks snagged quickly on questions of how each automaker would benefit financially from sharing costs for parts purchasing and vehicle development.

As The Detroit News first reported last month, the two sides could not agree on the potential savings in the important area of parts purchasing.

Nissan and Renault officials complained behind the scenes that their GM counterparts appeared to be against an alliance from the start.

GM countered that it negotiated in good faith but came to believe it was not a good deal for its shareholders.

One person familiar with the negotiations said GM calculated it would save $1 for every $3 saved by Renault and Nissan.

Moreover, GM executives balked at Renault-Nissan's refusal to pay a premium price to acquire a significant minority stake -- estimated at 20 percent -- in GM.

GM's investment banking advisors, Goldman Sachs and Morgan Stanley, recommended seeking a premium because the Renault-Nissan stake could have prevented GM from entering joint ventures with other automakers.

"Renault-Nissan made it clear they would not pay any market premium, not compensate GM to balance the disproportionate impact of expected synergies," Wagoner said.

The issues came to a head last week at the summit meeting of Wagoner and Ghosn in Paris. When GM essentially demanded to be paid to join the alliance, the deal was as good as dead, according to a source close to Renault-Nissan.

"The key problem was the principle of compensation," said the source.

"You can't run an alliance if one of the companies is asking for payment in order to take part in the relationship."

Kerkorian intervenes

With the talks faltering, Kerkorian intervened last week by suggesting in a U.S. Securities and Exchange Commission filing that the GM board have independent advisers analyze the proposed alliance.

But when the GM board met Tuesday in Detroit, there was minimal discussion of hiring outsiders to look at the deal, as Kerkorian had requested, according to people familiar with the meeting.

Instead, the 12-member board -- which is headed by Wagoner -- decided to drop out of the negotiations altogether.

Wagoner informed Ghosn of the GM board's decision in a telephone call Wednesday.

Wagoner described the conversation as "cordial and to the point."

Ghosn was not available for comment, but in past statements said he would not try to force an alliance with GM if the company's management did not want the deal.

Enter Ford?

He also indicated he would look elsewhere for a North American partner if the GM talks failed.

In addition to its joint statement, Renault and Nissan added that it still believes "there is significant value creation through expanding an alliance to a motivated North American partner," which would most likely be Ford Motor Co.

While Ghosn and Ford have had discussions in the past, people close to Ford told The News that the No. 2 U.S. automaker has little interest in hooking up with Renault-Nissan.

Ford's shares had their biggest gain in three weeks, rising 33 cents, or 4 percent, to $8.56.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.








© Copyright 2006 The Detroit News. All rights reserved.

St. Chevy Hospital? It nearly happened

Thursday, September 28, 2006
St. Chevy Hospital? It nearly happened
Ron French / The Detroit News




Fed up with inefficiencies in the U.S. medical system, General Motors Corp. considered opening its own health care facilities in 2003.

The audacious plan called for GM to own and operate its own clinics and hospitals in as many as a half-dozen communities in the Midwest. In the end, the automaker decided the facilities would have cost more than they saved.

The plan reveals the depth of frustration at GM over the state of the U.S. health care industry, which is the most expensive in the world but offers, by most global standards, mediocre care.

"There were regions where not only were costs out of control, but the quality of care was not what it should be," said Dr. Joel Bender, medical director for GM. "We decided we needed to look at GM facilities."

GM has workers, retirees and their families spread across the country, but 51 percent of its health care costs are concentrated in 10 communities. Changing health care in those communities could have a notable impact on GM's $5.3 billion health care tab. GM considered options, from buying existing hospitals to operating rehabilitation facilities to opening pharmacies in its plants.









© Copyright 2006 The Detroit News. All rights reserved.

GM chips away at benefits as scores of workers age, get ill

Wednesday, September 27, 2006
Waves of retirees amass huge bills
GM chips away at benefits as scores of workers age, get ill
Ron French The Detroit News






PORT ST. LUCIE, Fla. -- The 11 senior citizens sitting in the back room of a Florida seafood restaurant don't look dangerous. One is almost deaf. Several support themselves with canes.

Then they pull out their medical records. Norm Allard has had six heart attacks and two open-heart surgeries. The 65-year-old takes nine prescription pills in the morning, one during the day and four more at bedtime.

Nancy Turek, 73, had breast cancer four years ago. She had surgery, radiation and chemotherapy. She recently underwent a round of tests to determine whether the cancer had returned. She got a clean bill of health, and GM got a bill for $18,000.

Everyone in the GM Retiree Club of the Gold Coast has a long list of illnesses, all of which make their former employer sick. Nancy Turek's husband, Norbert, a GM retiree, explains the problem bluntly: "GM has too many retirees living too long."

Costly medical tests, sloppy hospitals and big drug companies are easy targets. But it's not the price of drugs but the age of the people taking them that is driving the world's largest automaker into financial trouble. Retirees and their dependents account for 75 percent of GM's health care tab -- $4 billion of the $5.3 billion the automaker spent on medical bills last year. That bill will balloon in the next decade as a wave of workers and retirees now between ages 55 and 70 grow older and fall into ill health.

GM is getting there first, but the United States is headed in the same direction. The first baby boomers are turning 60 this year. Costs for medical care skyrocket after age 65. GM's medical bills today foretell an explosion in Medicare costs in the next two decades.

Fifty-five percent of people insured by GM are 60 or older; the company pays the medical bills for more people over 75 than under 25.

Most of the GM-insured are between 55 and 69, with the worst of their health problems ahead. They are the generation that won generous health care benefits, and they are the generation now costing GM billions.

Norbert Turek went to work at the Cadillac plant on Clark Street in Detroit in the early '60s, when GM paid only 50 percent of health care costs.

"We walked the streets to get these benefits," said Turek, 74. "We earned it."

Paying for bypass surgeries and knee replacements wasn't a problem when GM had 11 workers for every retiree, as it did in 1962; by 2005, there were 3.2 retirees for every worker.

After the last of the 35,000 U.S. employees who accepted early retirement buyouts leave in December, the ratio will be about 4.6 retirees for every worker.

If GM's health care retiree benefits remain unchanged, retirees are likely to drive company medical bills skyward for another 20 years, said Kurt Metzger, research director for United Way of Southeast Michigan.

"Within 20 years, and certainly within 25, GM should be in a much stronger position, as the vast majority of retirees will no longer be there to drive the costs," Metzger said.

GM can't wait that long to fix its health care crunch. The cash-strapped company has begun to chip away at retiree health care benefits and likely will use a jackhammer in the future. White-collar workers hired after 1993 do not have retiree health insurance, and white-collar retirees now will have to pick up any increases over current health care spending.

Last November, GM and the UAW agreed to require retired union workers to pay insurance premiums for the first time, with annual maximum out-of-pocket expenses on services of $370 for individuals and $752 for families. Retirees will also be responsible for higher co-payments on prescription drugs.

"You can't blame GM," said Allard, a former union employee who retired from the automaker in 1988 after 22 years and numerous strikes. "It's the hospitals and the insurance companies. And it's going to get a hell of a lot worse."

If GM CEO Rick Wagoner has his way, it may get worse fast.

He said this summer that companies shouldn't be responsible for retiree health care. "Companies are eliminating benefits, particularly to retirees," Wagoner said. "The fundamental issue is we need to get around the cost."

Retiree health care is expected to be a major issue in UAW contract negotiations in 2007. Further cutbacks are almost a certainty.

"We're golden now," said Allard, who took a medical retirement at age 47. "But down the line, the s--- is going to hit the fan and we're going to lose our benefits."







© Copyright 2006 The Detroit News. All rights reserved.

Waves of retirees amass huge bills

Wednesday, September 27, 2006
Waves of retirees amass huge bills
GM chips away at benefits as scores of workers age, get ill
Ron French The Detroit News






PORT ST. LUCIE, Fla. -- The 11 senior citizens sitting in the back room of a Florida seafood restaurant don't look dangerous. One is almost deaf. Several support themselves with canes.

Then they pull out their medical records. Norm Allard has had six heart attacks and two open-heart surgeries. The 65-year-old takes nine prescription pills in the morning, one during the day and four more at bedtime.

Nancy Turek, 73, had breast cancer four years ago. She had surgery, radiation and chemotherapy. She recently underwent a round of tests to determine whether the cancer had returned. She got a clean bill of health, and GM got a bill for $18,000.

Everyone in the GM Retiree Club of the Gold Coast has a long list of illnesses, all of which make their former employer sick. Nancy Turek's husband, Norbert, a GM retiree, explains the problem bluntly: "GM has too many retirees living too long."

Costly medical tests, sloppy hospitals and big drug companies are easy targets. But it's not the price of drugs but the age of the people taking them that is driving the world's largest automaker into financial trouble. Retirees and their dependents account for 75 percent of GM's health care tab -- $4 billion of the $5.3 billion the automaker spent on medical bills last year. That bill will balloon in the next decade as a wave of workers and retirees now between ages 55 and 70 grow older and fall into ill health.

GM is getting there first, but the United States is headed in the same direction. The first baby boomers are turning 60 this year. Costs for medical care skyrocket after age 65. GM's medical bills today foretell an explosion in Medicare costs in the next two decades.

Fifty-five percent of people insured by GM are 60 or older; the company pays the medical bills for more people over 75 than under 25.

Most of the GM-insured are between 55 and 69, with the worst of their health problems ahead. They are the generation that won generous health care benefits, and they are the generation now costing GM billions.

Norbert Turek went to work at the Cadillac plant on Clark Street in Detroit in the early '60s, when GM paid only 50 percent of health care costs.

"We walked the streets to get these benefits," said Turek, 74. "We earned it."

Paying for bypass surgeries and knee replacements wasn't a problem when GM had 11 workers for every retiree, as it did in 1962; by 2005, there were 3.2 retirees for every worker.

After the last of the 35,000 U.S. employees who accepted early retirement buyouts leave in December, the ratio will be about 4.6 retirees for every worker.

If GM's health care retiree benefits remain unchanged, retirees are likely to drive company medical bills skyward for another 20 years, said Kurt Metzger, research director for United Way of Southeast Michigan.

"Within 20 years, and certainly within 25, GM should be in a much stronger position, as the vast majority of retirees will no longer be there to drive the costs," Metzger said.

GM can't wait that long to fix its health care crunch. The cash-strapped company has begun to chip away at retiree health care benefits and likely will use a jackhammer in the future. White-collar workers hired after 1993 do not have retiree health insurance, and white-collar retirees now will have to pick up any increases over current health care spending.

Last November, GM and the UAW agreed to require retired union workers to pay insurance premiums for the first time, with annual maximum out-of-pocket expenses on services of $370 for individuals and $752 for families. Retirees will also be responsible for higher co-payments on prescription drugs.

"You can't blame GM," said Allard, a former union employee who retired from the automaker in 1988 after 22 years and numerous strikes. "It's the hospitals and the insurance companies. And it's going to get a hell of a lot worse."

If GM CEO Rick Wagoner has his way, it may get worse fast.

He said this summer that companies shouldn't be responsible for retiree health care. "Companies are eliminating benefits, particularly to retirees," Wagoner said. "The fundamental issue is we need to get around the cost."

Retiree health care is expected to be a major issue in UAW contract negotiations in 2007. Further cutbacks are almost a certainty.

"We're golden now," said Allard, who took a medical retirement at age 47. "But down the line, the s--- is going to hit the fan and we're going to lose our benefits."







© Copyright 2006 The Detroit News. All rights reserved.

World War II created health insurance perk

Tuesday, September 26, 2006
World War II created health insurance perk
Ron French / The Detroit News




The fact that GM pays anything for health care is an accident of history.

By the 1940s, health care costs in most industrialized nations were paid by the government.

That might have happened in the United States, too, if not for World War II.

To halt inflation during the war, the government put a cap on wage raises. To compensate workers, companies began offering health insurance.

By the time the cap on raises was lifted, health insurance had become a common perk to attract and retain workers.

In 1950, GM President Charles Wilson offered to pay 50 percent of the health care costs of his employees. Walter Reuther, national president of the United Auto Workers, initially resisted, believing the cost should be spread across many companies or across the nation, according to a biography of the union organizer.

Reuther gave in, and GM entered the health care business.

In 1961, retirees were included. Three years later, the company began paying 100 percent of health care bills for workers and retirees.

Today, the United States is the only industrialized country in which most health care is paid for by employers.

Ron French







© Copyright 2006 The Detroit News. All rights reserved

Kerkorian interested in buying up to 12 million more GM shares

Thursday, September 28, 2006
Kerkorian interested in buying up to 12 million more GM shares
Tom Krisher / Associated Press





DETROIT -- General Motors Corp. dissident shareholder Kirk Kerkorian's Tracinda Corp. has told GM it is interested in acquiring up to 12 million more shares of the company, which would give it more than a 10 percent stake, as the world's No. 1 automaker continues discussions with Renault and Nissan about a three-way alliance.

Tracinda already owns 56 million shares, or 9.9 percent of the company's common stock. Going over 10 percent would require a number of regulatory approvals, GM said, because the company owns banking and insurance interests.

Tracinda said in a Securities and Exchange Commission filing that it also still supports the alliance between GM and automakers Renault SA of France and Nissan Motor Co. Ltd. of Japan.

"Tracinda continues to believe that a strong opportunity exists in a potential alliance between General Motors, Renault and Nissan and that there should be strong General Motors Board involvement in the analysis of such a potential alliance, including the utilization of independent advisors," Tracinda's filing said.

GM currently has about 565.6 million outstanding shares. A Tracinda purchase of 12 million more shares would bring Kerkorian's stake to 12 percent of the company.

"We are seeking the cooperation and support of the company and its management in connection with these filings and any related proceedings, as we believe additional investment by Tracinda in GM would be viewed positively by investors, and your support will maximize the likelihood of obtaining regulatory approval," the filing said.

In the filing, in the form of a letter to GM Chairman and Chief Executive Officer Rick Wagoner, Tracinda told GM it is interested in buying 6 million shares of common stock on the open market and may consider buying an additional 6 million shares.

The letter was filed Thursday morning with the Securities and Exchange Commission.

In a statement, GM said Tracinda told the company of its intent on Wednesday night, saying that it would update its filings with the SEC.







© Copyright 2006 The Detroit News. All rights reserved.

Toyota upgrading joint US plant with GM

Toyota upgrading joint US plant with GM
Fri Sep 29, 8:29 AM ET




Japan's top carmaker Toyota says it is upgrading a US plant equally owned with ailing General Motors, which has been negotiating an alliance with the French-Japanese Renault-Nissan group.

But Toyota Motor Corp., widely seen as set to overtake GM as the world's top vehicle maker, denied that the new investment in the California plant was aimed at strengthening its partnership with the US car giant.

The plant, run by the 50-50 joint venture New United Motor Manufacturing Inc. (NUMMI), has been producing compact cars since it was established in 1984, initially as Toyota's foothold for North American operations.

"Our company has continuously made capital investment in an effort to create optimum production lines," Toyota spokeswoman Shiori Hashimoto said Friday.

"At the NUMMI, the equipment has been replaced as it became obsolete," she added. "But it is not aimed at strengthening our partnership with GM as reported."

The company refused to give details on the new equipment.

The major daily Yomiuri Shimbun reported that Toyota plans to install its latest technology in the plant in a possible move to demonstrate its strong ties with GM and check the talks between the US maker and Renault-Nissan.

Toyota president Katsuaki Watanabe has said that his company's tie-up with GM and its domestic rival Nissan will remain intact regardless of the outcome of GM's talks with Renault-Nissan.

Apart from the joint plant with GM, Toyota has shared with Nissan its technology related to fuel-efficient hybrid cars.

Watanabe told Japanese reporters on Wednesday in Paris, where he attended the Paris auto show, that his company had been "concerned" about GM's talks with Renault-Nissan.

"But Toyota's relations with GM or Nissan won't change no matter what," he said, according to press reports from Paris. Carlos Ghosn, head of Renault and Nissan, met with GM chairman and chief executive officer Rick Wagoner in Paris on the same day.

Yomiuri said that "tens of billions of yen" will be newly invested over several years from this business year to introduce a cutting-edge production line at the NUMMI plant. Ten billion yen is worth about 85 million dollars.

The daily said that a line which paints cars by emitting little pollutant waste will be installed at the plant this year.

The plant will be also equipped with an assembly line which can adapt to different models quickly and flexibly, the report said.






Copyright © 2006 Agence France Presse. All rights reserved. The information contained in the AFP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of Agence France Presse.



Copyright © 2006 Yahoo! Inc. All rights reserved.

GM board faces key decision on alliance

Tuesday, October 03, 2006
GM board faces key decision on alliance
Directors may decide today whether to approve a third-party study of Nissan-Renault link-up.
Bill Vlasic and Christine Tierney / The Detroit News






DETROIT -- All eyes are on the General Motors Corp. board today as directors evaluate the widely different analyses of a blockbuster alliance of GM, Renault SA and Nissan Motor Co.

While GM management is downplaying the benefits of an alliance to the U.S. automaker, the Renault-Nissan side is confident that GM eventually could save as much as $10 billion a year by joining their partnership.

And hovering over the proceedings is billionaire GM shareholder Kirk Kerkorian, who is calling for the board to name independent advisers to study synergies in the proposed three-way alliance.

GM declined comment Monday on the agenda for today's meeting of the 12-member GM board headed by Chairman Rick Wagoner.

But people close to the company said Wagoner is certain to report on last week's summit meeting with Renault-Nissan chief Carlos Ghosn in Paris -- and possibly present GM's recommendation against the deal.

"GM management has essentially completed its analysis," said a person familiar with the matter.

The GM board also is expected to hear an update on the automaker's financial outlook for the rest of the year and discuss whether to authorize an independent study of the proposed alliance.

A key issue is whether the board believes that GM's performance will continue on an upward trajectory following a stronger-than-expected second quarter. GM reports its third-quarter financial results later this month.

Last week, Wagoner appeared unlikely to support a hook-up with Renault-Nissan because of GM management's confidence in its turnaround effort. Some industry experts said Wagoner's reticence means the deal is all but dead.

"My deepest conviction is that nothing will take place," said Patrice Solero, an analyst with Kepler Equities in Paris. "My perception is that no one -- particularly from GM's part -- is seriously investigating the possibilities."

Alliance talks between GM and Renault-Nissan began in mid-July after Kerkorian, GM's largest single shareholder, conceived the idea and presented it to Ghosn and Wagoner.

However, after 10 weeks of closed-door talks, insiders say that GM has a far different interpretation than Renault-Nissan of the benefits of a three-way alliance.

Ghosn, the CEO of both Renault and Nissan, has told GM that he believes the automaker could save up to $10 billion annually on parts purchasing, vehicle development costs and other areas if it joined the alliance. However, GM's study team sees the benefits as far less -- possibly $3 billion a year.

One senior GM executive hinted last week that the automaker might get more synergies from its current restructuring of its own global operations. "By and large, synergies and cost savings are easier to get within the corporation," said GM Vice Chairman Bob Lutz.

Wagoner and Ghosn agreed last week to continue the talks until the previously-set Oct. 15 deadline.

However, Ghosn has told associates that he would push back the deadline if GM requested more time in order to complete an independent study. He said last week that he will be patient in executing his strategy to bring a North American partner into the alliance of Renault of France and Japan's Nissan.

"Are we in a hurry?" Ghosn was asked by a reporter. "No, we're not in a hurry. This is more about a long-term strategy than a short-term fix for anybody."

Analysts think that if GM rejects the alliance, that Ghosn will immediately approach Ford Motor Co. to open talks.

But the next move is up to GM's board, which is sure to hear from GM director Jerry York, a close aide to Kerkorian and a vocal supporter of Ghosn's accomplishments at Renault-Nissan. York is expected to argue for a third-party study.

Last Thursday, Kerkorian's Tracinda Corp. investment arm said it is planning to purchase up to another 12 million GM shares that would boost its stake in the automaker from its current 9.9 percent to about 12 percent.

And Kerkorian left no doubt that whatever the alliance talks have yielded thus far, he believes that a "strong opportunity exists" for a three-way partnership of GM, Renault and Nissan.

One huge stumbling block in the talks has been a possible exchange of equity between the three prospective partners.

People familiar with the matter say Ghosn is interested in Renault and Nissan each buying a 10 percent stake in GM, with GM purchasing a similar stake in the French and Japanese companies.

However, GM insiders say that the automaker can't afford to spend its precious capital on stock in Renault and Nissan. GM is in the midst of a costly overhaul of its North American operations after the company reported a $10.6 billion loss last year.

The GM board also is likely to consider whether deciding against a third-party study of the deal opens the company to shareholder lawsuits.

"The question is under what circumstances is it obligated to seek guidance, legal advice about an investment decision apart from the company's management," said Mark Sargent, dean of the Villanova University Law School and an expert on securities law. "The way you really protect yourself is the board obtains advice independent of that provided by management."

Detroit News Staff Writer David Shepardson contributed to this report. You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.









© Copyright 2006 The Detroit News. All rights reserved.

Nissan to conclude GM alliance talks by mid-October as planned

Tuesday, October 03, 2006
Nissan to conclude GM alliance talks by mid-October as planned
Associated Press





TOKYO -- A senior Nissan Motor Co. executive said Tuesday that his company will conclude talks on a possible tie-up with General Motors Corp. and Renault SA by mid-October, as planned.

Nissan Chief Operating Officer Toshiyuki Shiga declined to comment on a remark by GM Chief Executive Richard Wagoner that the three parties could extend their talks over a potential alliance.

Wagoner said last week that GM could continue to study a potential alliance with Renault and Nissan beyond the initially set Oct. 15 deadline for their talks.

Shiga said the GM chief and Carlos Ghosn, the chief executive officer of both Nissan and Renault, won't meet before the mid-October deadline.

The Nihon Keizai business newspaper reported over the weekend that Nissan isn't considering prolonging partnership talks with GM and will ask the U.S. automaker to reach a conclusion by the deadline on whether to move forward with an alliance with Nissan and Renault.







© Copyright 2006 The Detroit News. All rights reserved.

No easy fix to health care crisis

Friday, September 29, 2006
THE GENERAL AND THE BEAST
No easy fix to health care crisis
Medical, business leaders agonize over slow pace of reform
Ron French The Detroit News / The Detroit News







WASHINGTON -- Bruce Bradley stood on a podium in a Washington hotel after giving yet another PowerPoint presentation on problems in the U.S. health care system.

Few in the audience of medical professionals and business leaders disagreed with the reforms proposed by General Motors Corp.'s director of health care policy. But a hospital administrator from Maryland had one question for Bradley:

Who's going to pay for it?

It's the question that, more than any other, stymies reform of arguably the sloppiest and most costly health care system in the world. Americans spend more on health care yet are sick longer and die younger. Medical bills are the leading cause of personal bankruptcy and are hobbling companies like General Motors Corp., which pays the medical bills of nearly 1.1 million people.

Yet there has been little meaningful national reform of the system, frustrating companies like GM and baffling even politicians familiar with the trench warfare of Washington.

"This is baloney to keep delaying this," said Newt Gingrich, the former speaker of the House of Representatives who now runs the Center for Health Transformation. "How many more people do you want to die before you get it fixed?"

For every potential fix there is a powerful interest group and political backlash waiting in the shadows. Even incremental changes can take years to wind their way through Congress, Gingrich said.

For every dollar the auto industry spent lobbying in 2004, the health care industry spent nine, according to the Center for Public Integrity. The pharmaceutical industry alone has nearly three lobbyists for every member of Congress.

Out-gunned and outspent, GM must pick its health care battles carefully. The automaker has lobbied for measures to computerize medical records and increase public access to price and quality data. Those efforts could trim hundreds of millions from GM's medical bill, but will not spark the seismic change that U.S. business leaders say they need.

"I bet management at GM has spent more time on health care reform than the members of Congress and the administration," said Jim Tallon, president of United Hospital Fund in New York, a research and philanthropic organization. "Businesses are facing a clear and present danger, but this is back burner in Washington."

President Bush has postponed a meeting with the automakers four times, most recently saying he won't meet with Big Three executives until after November's midterm elections. To meet before then, Bush said, would politicize the issue.

"Someone is going to have to take the lead and find a solution for our health care system," Tallon said. "How the devil are you going to be the dominant economy of the 21st century when 20 percent of your people have no health coverage?"

Bradley is optimistic. More data on the cost and quality of health care will be available to the public in the coming years. Hospitals are using more information technology to reduce errors.

"We're still losing (the health care war) if we're comparing to other countries," Bradley said.

"But we're winning if you look at the progress we're making."

Here's a rundown of health care reforms and their status.

National health care

Proposals range from a national health system similar to that of other nations to catastrophic medical expense coverage, in which the government pays bills greater than a set amount.

Pro: All Americans would have health coverage. GM and other U.S. companies would save billions.

The system likely would reduce overall costs.

Con: Another huge government bureaucracy; fears of long waits for elective surgeries like in Canada. A single-payer system also might weaken the economy by taking money -- and jobs -- away from the health care industry, which employs 13.5 million Americans.

Status: Highly unlikely in the near future. Politicians still remember how then-first lady Hillary Clinton was vilified by health industry interest groups when she pushed unsuccessfully for national health care in 1993.

Personal responsibility

Some economists, politicians and many businessmen believe Americans use so much health care because most of the cost is borne by the government and employers.

Pro: If people have to pay for medical care out of their own pockets, they'll be more frugal -- asking for generic versions of brand-name drugs and looking for doctors and hospitals that charge less. This might force the medical industry to lower prices to compete.

Con: Studies show that those without insurance -- who already pay their own medical bills -- tend to scrimp on preventive health care, leading to larger, more costly health problems.

Status: Some businesses are creating health savings accounts while trimming traditional health insurance, making employees take more responsibility for how they spend their health dollars.

Transparency

Transparency allows the public to window-shop for health care much as it would other services or consumer goods. Laws would require hospitals, drug companies and doctors to provide the cost of services, as well as quality of services.

Pro: Once the public can go online to see which hospitals have the best survival rate for open-heart surgery or which doctors charge least for an office visit, the medical industry will be forced to improve.

Con: Statistics on quality can be misleading because of differences in patient mix.

Status: In August, President Bush signed a measure ordering federal agencies to share more information on the cost and quality of medical care with the public. The measure forces agencies that administer Medicaid, Medicare and Veterans Affairs facilities to pool data and find a way to make it accessible to the public.

Similar efforts are under way in a few communities. GM convinced Dayton, Ohio-area hospitals two years ago to share mortality and morbidity rates for various medical conditions. That information will be available on the Internet next year.

Electronic medical records

Computer record-keeping and sharing is slowly making its way into hospitals.

Pro: EMR reduces prescription errors and makes it easier to transfer medical records between hospitals.

Con: It's expensive. Hospitals, businesses and Washington are fighting over who should pay for technology that is funded by governments in other countries.

Status: Congress established interoperability standards for EMR this year, the first step toward making patient records easily transferable between health facilities. Hospitals are slowly installing EMR systems in their patient wards.

You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.









© Copyright 2006 The Detroit News. All rights reserved.

Bad medicine

Thursday, September 28, 2006
THE GENERAL AND THE BEAST
Bad medicine
A sloppy, inefficient medical system costs lives and billions of dollars
Ron French   / The Detroit News





MORAINE, OHIO -- Sam Shalaby is a car guy. He used to run a Delphi components plant in Dayton, and his language is still sprinkled with manufacturing terms 10 years after becoming the muscle behind GM's health care efforts. He speaks of colonoscopies in terms of price per unit and extols the virtues of "brand management" for medical centers.

For a company man accustomed to having products recalled for minor design flaws, the error-prone American health care system is baffling. On an average day, General Motors Corp. estimates that one person it insures dies because of medical errors, and 40 are sickened by prescription drug mistakes.

The automaker loses about $4 million a day because of medical errors and inefficiencies.

GM data reveal massive differences in quality and price of medical care across regions of the country, and even between hospitals in the same city. What's worse, hospitals sometimes make more money when they make mistakes because they profit from longer recovery times.

"If we ran an auto plant like they run hospitals, we'd be out of business," said Shalaby, director of community health initiatives. "The medical system is so obsolete, no one understands how to make it work."

While others in the GM health care war room plot strategy, Shalaby is on the front lines brow-beating doctors to lower rates and cajoling hospital administrators to implement assembly line techniques.

It's not an easy sell. Some meetings with hospital administrators have nearly degenerated to fistfights.

The efficiency models pioneered by Henry Ford and honed to a science in today's auto assembly plants are foreign to America's disjointed medical system.

GM is legendary for its tight control of purchasing, often dictating the price it will pay suppliers for parts. Yet GM pays an average of $10,662 for the treatment of bacterial pneumonia in Metro Detroit and $26,327 for the same treatment in Kansas City.

For a urinalysis, GM pays as little as $10 and as much as $70. Mammograms range from $90 to $400, with no difference in the quality of the test, said Dr. Joel Bender, GM's medical director.

"It's the most disorganized profession I know of," Bender said.

Cost differences are only the beginning of the problem. Treatment for identical medical conditions varies wildly between hospitals and between doctors in the same hospital. For example, some hospitals typically send a heart attack patient to surgery, other facilities provide catheterization, and still others offer blood thinners.

Standards are lacking

The lack of standards for care leads to deaths and longer recovery times, Shalaby said. "We build cars to specs," he said. "Hospitals should treat patients to specs."

Medical errors and inefficiencies account for an estimated 30 percent of health care costs, according to the World Health Organization. An estimated 96,000 Americans die each year from medical errors -- double the number who die in auto accidents.

"If we have a manufacturing error in a facility, we broadcast it across all our facilities so it doesn't occur again," said GM CEO Rick Wagoner. "You keep raising the bar for standard of performance by learning from what you did wrong. (But) you talk to people in the medical profession, and they'll tell you their first instinct is not to share that they had a problem, because it's an invitation to legal liability."

At least 1.5 million Americans are sickened each year by adverse drug reactions because of errors in prescribing drugs. A study by the Institute of Medicine found that, on average, patients are given the wrong medicine or dosage once every day they are in a hospital. Many of those errors would be caught if hospitals used an electronic system to match the proper drugs with the proper patients. But the technology used to scan the price of a jar of peanut butter is only slowly making its way into hospitals.

Henry Ford Health System was a pioneer in applying electronic record-keeping to the treatment of patients. But CEO Nancy Schlichting is keenly aware of the financial pressures that have kept many hospitals from implementing systems.

"Hospitals have only so much capital to invest," she said. "If it's between improving facilities, medical technology and EMR (electronic medical records), EMR often loses. You immediately get a revenue stream from a new CT scanner. With EMR, it may take years."

There is general consensus in the health care industry that modern information technology saves lives. But other investments such as robotic surgery equipment saves lives, too, while not decreasing revenue.

"In every other sector, when IT is introduced (and services improve), people pay more," said Mark McClellan, director of the Centers for Medicare and Medicaid Services. "But in health care, you're paid more if there are more complications and you provide more services. If payments drop when you provide better care, it's difficult to convince providers to invest in IT."

There are few ways for a patient to judge the quality or cost of care. "If you want to buy a car, you can go on the Internet, and you can check out the Consumer Reports rating, the J.D. Power rating, the relative stopping distance, the relative resale value, you know all these things," Wagoner said.

"It amazes me that you could be going into a surgery tomorrow and genuinely want to know about the place you're going, how many times they've done this surgery, how successful they've been, and more than likely, you won't be able to find that information. This is Business 101."

It's quantity over quality

But GM is learning that Business 101 doesn't apply to the through-the-looking-glass economics of the U.S. health care system.

If GM sells a car that's a lemon, the automaker loses money, either by having to pay for costly repairs or by customers looking elsewhere for their next vehicle. But when a hospital makes errors that keep a patient in bed longer, the hospital is paid more.

"The incentives are all incorrect," said Dr. Paul Farr, president of the Michigan State Medical Society and a gastroenterologist in Grand Rapids. "We do a wonderful job taking care of a heart attack at $50,000 per (episode), but we don't do a good job helping patients control blood pressure and quit smoking for $500 a year to prevent that heart attack.

"Doctors are very committed and want to do the best they can for their patients," Farr said. "But they also want to stay in business. If they spend an extra hour with a patient explaining why it's important to control high blood pressure, they're driving their own kids into the poor house because they're not compensated for that time. The result is we end up with heart attacks."

Farr and others in the state medical society, which represents about 14,000 doctors, are frustrated with a system that provides little financial incentive to prevent illnesses or to work vigorously to keep patients with chronic ailments from deteriorating.

"I've heard (hospital) administrators say quietly, 'Why do we want fewer diabetics? That's how we stay in business,' " said Dee Eddington, director of the Health Management Research Center at the University of Michigan. "Hospitals are the only places that get paid double for their mistakes."

Many hospitals still keep records on paper, and those with computerized records don't share that information with other medical facilities, wreaking havoc when patients move across the country or become ill far from home. That's a particular problem for senior citizens, who often see multiple doctors for various illnesses. Often those doctors have little idea what drugs have been prescribed by other physicians because there is no coordination between offices.

Shuffling all that paper takes a lot of hands. The number of health care administrators has grown 27-fold since 1970; the number of doctors has grown three-fold in that time.

The typical doctor in private practice had 2.2 employees in 1980. Today, the number is 5.6.

"And those employees aren't delivering health care," said Dr. John MacKeigan, a colorectal surgeon in Grand Rapids. "We're just nibbling around the edges and not transforming the system. And we have to transform the system to change the cost structure."

GM has success stories

When GM data showed that cardiac patients died at a higher rate in Flint than the national average, the company pushed to standardize the use of beta blockers in area hospitals. Survival rates rose and hospital readmissions fell, lowering GM's medical tab and saving lives.

When a Dayton, Ohio, hospital system threatened to raise rates 45 percent over three years, GM declared war. That increase would have cost GM an extra $5 million a year at that one hospital. GM paid for a full-page ad in the Dayton newspaper castigating the medical center for price gouging and, along with its insurance carrier in Dayton, dropped the facility from its approved health providers.

Eventually, the hospital backed down.

GM has dropped insurance companies it believed were not aggressively cutting costs and through its insurance carriers removed doctors whose prices were out of line from its approved list of care providers.

"In the past we would just hand them a check," Shalaby said. "Now we are in their face."

Shalaby takes hospital administrators on tours of GM assembly plants to teach them manufacturing delivery systems. He's led GM efficiency teams into more than 300 hospitals around the country.

When Mount Clemens Regional Medical Center redesigned its emergency room, a team of GM experts who design assembly plants looked at the blueprints and suggested moving radiology into the ER.

"It took about 20 minutes to transport patients to radiology to get an X-ray or CT scan, and 20 minutes to get back," said Robert Milewski, president and CEO of the hospital. "The more time, the more manpower. Time is money."

If Milewski sounds like a factory manager, there's good reason. "There's a lot of pressure on us from the Big Three to be cost-effective," Milewski said. "Many things we were doing were just not cost-effective."

But those efforts have failed to spread through the medical industry as GM had hoped.

"Even when we make improvements, it often doesn't spread throughout all departments of the same hospital, let alone to other hospitals," said Woody Williams, executive director of Health Care Initiatives for GM. "I don't think there is the incentive to be efficient. There's not the mind-set."

Many at GM recognize that mind-set from a few decades ago at their own company.

"When you had a new model year, the question was, 'what's the price increase?' " said Jim Cameron, labor relations director for GM Canada. "We just passed along the health care costs."

As GM lost market share to foreign competitors that didn't have the same health care burden, pressure increased to cut costs. The automaker cut its bloated work force and forced suppliers to lower prices. It instituted just-in-time delivery to cut costs and built state-of-the-art assembly plants.

"When we operated in nations with tariff barriers to free trade, the way we looked at efficiency was different from how we look at it today," Wagoner said.

But the American medical industry has no Toyota to force it to become more efficient. Even as large as it is, GM can exert only so much pressure.

GM's efforts to reduce errors and increase efficiency in the health care system have barely slowed the rise in hospital bills. In 2005, hospital bills jumped 9 percent nationally; at GM, it was 8 percent.

That's a lot of work to save 1 percent. But it's not just about the money for Shalaby, who preaches efficiency with the fervor of a tent revivalist. "This should have been done years ago," Shalaby said. "For God's sake, let's move."

You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.








© Copyright 2006 The Detroit News. All rights reserved.

Stranglehold

Tuesday, September 26, 2006
THE GENERAL AND THE BEAST
Stranglehold
How General Motors and the nation are losing an epic battle to tame the health care beast
Ron French / The Detroit News





The monsters of Bruce Bradley's youth and of today sometimes mingle in his mind.

Bradley grew up in the 1950s, when seemingly every week in darkened movie houses another giant spider or fire-breathing lizard threatened the world. The Army would fire its heaviest weapons at the beast as it approached town. Then, through a cloud of smoke, the creature would emerge unharmed, and every kid in the audience knew that there was no stopping the monster.

Today, the 61-year-old wages his own war behind a set of unmarked locked doors in a Pontiac office building. There, some of General Motors Corp.'s best minds fight a losing battle against the bills for Nexium prescriptions, heart bypass surgeries and CT scans that flood in at a rate of $10,000 a minute.

Bradley gets a cup of coffee, and GM has spent $50,000 on health care. He goes to lunch, and $600,000 is gone. He takes a three-day weekend on his sailboat and returns to $43 million in medical bills.

For 12 years, Bradley, GM's director of health care policy, and the corporate soldiers in the automaker's health care war room have waged an unprecedented battle against health care costs, throwing more money, time and energy into the issue than any company in history. GM has used its size to strong-arm doctors and bully drug companies. It built the largest wellness education program in the country, convinced workers to pay more for medical care and cajoled hospitals to incorporate assembly-line efficiencies into emergency rooms.

"We've thrown everything at the monster," Bradley said.

But those efforts have barely slowed the staggering surge in medical bills that many analysts believe is a bigger threat to GM than is Toyota.

The world's largest automaker is being driven deep into financial trouble not only by the cars of a competitor, but also by the medical bills of its own workers and retirees.

Last year, GM spent $5.3 billion on health care -- enough to buy a GMC Yukon for each of its U.S. employees. By 2008, General Motors will likely spend more on health care in the United States than on its hourly-worker payroll.

The economics have become so upside-down that Warren Buffett calls GM "a health and benefits company with an auto company attached."

Bradley has heard that joke before, and it always makes him squirm. He knows health care bills are crippling the company. He also is painfully aware of what that means for the rest of the country.

The profits of U.S. businesses are being eaten away by rising health care costs -- a financial burden not borne by their competitors based in other countries. An estimated 46 million Americans have no health insurance at all, and those with insurance are paying more for less coverage.

Because of its aging work force and army of retirees, GM has reached a health care crisis before the rest of the country. But GM's battle with the health care beast may well be a preview of what America will be facing in coming years.

GM has staked its future on an unlikely crusade against the most expensive and sloppy medical system in the industrialized world.

The fact that in 12 years those efforts have scarcely helped prompts a frightening question:

If health care costs are driving one of the most powerful companies in the world deep into financial difficulty, how bad will the health care crisis be for the rest of us?

At his desk in the war room, Bradley can look at the data and see prescription trends and demographic projections. When he looks long enough, he can see the monster emerging from the smoke.

Program is massive

Every second of every day, GM pays for a medical procedure; every two seconds, it pays for a prescription. Last year it wrote checks to 500,000 doctors, 35,000 pharmacies, 5,000 hospitals, 120 HMOs and 80 insurance companies.

One out of every 87 Americans over the age of 65 has their medical bills paid by GM, as does one out of every 279 Americans of all ages.

So large is the program that someone has a GM health card in virtually every ZIP code in the United States. So costly is the program that the automaker's health care spending alone is more than the total revenue of 121 companies on the Fortune 500 list.

GM is the largest private buyer of health care in the world. Most companies pay an insurance company to assume the financial risk for health care claims. GM, on the other hand, is self-insured, meaning the cost of every mammogram and Viagra prescription comes straight out of the auto giant's pocket.

The 2005 health care tab -- the most any company has paid in history -- may be just the tip of the iceberg.

In a recent congressional hearing, CEO Rick Wagoner projected his company's spending would surpass $7 billion by 2009 and keep rising after that.

In a later interview with The Detroit News, Wagoner offered a grim elaboration. "Get a calculator and punch in (nearly) double-digit health care inflation for five, 10, 15 years, and you have a problem," he said. "If you keep paying more and more for health care it robs our ability to invest in future products and future technology, which impacts our ability to employ people. And it's not (a change occurring over) years; it's a faster and faster time frame."

Cost deferred for decades

In 1962, half the cars sold in America were made by General Motors.

Flush with money, GM offered generous health coverage and deferred benefits (retiree health benefits and pensions) instead of higher wages. That choice made sense because health care was inexpensive, and the future medical bills of retirees didn't have to be charged against revenue until they occurred.

In essence, GM was buying health care on credit.

By deferring the cost for decades, the company assumed that its market share and profitability would remain at 1960s levels or higher.

By the early 1990s, that assumption was in tatters. Its share of the U.S. auto market had dropped from 50 percent to 33 percent. Health care costs were rising at three times the rate of inflation. Facing fierce competition from Japanese automakers, GM couldn't raise its car prices to cover the increased cost of health care as it had in the past. Instead, the company turned to its suppliers, squeezing price cuts out of parts manufacturers that were struggling to pay their own health care expenses.

By 1994, the company nicknamed "Generous Motors" was suffocating under its own liberal employee benefits. That year, Harry J. Pearce, executive vice president and general counsel for GM at the time, asked James Cubbin, a longtime lawyer with the automaker, to assemble a team to put a lid on health care costs before they permanently scarred the company.

Cubbin's creation, Health Care Initiatives, set out to do nothing less than diagnose and cure the problems of the U.S. medical industry. It was an audacious plan, akin to Blue Cross Blue Shield trying to reinvent the way cars are designed, manufactured and sold.

From GM's perspective, it was a matter of survival.

"There was a tremendous amount of anxiousness among the senior leadership" about growing health care costs, Bradley recalled. "And that anxiousness has been steadily increasing."

The storm clouds hanging over GM in 1994 have become an economic hurricane. GM's market share dropped to 27 percent in 2005. Shrinking market share and the bankruptcy of Delphi played major roles in an overall loss of $10.6 billion, but Wagoner need only look at two figures to see the disastrous impact of health care costs on the company:

GM lost $8.2 billion in North America in 2005. And its health care tab amounted to nearly two-thirds of that number.

Effects felt across U.S.

Health care costs are crippling not just GM, but also businesses across the United States, the only country where health care is primarily paid by employers. In other industrialized nations, it is paid for by the government. Companies may pay a health care tax in other nations, but that cost is far lower than the insurance premiums most U.S. companies pay.

Consider:


Since 2000, premiums for employer-sponsored family health coverage have jumped 73 percent, while wages have gone up only 15 percent, according to a Kaiser Family Foundation survey.


The average cost of annual premiums for family coverage is now $10,880 -- more than the $10,712 in gross earnings a full-time minimum wage worker would make in a year.


The share of U.S. companies offering health insurance dropped 13 percent between 2000 and 2005. Citing increased costs, only 60 percent of U.S. companies now offer health insurance.

"When insurance was 2 percent of payroll, no one cared," said Richard Matthews, benefits expert for Desjardins Matthews & Tatangelo in Sterling Heights. "Now that it approaches 33 percent, everybody cares."

Employers who continue to provide health insurance pay an average of 82 percent of the cost, according to a study by the Robert Wood Johnson Foundation. With insurance premiums for a family of four now averaging almost $900 a month, companies are bearing a huge expense that their foreign competitors do not.

For example, the price tag of every vehicle GM builds in the United States includes about $1,525 just for the medical care of the nearly 1.1 million Americans the automaker insures. Toyota's health care tab for each vehicle it builds in Japan is $97; it's $400 to $425 in the United States.

DaimlerChrysler's health care cost amounts to $1,400 per vehicle; Ford, $1,100.

Those costs have to be made up somewhere. At GM, health care has diverted money and manpower from innovation at a time when the company desperately needed fresh ideas, and that played a major role in the layoffs of thousands of workers.

"If it's one year, you deal with it. If it's two years, you manage," Wagoner told The News. "But if it's a chronic $4 billion or $5 billion cost difference with your prime competitor, over time it does impact what you would like to do in things like research and development."

GM spent $8 billion last year on research and development compared to $10 billion by Toyota. The numbers seem fairly comparable, until you consider that Toyota is splitting its $10 billion over 18 vehicle models, while GM spreads its $8 billion over at least 57 models.

"Being outspent every year by $2 billion a year? Over 10 years, that's a $20 billion difference in R&D, and that's huge," said Steven Szakaly, an economist at the Center for Automotive Research in Ann Arbor. "Eventually, your technology becomes obsolete."

GM's $1.9 billion annual tab for prescription medicine alone would be enough to launch two new vehicles from drawing board to showroom. GM spends more for health care in 10 weeks than it has spent on fuel cell technology in eight years.

While GM was downsizing many vehicle-related departments to cut costs, it increased the size of Health Care Initiatives. Today, 70 people work in Pontiac, poring over medical data looking for ways to cut costs and improve the health of workers, retirees and their families.

Whether they're winning or losing the health care battle depends on your perspective. In 2005, GM spent less per person on health care ($5,000) than DaimlerChrysler ($5,444) or Ford ($6,363). If GM paid what Ford does per person for health care, it would cost the automaker an additional $1.4 billion.

On the other hand, GM's medical bills continue to spiral upward in a period when the automaker has had to cut the price of many of its vehicles.

This year, the automaker will save almost $1 billion from health care concessions made by the UAW and another $250 million from the federal government for opting out of the Medicare prescription medicine plan.

That $1.25 billion in savings will cut health care costs this year, but those savings are like "throwing a deck chair off the Queen Mary," said Sharon Baldwin, GM's health care communications manager.

Medical bills are projected to continue their rise next year.

Getting less for its money

And what is GM getting for all that money? Despite having the Cadillac of health coverage plans, GM employees don't live any longer than other U.S. blue-collar workers, according to GM data.

Americans die younger, have fewer doctors and hospital beds, and live a greater share of their lives in pain than residents of other industrialized nations, according to statistics by the Organization of Economic Cooperation and Development. In one study of quantifiable medical outcomes, the United States ranked 12 out of 13 industrialized nations.

For GM, a company whose fortunes rise and fall with the quality of its products, the health care system didn't make sense. GM -- and America -- was paying for a Hummer and getting a Chevette.

GM's future seemed to hinge on the problems of another industry.

"This is a national issue and needs to be addressed in that light," Wagoner told The News. "At the same time, we can't bet the company on somebody stepping up to address this in Washington. We're going after it ourselves."

If GM wanted to keep making cars, it was going to have to learn how to run hospitals. It was a frightening thought.

But the alternative was more frightening.

You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.






© Copyright 2006 The Detroit News. All rights reserved.




© Copyright 2006 The Detroit News. All rights reserved.

GM's bitter pill

Wednesday, September 27, 2006
THE GENERAL AND THE BEAST
GM's bitter pill
Automaker spends billions on drugs for aging workers, retirees
Ron French / The Detroit News





PORT ST. LUCIE, Fla. -- When General Motors Corp. CEO Rick Wagoner has nightmares, they might be about Toyota. Then again, they might be about Mae Gumbinger.

The 79-year-old wife of a GM retiree in Port St. Lucie, Fla., takes 15 prescription medicines each day. She takes Plavix to thin her blood and Mincandis to lower her blood pressure. She swallows Namenda and Aricept for her memory, Clarinex for her allergies and Nexium for her stomach. One pill helps her sleep, another pill cuts her pain, and six more prescriptions are supposed to help with a skin condition she's had for years, though she can't remember what the skin condition is and she's pretty sure the drugs aren't helping.

General Motors will pay about $16,000 for drugs this year for Mae and her husband, GM retiree Ralph Gumbinger, the equivalent of giving the couple a new Chevrolet Malibu.

"I'd say we've been lucky," said Ralph, 69, who worked in Pontiac in fleet sales before retiring in Florida. "We can't complain."

His former employer can.

The average worker, retiree and family member whose medical bills are paid by GM gets 15 prescriptions per year -- 50 percent more than the national average. The automaker pays a whopping $1.9 billion for prescription medicine alone.

GM's drug problem illustrates the trouble facing the automaker and the nation as a whole. Americans lead the world in pill consumption. We take drugs today for medical conditions we didn't take drugs for 10 years ago. In some cases, we take medicine for illnesses that weren't considered illnesses 10 years ago.

It's a financial crisis expected to explode in the next 20 years as baby boomers join the ranks of senior citizens, who consume the lion's share of pills. With about four retirees for every active employee, GM is a harbinger of the problem the United States will face in coming years.

When a year's supply of some cancer drugs costs more than a $50,000 Cadillac DTS, General Motors and the rest of the country have a problem.

"I can see GM's side of it," said Ralph Gumbinger. "They've got to make money. I don't know what the answer is."

Cynthia Kirman is supposed to find those answers, which may account for her nervous smile as she sits in GM's health care war room in Pontiac. She steadfastly avoids complaining about the drug companies that as recently as 2004 made higher profits than oil companies or the workers who take Nexium rather than stop eating chili fries.

Instead, GM's pharmacy director spends her days poring over drug usage data, looking for ways to plug a very leaky dike. She can tell when there is a successful television ad campaign for a new drug. She can tell when a drug is being used "off-label" -- for an illness for which it wasn't intended.

She knows that 60 percent of the antibiotics GM pays for are a waste of money because they're prescribed for ailments that don't respond to antibiotics. She knows GM spends $17 million a year on sexual dysfunction pills when a national study showed that two-thirds of men ages 18-45 using the drugs don't need them.

Usually, it's depressing work, watching GM's costs soar despite her best efforts.

In June, Kirman and GM caught a break. Zocor, a popular cholesterol-fighting drug, lost its patent protection, meaning that generic equivalents could be produced by other companies.

Generic drugs have the same chemical makeup of their brand-name siblings but are cheaper to produce because there are only nominal research and development costs. Zocor cost $4.50 a pill; the generic version cost 90 cents. Kirman kicked off a campaign to inform GM's 1.1 million insured that a generic alternative was now available.

Generics ease GM pain

GM pays the medical bills for about 250,000 people taking cholesterol-lowering pills, including Lipitor, the top-selling drug in America. If they all switch to the generic version of Zocor, GM could save more than $100 million.

"This is one of the biggest opportunities GM has ever had to lower our cost for treatment," Kirman said.

When Kirman joined the automaker in 1999, about half of GM employees used brand name drugs even when generic versions were available.

Education and financial incentives have increased generic use to 98 percent when they're available, saving GM $392 million per year.

But those savings barely slowed the rise in GM's drug costs. Even with the use of generics and deep discounts GM is able to negotiate because of its size (about 40 percent off retail drug prices), drug costs are likely to surpass $2 billion this year.

Even as some pills become cheaper, usage has exploded. GM believes drug consumption has doubled in the past decade.

Reasons for soaring drug use include:


The United States and New Zealand are the only nations that allow prescription drug advertising. Drug ads have proliferated over the past decade, coinciding with the soaring use of prescriptions. In 2005, pharmaceutical companies spent $4.6 billion on advertising.

Drug companies say that advertising isn't only about selling drugs but also about educating the public. Advertising "increases people's awareness of diseases and available treatments," according to a statement released by Pharmaceutical Research and Manufacturers of America, the lobbying arm of the drug industry. "Advertising brings patients into their doctors' offices and helps start important doctor-patient conversations about health that might otherwise not have happened."


Much of that advertising is focused on ailments for which Americans didn't used to take prescription drugs. "Years ago, everyone would take (over-the-counter) ibuprofen for pain," Kirman said. "Now they take prescription medications."


The definition of illness has widened. Ailments once considered rare are today billed as widespread, severe and treatable by pills. Social anxiety disorder, sexual dysfunction and restless leg syndrome are a few examples cited recently at a medical conference in Newcastle, Australia.


Americans are getting fatter. Obesity is linked to increased risk of diabetes and heart disease, which are treated with drugs.

The average prescription now costs GM $120, illustrating the rising prices pharmaceutical companies argue are necessary to pay for research and development of the next generation of miracle drugs. Out of every 25 drugs in development at Pfizer, only two or three will eventually make it to market, said David Canter, senior vice president of Pfizer Michigan. A drug typically costs almost $1 billion to develop. Cutting the price of drugs would cut the money used for research.

Those high drug prices also mean big profits. In 2002, the top 10 drug companies made more money than the other 490 companies combined in the Fortune 500.

Mae Gumbinger doesn't give a hoot about the profit margins of drug companies or GM. She vividly recalls her mother having a stroke and the family not taking her to the hospital for a month because they didn't have insurance. If doctors prescribe a pill that may keep her alive, Mae Gumbinger isn't going to ask the price.

So Kirman tiptoes around the issue of drug use. Instead, GM's pharmacist writes articles in company publications encouraging workers to lead healthier lifestyles and looks for ways to lower prices.

E-prescribe system is success

One success story has been an electronic prescription program spearheaded by GM, Ford and DaimlerChrysler. In its first 17 months, the e-prescribe system changed 63,000 prescriptions from brand name drugs to cheaper generics and caught 7,300 potential allergic reactions.

"We never give up," Kirman said. "We're holding our own."

GM's pharmacist can look at her data and see reason for hope. The patents on many blockbuster drugs are running out in the next five years. Generic versions of Plavix, Zoloft, Mobic and Provacol all will be available soon.

"We are entering the most amazing era for controlling costs," Kirman said. "We will have the opportunity to save money."

You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.








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