In 2006, GM alone spent $4.8 billion on health care, the amount it estimates it could have spent on building four new plants or launching six new vehicles.
In this global competitive market and with the U.S. automakers competing with non-unionized Japanese rivals and trying to reverse billions of dollars in losses, health care costs is a huge issue. "The biggest problem is U.S. healthcare costs," confirms David Dranove, a health management expert Northwestern University's Kellogg School of Management. "Until we figure out a way to bring those down, no amount of concessions will really help the automakers."
According to industry data, U.S. automakers pay their factory workers an average of about $73 per hour in wages and benefits, compared with just $44 per hour for the three major Japanese car makers operating plants in North America.
Most of the difference stems from health care expenses. And the biggest operating gap between Detroit and its Japanese rivals is in the cost of providing health care to retirees. For example, in 2006, GM estimates that it spent nearly $3.3 billion to care for 432,000 retirees. The cost at Ford was near $1.8 billion. Chrysler spent $1.6 billion. On a combined basis, however, foreign automakers with U.S. plants—including Japan's own Big Three—paid $23 million for retiree health care in the United States.