Everyone knows that the automobile industry faces some tough challenges. Meeting the fickle needs and tastes of consumers is a major hurdle for companies in the sector. For many buyers, quality remains a top priority, a fact that has redounded to ToyotaMotors' (NYSE:TM) advantage. At the same time, eye-catching style can be a major boost to a brand. General Motors (NYSE:GM), even with its troubles mounting, has reportedly engineered something of a makeover for its Cadillac brand, which has gained a following among Hollywood's glitterati. Meanwhile, Honda Motor (NYSE:HMC) is said to be concerned that its image has gone stale.
For companies in the U.S., though, another perhaps more serious problem lurks below the surface. Like the rest of America, the auto industry is struggling with rising health-care costs. Automakers have it particularly bad, though, because they have promised their workers and retirees fairly generous benefits. With competition bearing down and profitability on the wane, though, companies are scrambling to find ways to ease their burden. General Motors, for instance, has concentrated recently on containing prescription drug costs by relying heavily on mail-order programs.
Measures aimed at improving efficiency can go only so far, however. DaimlerChrysler (NYSE:DCX) recently has shown the way to greater relief. The Associated Press reported this past weekend that the company had negotiated new terms with the United Auto Workers union for health care. Workers, retirees, and their families will now be required to pay deductibles of between $100 and $1,000 for health-care services.
DaimlerChrysler expects to reap only modest savings in the near term from the new arrangements. Still, the changes are an important breakthrough and could help facilitate bigger adjustments as necessary. Clearly the company has been effective in getting the UAW to recognize that the status quo is unsustainable for DaimlerChrysler the company as well as its employees and retirees. DaimlerChrysler's decision to ask for such concessions earlier rather than later and its evident success in communicating the scope of the problem should make the inevitable future talks with the UAW less contentious. While the burdens on DaimlerChrysler's workers are only likely to grow, the firm at least has created an environment for a smoother transition.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
