GM reaches agreement with union

The plan would save GM $3 billion a year in employee health-care expenses.
STAFF/WIRE REPORTS
DETROIT -- General Motors Corp., under pressure to turn around its business after losing nearly $3 billion in the first nine months of the year, announced a tentative agreement with the United Auto Workers union Monday that will help lower its staggering health-care costs.
GM Vice Chairman and Chief Financial Officer John Devine said the tentative agreement on health care would reduce GM's retiree health-care liabilities by about 25 percent, or $15 billion, over a seven-year period. It would cut GM's annual employee health-care expenses by about $3 billion on a pretax basis. Cash savings are estimated at around $1 billion a year.
GM expects to spend $5.6 billion on health care this year. GM's UAW members now pay 7 percent of their health-care costs, while the company's salaried employees pay 27 percent, according to GM. It's not yet clear how that will change under the agreement.
The tentative health-care agreement with the UAW includes contributions to a new, independent voluntary employee benefit plan, which will be partially funded by GM. GM said it will contribute $1 billion annually to the fund in 2006, 2007 and 2011.
Wagoner said the modified plan will continue to provide high-quality health care for GM's more than 750,000 hourly workers and dependents, retirees and surviving spouses in the United States. He wouldn't give further details, saying UAW members still must ratify the plan.
No comment
The UAW had no comment on the agreement Monday.
Jim Graham, president of UAW Local 1112 in Lordstown, said he couldn't comment until hearing the details. He said he expected to learn more sometime this week.
Himanshu Patel, an auto analyst with JPMorgan Chase & amp; Co., said the agreement will make a substantial dent in GM's $80 billion health-care liability. But other analysts said the cuts may not stave off the red ink for very long, especially since GM could be liable for billions in benefits at parts supplier Delphi Corp., which has filed for bankruptcy protection.
"These savings are a clear positive, but retiree liability cuts are likely to see some almost immediate offsets, from ongoing health-care inflation, possible Delphi liability assumption and falling long-term rates," Goldman Sachs analyst Robert Barry said in a note to investors.
GM Chairman and CEO Rick Wagoner said the agreement marks the largest reduction GM has ever announced in a single day. GM had asked the UAW to help it lower its health-care costs before its contract with the union expires in 2007, and both parties have been negotiating since the spring.
Wagoner refused to say whether GM would have unilaterally lowered retiree benefits if the UAW hadn't agreed to the concessions by Monday, though he has said in the past the company had that option.
"These negotiations were done in a positive, cooperative, problem-solving spirit," Wagoner told employees at GM headquarters in Detroit.
"While it may have taken some time to reach this cooperative solution, I think it was time well-spent."
Expanding eligibility
Under the agreement, GM would expand eligibility for some benefits to former GM employees who became employees at auto supplier Delphi.
GM spun off Delphi in 1999, and the auto supplier filed for bankruptcy protection earlier this month. GM had said it could be liable for anywhere from nothing to $11 billion in benefits for Delphi employees, but the company said that now could reach $12 billion because of the new agreement.
Devine said it's more likely GM's liability will be about half that amount.
Also, GM said it lost $1.6 billion in the third quarter, or $2.89 per share, compared to a profit of $315 million, or 56 cents a share, a year ago, as it felt the effects of declining sport utility vehicle sales.
The loss included charges of $861 million for restructuring and lower asset values in North America and Europe.
GM said its loss, excluding special items, amounted to $1.1 billion, or $1.92 a share, far more than the loss of 87 cents a share expected by analysts surveyed by Thomson Financial.
Total revenue was $47.2 billion for the quarter, up 5 percent from $44.8 billion in 2004.
Turnaround plan
Wagoner said the results were disappointing but the company is moving ahead with its turnaround plan.
He said the company is on track to reduce 25,000 manufacturing jobs and close several plants by 2008, a goal it announced earlier this year. GM plans to announce more details about that plan before the end of this year, Wagoner said,
GM expects to reduce its costs for plants and employees by $5 billion by late 2006, Wagoner said. In addition, GM wants to reduce its materials costs by $1 billion next year by using lower-cost suppliers.
Wagoner said the company is confident consumers will respond to its new vehicles, including a lineup of more refined and fuel-efficient SUVs.
Wagoner said some job reductions will happen through attrition, but he acknowledged the process will be a difficult one.
"We will do our best to minimize this impact on each of you and your families," he said.
"We hope you will understand that, with these difficult actions, we will help to ensure a viable and growing GM for the future."