General Motors' landmark deal with the United Auto Workers (UAW) yesterday to dramatically cut union health-care expenses could reshape...
DETROIT — General Motors’ landmark deal with the United Auto Workers (UAW) yesterday to dramatically cut union health-care expenses could reshape the benefits all of Detroit’s auto companies offer workers.
The agreement to trim $1 billion in cash from GM’s $6 billion annual health-care bill is the largest single cost-cutting initiative ever announced by the company. It would sharply reduce the automaker’s health-care costs for 750,000 hourly workers, retirees and dependents, GM Chief Executive Rick Wagoner said.
The deal is part of a broad plan revealed by GM to try to cut costs and become profitable. The company reported a massive quarterly loss of $1.6 billion yesterday.
The GM agreement paves the way for Ford and Chrysler Group to seek similar cost-savings plans.
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Ford already is engaged in “private and constructive discussions” with the UAW to address the automaker’s health-care needs, Joe Laymon, Ford group vice president, said in a statement. “Costs for health care are a major concern for all businesses operating in the U.S., including Ford,” he said.
“Assuming what we’re hearing regarding the health-care savings is accurate,” Chrysler spokesman Ed Saenz said, “the company would expect similar consideration from the UAW, consistent with the industry’s history of pattern bargaining.”
Wagoner and other GM officials said they would not release full details of the plan until the UAW informed its members.
The agreement would cut GM’s commitment to cover the health-care costs over the lifetime of its hourly workers by $15 billion, or 25 percent, from about $61 billion, Wagoner told employees in a broadcast from the automaker’s Detroit headquarters.
The announcement culminated six months of talks, including intense discussions during the weekend with the goal of reaching a deal by yesterday to lessen the blow of GM’s heavy loss for the third quarter.
At the company’s annual meeting in June, Wagoner said the health-care crisis was so severe that the UAW would have to reach some sort of agreement or the automaker would impose cuts unilaterally.
The lack of specifics on the deal led some observers to try to interpret what it means to workers and retirees.
It appears workers and retirees would pay about 25 to 30 percent of their annual health-care costs, or about the national average for large companies, said Brian Johnson, an analyst with Sanford C. Bernstein & Co.
The bankruptcy of automotive-parts supplier Delphi on Oct. 8 drove home the message that the union needs to work toward compromise or face the threat of a bankruptcy court slashing benefits, experts who follow the industry said.
UAW President Ron Gettelfinger had said for months the union would not reopen its contract with GM before the September 2007 expiration. But the changes are extensive enough that union members will vote to ratify the deal at a later date.
“We believe it is clearly in the best interests of UAW-GM active workers, retirees and their families,” the union leader said in a statement yesterday.
Gettelfinger can argue he didn’t change the contract but added a supplement, said Eugene Jennings, a business-management professor emeritus at Michigan State University.
But workers and UAW local leaders said they expect to end up paying more for their health care in the future. Many workers asked not to be identified for fear of retribution.
“Nobody knows what it is. It’s got to include concessions,” one hourly worker from GM’s metal-stamping plant in Indianapolis said.
The deal includes a new health-care plan that Wagoner said “will reduce the impact of plan changes on affected individuals.” GM will contribute $1 billion in 2006, 2007 and 2011 to help fund the plan.
Wall Street welcomed the deal, sending GM’s stock up $2.11, to $30.09.
Part of the positive reaction was almost certainly related to the announcement that GM was looking to sell a controlling interest in General Motors Acceptance Corp. (GMAC), its valuable finance subsidiary.
The $1.6 billion quarterly loss, including special items, was more than twice what analysts expected.
GM acknowledged that high gas prices continue to depress sales of sport-utility vehicles, previously its most profitable models and those counted on to spur its turnaround.
Wagoner said talks are continuing with the UAW about closing plants and cutting 25,000 union jobs by 2008.
GM’s goal is to have its plants operating at 100 percent of capacity by then, up from roughly 80 percent currently.
Detroit Free Press business reporters Sarah A. Webster, Jewel Gopwani and Joe Guy Collier contributed to this report. Information on GM’s third-quarter loss and GMAC provided by the Chicago Tribune.