General Motors Corp. said it reached a tentative agreement with the United Auto Workers that will help the embattled automaker lower its health care costs even as GM reported a whopping $1.6 billion loss for the third quarter.
DETROIT — General Motors Corp. said it reached a tentative agreement with the United Auto Workers that will help the embattled automaker lower its health care costs even as GM reported a whopping $1.6 billion loss for the third quarter.
The announcements Monday came as the world’s biggest automaker also said it was considering selling a controlling stake in its financial services arm in a bid to restore its investment grade credit rating. GM’s ratings were lowered to junk status earlier this year, a move that could boost its borrowing costs.
GM shares rose $2.04, or 7.3 percent, to $30.02 in late morning trading on the New York Stock Exchange. They were up 12 percent earlier in the day and have traded in a 52-week range of $24.67 to $42.22.
The tentative agreement on health care is projected to reduce GM’s retiree health care liabilities by about 25 percent, or $15 billion, and cut its annual employee health care expense by about $3 billion, CEO and Chairman Rick Wagoner said. Cash savings are estimated to be about $1 billion a year.
Most Read Stories
- Scientists say recent quake swarm at Rainier doesn't signal impending eruption
- 'Polite Robber' suspect told similar sob story when arrested 8 years ago
- FBI investigating off-duty work by Seattle police at construction sites, parking garages
- Is this Seattle bus stop the worst in America?
- Swastika-wearing man punched on Seattle street, removes swastika, police say
GM asked the UAW to help it lower its health care costs before its contract with the union expires in 2007. Both parties have been in negotiations since spring.
“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.”
The UAW didn’t immediately comment Monday morning.
In its earnings report, GM said it lost $2.89 per share for the July-September period in contrast to a profit of $315 million, or 56 cents a share, a year ago. The loss included charges of $861 million in charges for restructuring and lower asset values in North America and Europe.
Without the special items, GM’s loss amounted to $1.1 billion, or $1.92 a share. But that is still much more than the loss of 87 cents a share that analysts surveyed by Thomson Financial expected.
Total revenue was $47 billion for the quarter, up from $44.8 billion in 2004.
Wagoner said the results were disappointing but the company is confident its new vehicles, including a new lineup of more fuel efficient SUVs, along with reductions in health care costs will fuel a turnaround.
“I think we’re trying to address the issues we face very proactively. We’re not relying just on cost reductions,” Wagoner said.
GM’s North American division lost $1.6 billion in the quarter versus a loss of $88 million a year ago. The automaker’s North American market share was down to 25.6 percent from 28.5 percent a year ago.
GM Europe reported a loss of $150 million in the quarter compared with a loss of $236 million a year ago, but earnings more than doubled from its Asia Pacific region to $176 million from $78 million earned in the year-ago quarter.
Wagoner said the automaker will spend several months selecting a strategic partner who would buy a stake of more than 50 percent in its GMAC finance division. He didn’t say how much the sale might raise.
“This is, we think, a move that is consistent with our strategy of maintaining the synergy between GM and GMAC and at the same time really increasing their ability to grow their business,” Wagoner said.
GMAC earned $675 million in the third quarter, up from $620 million in the same period in 2004.
The tentative health care agreement with the UAW also includes contributions to a new, independent voluntary employee benefit plan, which will be partially funded by GM.
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 U.S.
He said the company is on track to reduce 25,000 manufacturing jobs by 2008, a goal it announced earlier this year. The company said it wants its plants operating at 100 percent capacity by that time. Wagoner said the company expects to announce more details about that plan before the end of this year.
Wagoner said many of the layoffs 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.”
GM expects to spend $5.6 billion on health care this year. Wagoner said the company will work with the UAW in asking the federal government to help reduce health care costs, although he wouldn’t say if he supports a national health care plan, which the UAW advocates.
“Health care costs in this country are out of control,” Wagoner said. “We would really like to see much more focus and leadership from elected officials, especially in Washington.”