GM To Cut Health Care Costs By $1B in Agreement With Union
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General Motors, the company with the world’s biggest medical costs, agreed with the United Auto Workers to reduce health-care expenses by $1 billion and may sell a controlling stake in its consumer credit unit.
The UAW agreement cuts GM’s retiree health-care liabilities by about $15 billion, a reduction Chief Executive Rick Wagoner said was needed for the world’s largest automaker to reverse $3.8 billion in losses this year. GM reported a $1.6 billion third-quarter loss yesterday.
The company’s shares and bonds rose after the health-care accord was announced. The union concessions, the biggest in more than two decades, and the possible sale of part of General Motors Acceptance, answer two questions investors had for Wagoner: How he planned to cut both labor and lending costs that are straining the company’s ability to compete with Toyota.
“Wagoner’s trying to get GM back to where it’s making money,” the chairman of the Center for Automotive Research in Ann Arbor, Mich., David Cole, said. “The cost reductions he announced were very substantial, but you still have to be successful in selling products.”
Mr. Wagoner, who is 52, who took control of GM five years ago, has failed this year to stop a slide in American market share after introducing new models and offering employee discounts to all buyers. Standard & Poor’s in May led the three biggest rating companies in cutting GM’s debt to junk, citing market share losses and dwindling revenue.
The slowing sales prompted GM to cut North American auto production and buy fewer auto parts. GM’s largest supplier and former unit Delphi added to the automaker’s troubles when it filed for bankruptcy protection on October 8. Delphi’s insolvency leaves GM responsible for as much as $12 billion in future retirement costs for Delphi workers.
The third-quarter loss extends GM’s longest streak without a profit in 13 years. GM provides private health care for 1.1 million employees, retirees, and dependents. The automaker estimated health-care costs would rise to $5.6 billion this year and wants union workers to pay a bigger share of their health-care expenses. GM’s 38,000 salaried workers will pay about 31% of their total health care next year, an increase from about 27% this year, GM said yesterday.
