GM workers OK health-care cuts

11/12/2005

DETROIT - Union workers at General Motors Corp. ratified a deal to help the automaker cut billions of dollars in health-care costs, but analysts said it was not enough to turn things around at the struggling auto giant.

Welcoming the ratification, which was announced by the United Auto Workers union yesterday, GM said the deal would slash its long-term health-care liability by $15 billion, cut its hourly health-care liability by 25 percent, and reduce health-care expenses by about $3 billion annually, before taxes.

The measure was approved by 61 percent of GM's hourly workers. A union local at GM Toledo Powertrain ratified it last week.

"Certainly we have mixed feelings about it," said Oscar Bunch, president of UAW Local 14 at Toledo Powertrain. "Nobody likes to go to their membership and ask for concessions, but I don't think that the UAW had any other choice."

Retirees couldn't vote on the proposal, even though it directly affected them. Under the deal, health care will no longer be free for hourly retirees and their spouses and dependents.

Most will pay a maximum of $752 per year for their family health-care coverage, including monthly premiums. Drug co-payments are not included. The agreement requires GM hourly workers to contribute $1 per hour in pay increases to a fund to help pay for retirees' coverage. GM will pay $3 billion to that fund in the next six years.

"The deal is a move in the right direction, but no one thinks this is the end to their problems," said Argus Research Group analyst Kevin Tynan. "The laundry list of the things that GM needs to do to fix itself is about a dozen items long, and this deal was a small item on that list."

Since GM announced the health-care tentative agreement in October, it has received subpoenas from the U.S. Securities and Exchange Commission concerning its reporting of pensions and other retiree benefits.

Its U.S. auto sales dropped 26 percent in October, Moody's Investors Service and Fitch Ratings have lowered their ratings on GM debt two levels below investment grade, and the automaker on Wednesday said it will restate 2001 earnings, while also restating second-quarter earnings from this year.

"The last couple of days illustrate that there is a lot of work to do at this company and it's debatable whether it's actually doable outside bankruptcy court," Mr. Tynan said. "I don't think it is."

Burnham Securities analyst David Healy said, "While the [health-care] deal is a positive, they have several other challenges. They are losing too much market share. They have too many plants, too many people, and too many models."

GM has lost nearly $4 billion this year.