By DEE-ANN DURBIN
The Associated Press
Monday, October
17, 2005; 4:18 PM
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 Monday that will help lower its
staggering health care costs. GM, the world's largest automaker, 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. By Monday afternoon, GM shares rose $2.04, or 7.3 percent, to $30.02 on the
New York Stock Exchange. They gained 12 percent earlier in the day and have
traded in a 52-week range of $24.67 to $42.22. 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. Himanshu Patel, an auto analyst with JPMorgan Chase & 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, although 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." The UAW had no comment on the agreement Monday. Art Luna, president of UAW
Local 602 in Lansing, said he expects to meet with UAW leadership later this
week and then present details of the plan to his local union's 3,000 members and
450 retirees. "I'm very concerned about our retirees. A lot are on tight budgets and fixed
incomes," Luna said. 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. In its earnings report, 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. 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. "I think we're trying to address the issues we face very proactively. We're
not relying just on cost reductions," Wagoner said. Wagoner wouldn't say whether some of his turnaround plans have been
accelerated since billionaire investor Kirk Kerkorian acquired a 9.9 percent
share in the company this month. Kerkorian's investment firm, Tracinda Corp.,
has said it may seek a seat on GM's board. 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 in GM's Asia Pacific
region to $176 million from $78 million earned in the year-ago quarter. GM's finance arm, General Motors Acceptance Corp., earned $675 million in the
third quarter, up from $620 million in the same period in 2004. Wagoner said GM
is looking for a partner to buy a controlling interest in GMAC and restore the
division's investment-grade rating. GMAC has had a harder time borrowing money
since its credit rating was downgraded to "junk" status along with GM earlier
this year. 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 U.S. He wouldn't give further details, saying UAW
members still must ratify the plan. 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." 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. ___ Associated Press Writer David Eggert in Lansing contributed to this
report. ___ On the Net: General Motors Corp.: http://www.gm.com/ United Auto Workers: http://www.uaw.org/