GM prepares plans to shed retiree benefits
By Jeff Green - BLOOMBERG NEWS
Updated: 04/14/07 6:58 AM
DETROIT - General Motors Corp. is considering at least three proposals to
shed most of its $64 billion in liabilities for retiree health care benefits
in an attempt to return to profitability, according to people with knowledge
of the plans.
GM, the world's largest automaker and biggest private provider of medical
coverage, is developing the options even as union leaders suggest any
comprehensive health care fix will be rejected.
Chief Executive Officer Rick Wagoner said in January the automaker must
reduce health care obligations for U.S. retirees after losing more than $12
billion the last two years.
The options GM is looking at include revising a union health care fund that
is financed through 2011 and was agreed to only last year. The Detroitbased
automaker also may create a new fund for union retirees not yet part of any
Lastly, it's considering a combination of the two ideas, said the sources,
who did not want to be quoted because the labor talks haven't started and
the proposals haven't been made to the United Auto Workers union. They may
be raised during talks with the UAW later this year, the people said.
GM spokeswoman Renee Rashid- Merem declined to comment, saying the automaker
doesn't discuss future union negotiations. UAW spokesman Roger Kerson also
declined to comment.
GM and the UAW last year agreed to a court settlement requiring union
retirees to pay part of their health care costs for the first time. The
accord included a $3 billion fund set up by GM that requires union
help defray retirees' expenses. GM agreed then not to try to alter those
retiree health care benefits until after 2011.
Brian Johnson, a Lehman Brothers analyst in Chicago with a "neutral" rating
on GM, said he doesn't expect the company and the union to alter the
settlement from last year. A judge would have to reopen it, he wrote in a
March 14 report.
Last year's settlement as well as benefit changes for salaried workers
helped GM cut retiree liabilities 21 percent from $81.2 billion at the end
of 2005. GM has about $17 billion set aside in a so-called Voluntary
Employee Beneficiary Association, or VEBA, to pay the future costs.
Spending on health care for about 1.1 million employees, retirees and their
dependents fell to $4.8 billion from $5.4 billion in 2005, in part because
of the union concessions. Last year's spending included $3.3 billion for
retirees. The company said it had about 357,000 hourly and 115,000 salaried
retirees in the U.S.
UAW President Ron Gettelfinger said March 13 that the union addressed health
care obligations "in the middle of the contract and we agreed with the
corporation on what we were going to do at that point in time. With the
exception of DaimlerChrysler, that's resolved as far as we're concerned."
GM hasn't yet ruled out asking the union to reopen the agreement before
2011, the people familiar with the proposals said. Both sides often bring
forward ideas the other has said it isn't interested in discussing.
Never hire a Ferret to do a Weasel's job