General Motors Corp. announced yesterday a tentative agreement with the United Auto Workers union to slash its health care costs, a move that promises pain for hundreds of thousands of GM workers and retirees but is widely viewed as a necessary step to save the troubled automaker.
Neither the company nor the union gave particulars on how workers and retirees would be affected, and the president of UAW Local 239 in Baltimore was waiting yesterday to be briefed.
GM said in a statement that the deal was expected to cut its annual employee health care costs by $3 billion before taxes and save it $1 billion a year in cash. Last year, the company spent $5.2 billion on health care.
The company also said the deal would cut its retiree health care liabilities by about $15 billion, or 25 percent, over seven years.
GM announced the deal as it reported a $1.6 billion loss for its third quarter, compared with a profit of $315 million in the third quarter of 2004. The automaker said it was considering selling a controlling interest in its profitable financing subsidiary, General Motors Acceptance Corp., and restated its plans to close factories and cut 25,000 jobs in the next several years.
"Over the past four months, we have done a lot of detailed work on this, and have at this point a reasonably clear line of sight on our overall manufacturing restructuring plan," GM Chairman and Chief Executive Officer Rick Wagoner said in a statement. "Our next steps will be to work this plan in detail with the affected unions."
The tentative agreement will have implications across the auto industry, pressuring Ford, Chrysler and the UAW to make similar cuts at the other Big Three automakers, said Bill Adams, a management-side labor consultant for the Fort Wright, Ky., consulting firm Adams, Nash, Haskell & Sheridan.
"If they were the most profitable organizations in the world, this gives the companies a license to cut costs," Adams said. "If the UAW made a concession for GM, try to convince me as Chrysler and Ford why you're not going to give me the same deal or better."
Analysts said the bankruptcy filing by Delphi Corp. this month probably played a role in bringing GM management and labor to an agreement, by demonstrating how grim GM's future might be if the current situation persists. Delphi was spun off from GM in 1999 and is the automaker's biggest supplier.
GM has said it might owe its former workers who are now Delphi employees as much as $12 billion as part of an agreement with the UAW that makes the workers eligible for certain health care benefits. The company said it could not estimate its liabilities from the Delphi bankruptcy with any certainty but that they are probably about $6 billion.
Fred Swanner, president of UAW Local 239, which represents former workers of the GM Baltimore van assembly plant that closed in May, said yesterday that he had not been briefed by union officials in Michigan about the specifics of the tentative health care agreement and how it would affect workers.
GM and the UAW have been in discussions for months about health costs. GM, the world's largest health care purchaser, has been seeking concessions from the union. The union responded by saying it would not reopen its national labor contract but that it would work with the company to find a "mutually agreeable" way to cut health care costs.
On average, GM hourly workers and retirees pay 7 percent of their health care costs and salaried employees pay 31 percent, according to the company.
"This was no doubt difficult for the UAW to do, but they're looking at something that would have been even more difficult, which is the possibility of the loss of jobs if GM does not become more competitive," said Harley Shaiken, a professor at the University of California, Berkeley who specializes in labor issues.
"What the industry is confronted with is: Change or die," said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., adding that the Delphi bankruptcy filing proved that "death really is an option."
GM's U.S. market share has gone from 50 percent in the 1970s to about 25 percent today as it has lost ground to international competitors with lower production costs.
Two key components of GM's cost disadvantage are health care and pension expenses. For every vehicle GM produced in 2004, the company spent $1,525 on health care. General Motors covers more than 750,000 hourly employees, retirees and dependents.
Andrew Cierkowski, 27, worked at GM's Broening Highway plant in Baltimore from 1997 until it closed in May. He is in the company's job bank program, which allows workers from closed factories to collect GM pay and benefits if they go to school, volunteer full time or sit in a room with other local GM workers for 40 hours a week that would otherwise have been spent on the assembly line.