GM trims benefits costs

August 09, 2006|By DETROIT FREE PRESS

DETROIT -- General Motors Corp. said yesterday that it had cut its pension obligations by $3.9 billion and its retiree health care obligations by $19.3 billion because of employee buyouts and cost-cutting agreements with the United Auto Workers union.

Even so, GM carries $62 billion in future retiree health care obligations on its books. The automaker has long maintained that legacy costs put it at a disadvantage against its global rivals. The expense adds $1,500 to the cost of every vehicle it builds in the United States.

GM's pension obligation now stands at $85.1 billion. Last year, the automaker said its pension obligation totaled $89 billion, with a pension fund surplus of $7.5 billion.

In a quarterly filing with the Securities and Exchange Commission, GM said it had recalculated the future estimates for pension and retiree health care costs, a task it usually undertakes once a year.

In June, 34,400 GM workers accepted the company's buyouts. James R. Wiemels, GM's vice president of manufacturing and engineering, told an investment conference Monday that 20,000 of those workers have left the company.

In addition, GM and the UAW won court backing in March for a settlement that allowed the automaker to reduce health care benefits for 400,000 retirees. The UAW agreed to the retiree benefit changes to help GM slash $1 billion in costs.

The changes included requiring employees to make monthly contributions and pay annual deductibles for the first time, with a maximum of $752 per family each year.

GM also was able to lower its pension and medical obligations thanks to an increase in its discount rates, which is the interest rate it expects the money it sets aside for such costs to earn over the long term.

GM Chief Executive Officer G. Richard Wagoner Jr. aims to cut the automaker's annual costs by $9 billion and expects to shave $6 billion in expenses this year, an essential part of his turnaround plan for the world's largest automaker after last year's $10.6 billion loss.

GM said during the second quarter that it decreased the money set aside for warranty repairs on its vehicles by $300 million, based on better-than-expected quality.

GM reported last month that it would take a $3.7 billion charge due to the early retirements and buyouts.

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