Human Capital & Careers

GM, UAW Agree to Huge Health-care Cuts

The proposed settlement is likely to reduce General Motors's retiree health-care liabilities by about $15 billion, or 25 percent of the company's h...
Stephen TaubOctober 17, 2005

General Motors Corp. announced that it has reached a tentative settlement with the United Auto Workers that will result in a major reduction in health-care costs.

GM also reported a $1.6 billion loss for the for the third quarter and disclosed that it is exploring the possible sale of a controlling interest in General Motors Acceptance Corp.

The settlement is likely to reduce the company’s retiree health-care liabilities by about $15 billion, or 25 percent of the company’s hourly health-care liability, according to the struggling auto giant. The agreement would also cut GM’s annual employee health-care expense by about $3 billion on a pre-tax basis; cash savings are estimated to be about $1 billion a year. The deal must be ratified by GM union members once the language has been finalized.

“These negotiations were done in a positive, cooperative, problem-solving spirit,” chairman and chief executive officer Rick Wagoner reportedly 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 tentative agreement also includes GM contributions to a new, independent, defined-contribution voluntary employee benefit association that will be used to soften the impact of reduced health-care coverage on hourly retirees, according to a press release. The new association will be partially funded by GM contributions of $1 billion in each of three years, currently expected to be 2006, 2007, and 2011.

“GM and the UAW have renewed our joint commitment to work together on a broad scale to continue to reduce the cost and improve the quality of health care,” Wagoner reportedly stated. “We continue to be concerned that this issue is of great importance for the future of overall U.S. competitiveness.”

GM also announced that it is exploring the possible sale of a controlling interest in General Motors Acceptance Corp. — its most valuable asset — to a strategic partner, with the goal of restoring GMAC’s investment-grade rating and renewing its access to low-cost financing. For its part, GMAC announced that it will continue to evaluate alternatives to help ensure that its residential mortgage business, Residential Capital Corp., retains its own investment-grade rating.