Chrysler to Take $4.7-Billion Charge for Health Costs
Chrysler Corp. said Monday that it will take a one-time $4.7-billion charge in the first quarter to cover a new method of accounting for the health costs of its future retirees.
The charge will result in an after-tax loss in the first quarter and for all of 1993, the company said. Chrysler will continue to pay dividends.
The accounting change, which is being made by all public companies in accordance with industry rules, requires them to show the cost of health benefits for these retirees as those benefits are earned rather than when they are paid.
Chrysler said that, after making the change, its ongoing obligation for health care of its retired workers will cost $240 million a year after taxes.
Other auto companies took the charge for the accounting change during 1992, but Chrysler chose to wait until the current quarter, the deadline for the change set by the Financial Accounting Standards Board, which sets rules for accountants.
That allowed it to be the only Big Three auto maker to post a profit for 1992 and to make profit-sharing payouts to its workers.
Chrysler earned $723 million in 1992 and paid its workers profit-sharing checks averaging $421 each.
Chrysler’s obligation, while less than similar charges taken by General Motors Corp and Ford Motor Co. last year, underscores the effect of sharply higher health care costs on Detroit’s Big Three auto makers.
GM took a $21.8-billion hit against 1992 earnings, and Ford took a $7.5-billion charge to bring it current on its health care obligations to future retirees. Companies had the option of spreading the charge over 20 years. All the auto makers opted to take the lump sum charge.
At the end of last year, Chrysler was paying health care benefits for more than 91,900 retired workers and 77,878 active workers in the United States .
Analysts said Chrysler’s decision to take the charge now will hurt the auto maker’s earnings in the short-term but it will make comparisons with Ford and GM more equitable.
