Court Backs GM’s Deal With Union on Medical Costs
General Motors Corp. said Thursday that a U.S. District Court preliminarily approved a healthcare deal with its union that would save GM $1 billion in annual healthcare costs.
Under the deal, which was endorsed by the United Auto Workers union in October but opposed by some retirees, healthcare would no longer be free for GM’s hundreds of thousands of hourly retirees, their spouses and dependents.
GM has said the pact will cut its healthcare expenses by $3 billion annually before taxes and reduce its healthcare liability for hourly workers and retirees by 25%.
Still, GM shares fell 41 cents to $18.64.
The stock is trading near a 20-year low as GM struggles with high healthcare costs, loss of U.S. market share to foreign rivals and sinking sales of SUVs, its longtime profit generators.
Moreover, the shares have been falling steadily since news of the sale of 12 million shares by billionaire Kirk Kerkorian’s investment arm, Tracinda Corp., hit this week. Tracinda reduced its stake in GM to 7.8% from 9.9%, citing income tax savings.
Most retirees would be required to pay no more than a maximum of $752 a year for their family healthcare coverage, including monthly premiums. Drug co-payments are not included, the UAW has said.
Retirees with GM pensions of $8,000 and less, whose GM pension benefit rate is $33.33 a month per year of service or less, would continue to get their healthcare free of charge.
Coverage for active GM hourly employees would continue with few changes, although drug co-payments would go up $5 in most cases and they would be required to defer or forgo $1 an hour in future pay increases to help fund their healthcare coverage.
The agreement would remain in effect until 2007, when the union’s labor contract comes up for renewal.
Also, a federal judge ruled Thursday that the UAW could proceed with a class-action lawsuit aimed at defining its right to negotiate with GM over reduced healthcare benefits for retirees. The union sued GM in federal court in Detroit in October, claiming the automaker’s threat four month earlier to make unilateral cuts in retiree health benefits was unlawful.
In October, the two sides agreed to settle the dispute for now through the plan to lower the company’s annual cash outlays for healthcare.
A GM attorney said he hoped for a final ruling from U.S. District Judge Robert Cleland by April 1. At $61 billion, GM’s unfunded liabilities for retiree healthcare and life insurance dwarf the company’s $10.6 billion market capitalization.
The automaker has 1.1 million active and retired employees and dependents. They put GM at a disadvantage against competitors such as Toyota Motor Corp., which has a younger workforce and fewer U.S. retirees.
