GM Reaches Agreement With UAW
General Motors Corp. reached a tentative pact Monday with the United Auto Workers union to reduce its healthcare costs by about $3 billion annually as the automaker unveiled plans to sell control of its profitable financing arm to raise cash.
The moves came as GM posted a third-quarter loss of $1.6 billion. The company is under siege from popular models by Asian automakers, its own high operating expenses and declining sales as consumers shift away from gas-guzzling sport utility vehicles. The loss was GM's third consecutive quarterly deficit and was much worse than Wall Street expected.
"Our financial performance continues to be quite disappointing," GM Chief Executive Rick Wagoner said in a speech to employees. He said the company needed to speed up its restructuring to regain profitability.
The main culprit for the maker of Chevrolet, Buick, Saturn, Hummer, Pontiac and other brands was its North American auto business, which has lost more than $4 billion this year despite robust summer sales from its employee-discount pricing plan.
GM is losing more than $1,000 per vehicle in North America largely because it's saddled with healthcare and pension costs for about 1.1 million salaried and hourly U.S. workers, retirees, their dependents and surviving spouses, analysts said.
But GM hopes to narrow that loss with the UAW agreement, which would save the company about $3 billion a year in healthcare expenses. It was the biggest cost reduction announced in a single day by GM, Wagoner said.
"This is a critical juncture in our company's history," he said.
GM also plans to sell a majority interest in its financing business, General Motors Acceptance Corp., although it declined to speculate on potential buyers.
The moves drew generally favorable reviews from analysts and investors, many of whom had expected that all or part of GMAC might be divested as the automaker tried to shore up its finances.
"This really raises GM's opportunity to improve," said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich. The healthcare pact, and the "cooperative spirit" of the automaker and the union, "is a very important change for GM."
GM's stock rose 7.5% after the announcements, gaining $2.11 to close at $30.09. But the stock still has fallen 25% this year.
Ford Motor Co. said it also was talking to the union about ways to cut healthcare costs, and analysts said they expected DaimlerChrysler's Chrysler division to follow suit.
