Detroit Free Press

DETROIT – The United Auto Workers ratified a tentative agreement Friday to lower General Motors Corp.’s health care costs with a 61 percent majority vote.

But even with an expected savings of $15 billion, the deal could be too late to have a significant impact on GM’s financial problems.

The vote’s narrow margin also might be a telling sign that the union’s rank-and-file members are growing tired of their leadership.

The proposed changes to retiree health care benefits are subject to approval by the U.S. District Court for the Eastern District of Michigan. That decision is expected in spring 2006.

If approved, retirees would pay a maximum of $752 per family each year for health care, or $370 annually for an individual, plus co-payments for prescription drugs. They previously had no out-of-pocket costs for health care insurance premiums.

Active hourly workers would see few changes in their health care plan. They would defer $1 an hour from pay increases due in 2006, or about $2,000, into a fund to help pay for health care. By the end of 2006, that deferral would increase by 2 cents an hour every quarter, which comes to an extra $10 to $11 a quarter, or $40 to $44 a year. Employees who work overtime would pay more.

GM Chief Executive Rick Wagoner said Oct. 17 that the agreement with the union announced that day would reduce the Detroit-based company’s annual cash outlays for health care by $1 billion annually and its long-term retiree medical liability by $15 billion. GM, the world’s biggest automaker, is making the cuts to stem losses that have totaled $4.5 billion so far this year.

GM faces a litany of difficulties, such as eroding auto sales, having too many plants to satisfy its market share and dealing with federal investigations into its accounting methods.

The cost savings appear less impressive now than they did when they were announced, said Kevin Tynan, an analyst with Argus Research in New York. GM shares rose 7.5 percent that day, the same day that GM disclosed a $1.6 billion third-quarter loss.

Since then, the automaker has received subpoenas from the U.S. Securities and Exchange Commission concerning its reporting of pensions and other retiree benefits. The company’s October U.S. auto sales dropped 26 percent.

John Casesa, a Merrill Lynch auto analyst, said in his Oct. 19 report to investors that, while the health care concessions from the UAW were an upside surprise, the third-quarter results were a downside surprise, and, with GM itself expecting tougher auto market conditions, “we think it will be difficult for the company to be profitable next year.”

Casesa also said in his report that the UAW concessions could have two negative implications:

Investors must ask what the UAW gets for such concessions. The agreement makes a dividend cut more likely.

Should GM’s results get worse, “we are concerned that the door to additional UAW assistance would be closed, increasing the chance of a serious strike.”

GM provides health coverage to 1.1 million employees, retirees and dependents, more than any other company in the country. Its health care cash tab last year was $5.2 billion and is expected to grow to nearly $6 billion in 2005.

The UAW declined to say how many members voted on the health care proposal, but labor experts say the voter participation and lack of unanimous approval could be a sign of how the rank-and-file feel.

The tepid support for the proposal, with just 61 percent voting yes, could be a sign the UAW membership believed it had no real choice, said Peter Rachleff, a professor of labor history at Macalester College in St. Paul, Minn. It also suggests dissatisfaction with UAW leadership for bringing such a concessionary deal to its members.

“People might have felt the leadership wasn’t offering them any alternative,” Rachleff said. “We have been for some time in a historical period where, if union members don’t see a leadership that has a strategy for how to resist something, they just kind of give up.”

GM stock closed Friday at $24.48, up 97 cents.

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AP-NY-11-11-05 1931EST

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