The Wall Street Journal reports that the pact is projected to reduce GM’s retiree health care liabilities by around $15 billion, or 25% of the company’s hourly health care liability. The company also said it is expected to shave $3 billion on a pretax basis from annual employee health care expenses and provide a cash savings of around $1 billion a year.
The agreement is subject to finalized language and UAW-GM member ratification. The company said it will work with the union to lower health care costs further, but said state and federal politicians should take a more proactive approach to address what it called a “US health care crisis.”
The deal will affect 750,000 employees, retirees, and their dependents. GM has already previously raised the health care co-pay for salaried employees, while freezing pay and cutting bonuses.
The financially struggling auto maker is also concerned about the benefits obligations it has to Delphi, a unit it spun off in 1999. According to WSJ, analysts have estimated GM’s obligation for Delphi’s retiree benefits at somewhere between $1.6 billion and $6.6 billion, and the company’s costs for pensions for Delphi retirees could run an additional $3 billion to $4.5 billion if Delphi terminates its plan (See Auto Pensions Next Big PBGC Bomb? ).