GM Reaches Health Care Deal With Union

October 17, 2005 ( - General Motors Co. said it has reached a tentative deal with United Auto Workers (UAW) to cut health care benefits.

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? ).