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GM Cuts Employee Health Benefits, May Sell GMAC

October 18, 2005
General Motors Corp. and the United Auto Workers reached a tentative agreement to reduce GM's health-care costs significantly while maintaining high quality health-care benefits for its hourly employees and retirees in the United States.

The tentative agreement is expected to save the company about $15 billion and cut GM's annual employee health-care expense by about $3 billion.

The company will set up a Defined Contribution Voluntary Employee Benefit Association (VEBA) that will be used to mitigate the impact of reduced GM health-care coverage on individual hourly retirees.

GM reported its net loss for the third quarter was $1.6 billion, as sales of the company's bloated SUVs and large sedans plummeted. The loss was a stark contrast to net income of $315 million, or 56 cents a share, a year earlier.

"Our financial performance continues to be quite disappointing," GM Chief Executive Rick Wagoner said in a speech to employees.

Overall, the company's automotive operations lost $1.6 billion in the third quarter, with just about all of that coming from its core North American operations. A year earlier the autos produced a loss of $219 million, with North America responsible for only an $88 million loss.

The company said it will close additional assembly and component plans and cut 25,000 or more jobs.

Wagoner also announced that GM is exploring the possible sale of a controlling interest in General Motors Acceptance Corp. (GMAC). In addition, GMAC said it will continue to evaluate strategic and structural alternatives to help ensure that its residential mortgage business, Residential Capital Corp., or ResCap, retains its investment grade credit ratings.

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