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Health-care Rx for GM

Workers and retirees to shoulder more of the burden to stem losses

Donna Ramsey records the bar code on finished transmissions at GM's Willow Run plant in Ypsilanti, Mich.
Donna Ramsey records the bar code on finished transmissions at GM's Willow Run plant in Ypsilanti, Mich.
Carlos Osorio, Associated Press

DETROIT — General Motors Corp. got some relief from its spiraling health care costs as autoworkers agreed to pay more of their health costs, but analysts said the ailing automaker must do more to turn around its North American operations.

The United Auto Workers said Friday that its members had agreed to a tentative proposal to make retirees and hourly workers pay more for their health care. The world's biggest automaker asked the UAW for the unusual concessions this spring as health-care costs rose and it lost U.S. market share to Asian competitors. GM lost more than $3 billion in the first nine months of this year.

Hourly workers approved the proposals by a 61 percent majority, UAW President Ron Gettelfinger and chief GM negotiator Richard Shoemaker said in a brief statement. Retirees couldn't vote on the proposal. Autoworkers voted through their local unions for a week starting Nov. 3.

"Certainly we have mixed feelings about it," said Oscar Bunch, president of UAW Local 14 in Toledo, Ohio, which was one of the first to approve the agreement. "Nobody likes to go to their membership and ask for concessions, but I don't think that the UAW had any other choice."

GM spokesman Stefan Weinmann said hourly workers would see some changes in their health care immediately. Changes for retirees must still be approved by the U.S. District Court in Detroit, he said. GM and the UAW said that approval isn't expected until early next year.

Ford Motor Co. and DaimlerChrysler AG's Chrysler group are expected to ask for similar concessions from the UAW. The union's contracts with all three automakers expire in 2007.

Harley Shaiken, a professor and labor expert at the University of California at Berkeley, said that it's extremely rare for the UAW to agree to concessions outside of its normal contract negotiations. The last instance of this happening was in 1982, Shaiken said.

GM pays for health care for a total of 750,000 U.S. hourly employees, retirees and their dependents, including around 110,000 active workers.

GM expects to spend $5.6 billion this year on health care for all of its workers. The company says the new agreement would cut annual health-care expenses by $1 billion after taxes and would shave $15 billion, or 25 percent, off its $60 billion in long-term retiree health-care liabilities.

Under the proposed agreement, GM retirees will pay up to $752 annually for families and $370 for individuals for their health care. Right now, retirees pay no monthly premiums and a small fraction of other health-care costs.

The agreement requires GM hourly workers to contribute $1 per hour in future pay increases to a new fund to help pay for retirees' coverage. GM will contribute $3 billion to that fund over the next six years.

Mike Sheridan, the president of UAW Local 95 in Janesville, Wis., said hourly workers, who currently make around $57,000 a year before taxes and overtime, will contribute around $2,000 a year.

Erich Merkle, senior auto analyst with the consulting firm IRN Inc., said the deal is significant but the automaker is facing a mountain of other challenges. GM has the labor force and plant capacity of an automaker with 33 percent of the U.S. market, Merkle said, but GM's share fell to 26 percent in the first 10 months of this year.

"A billion a year is a nice chunk of change, even for GM, but it's really not even close to being enough in terms of what they have to do," Merkle said. "This is the easy part."