LS1LT1 Forum banner
1 - 3 of 3 Posts

· Founder
7,403 Posts
Discussion Starter · #1 ·

GM Has Health-Care Deal, Posts $1.6 Billion Loss (Update1) Oct. 17 (Bloomberg) -- General Motors Corp., the world's biggest automaker, said it agreed with the United Auto Workers on ways to reduce health-care expenses as it posted a fourth straight quarterly loss.

The tentative agreement cuts GM's long-term retiree health- care liabilities by about $15 billion and reduces the employee health-care expense by about $3 billion annually on a pre-tax basis, GM said in a statement today. The cash savings will be about $1 billion a year.

The net loss of $1.6 billion, or $2.89 a share, in the third quarter compared with net income a year earlier of $315 million, or 56 cents a share, Detroit-based GM said. Chief Executive Rick Wagoner said the company is also considering selling a controlling interest in its General Motors Acceptance Corp. finace unit to a strategic partner to return GMAC to an investment-grade rating. The loss extends GM's longest unprofitable streak in 13 years

Any kind of deal on health care ``would be a significant milestone, as it would mark growing recognition by all constituents in the industry that the health-care situation cannot persist indefinitely,'' Jonathan Steinmetz, an analyst at Morgan Stanley in New York, said in a note to investors on Oct. 14.

GM and the UAW have been negotiating for months on ways to lower GM's health-care bill. Wagoner identified the issue as a source of ``crisis'' in January and made reducing those costs his primary goal for the year.

GM initially hoped to cut $20 billion from the $61 billion it estimates it will have to pay in coming decades to cover health care and life insurance for UAW workers, retirees and dependents. In an interview last week, UAW President Ron Gettelfinger described cuts that deep as untenable.

Blue Collar

GM has 106,000 active blue-collar workers and 321,000 retirees and surviving spouses in the U.S.

Brian Johnson, an equity analyst at Sanford C. Bernstein & Co. in New York, said last week if GM can reduce its health-care and other labor costs by $1 billion per year, investors would react positively.

``$1 billion would be worth $2 a share to GM's net income,'' said Johnson, who has a ``buy'' recommendation on GM's shares based on an anticipated restructuring.

UAW President Gettelfinger said on Oct. 14 that the two sides were making progress in talks on health-care expenses. GM says health care adds more than $1,500 to the cost of each U.S. vehicle it sells.

Auto Sales Decline

GM, which tried to attract customers by offering the same prices employees get, sold 7.2 percent fewer cars and light trucks in the U.S. during the third quarter while Toyota Motor Corp. and other Asian rivals gained market share. GM has been trying to counter its shrinking sales by reducing costs.

``Whether they lose a dollar or two or three, nobody really cares,'' Goldman Sachs analyst Robert Barry, who has an ``underperform'' rating for GM shares, said before the announcement. ``They had to have a huge promotion to sell vehicles, and health-care costs are going up. The eyes are on the future and what they're going to do.''


The average third-quarter estimate of 17 analysts in a Thomson Financial survey was for a loss of 87 cents a share, excluding some gains and costs. The estimated loss ranged from 13 cents a share to as much as $1.87.

After first-half losses of $1.39 billion, Wagoner, 52, is under pressure to raise money by selling a stake in the automaker's General Motors Acceptance Corp. finance unit.

``We feel now, with the more dire financial situation of General Motors, that there's a far greater impetus for something to happen'' with GMAC, Standard & Poor's analyst Scott Sprinzen said in an interview last week.

Sprinzen said the sale of a stake in GMAC is more likely since the Oct. 8 bankruptcy of Delphi Corp., GM's largest supplier and former unit.

GM earlier this month agreed to sell its holdings in Fuji Heavy Industries Ltd., the Japanese maker of Subaru cars, for about $737 million. In August, the automaker said it would sell a 60 percent stake in GMAC's commercial mortgage unit to an investor group that includes Kohlberg Kravis Roberts & Co., without giving a transaction value.

Standard & Poor's last week rated GMAC debt higher than GM's for the first time on expectations that Delphi's bankruptcy increases the chance for a sale of part of the finance unit. GM's debt, already rated below investment grade, was reduced another level by S&P to BB.

Joseph Amaturo, a senior auto analyst at Calyon Securities USA Inc. in New York with an ``add'' rating on the automaker, estimated that GM could raise $8 billion to $10 billion by selling GMAC's mortgage unit.


Delphi's bankruptcy also raises the possibility that GM may have to assume billions of dollars of the supplier's pension liabilities.

``The Delphi situation made it fairly clear that GM needs to get the cost structure in line,'' said analyst Kevin Tynan at Argus Research in New York. He rates the automaker a ``sell.''

Offers of employee-price discounts for all buyers didn't halt GM's market-share decline. The company's U.S. sales rose in June and July, then tumbled the next two months. The slide in sales of sport-utility vehicles accelerated as U.S. gasoline prices surged last month because of damage to oil refineries by Hurricanes Katrina and Rita. U.S. sales of GM's Chevrolet Tahoe SUV plunged 56 percent in September and 27 percent for the quarter.

Moving Product

``Their two biggest problems are with the union and market share,'' said Mirko Mikelic, a senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, who oversees $14 billion in bond investments. ``They're just trying to move as many vehicles as they can to cover those high fixed costs even if they have to sell them at a loss.''

Billionaire investor Kirk Kerkorian last week raised his stake in GM to 9.9 percent from 9.53 percent. Kerkorian said on Sept. 21 that he might seek at seat on GM's board. Amaturo said he expects Kerkorian to pressure GM to announce a restructuring plan unless the automaker shows progress in cutting costs, raising cash and increasing vehicle sales.

``We expect Kerkorian to grow less patient with GM's management plan and turn up the heat in the near term,'' Amaturo said.

· Registered
612 Posts
its good to see that the UAW are willing to work with them to benifit both of them. GM is not out of the fire yet, but i forsee them undergoing major restructuring and maybe killing off a nameplate or 2. the good thing is that the actual quality of GM vehicles has been going up drastically.

· Founder
7,403 Posts
Discussion Starter · #3 ·
I agree, they are making some great cars now, its just that their operating costs are too high. They can't sell the cars at competitive prices and make money. This healthcare cost deal is a huge piece to the puzzle of the "legacy costs" that they are hamstrung with.
1 - 3 of 3 Posts
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.