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A landmark deal today in the auto industry. General Motors reached an agreement with the United Auto Workers to reduce the company's health-care costs. Analysts say it is crucial step toward making GM competitive and profitable, but as Jerome Vaughn of Detroit Public Radio reports, the world's largest automaker is not out of the woods.
JEROME VAUGHN reporting:
The negotiations started last spring, with General Motors looking for a way to cut its staggering health-care burden for employees and retirees. GM claims those costs will reach nearly $6 billion this year alone. The new deal with the United Auto Workers union reportedly reduces liabilities for retirees by about $15 billion and saves another $3 billion for current GM employees, says General Motors CEO Rick Wagoner.
Mr. RICK WAGONER (CEO, General Motors): ...which, to my memory, would be the single-biggest cost reduction that we've probably been able to announce on a single day in the history of GM. So it's a significant move, and the cash that comes along with that is very important, as well.
VAUGHN: So far many details of the deal still haven't been made public. For example, there's no word on how much more GM's workers and retirees will have to pay for their health-care coverage. The company isn't talking until union members can review the plan. UAW rank-and-file still have to ratify the agreement. It would affect 750,000 active employees, their dependents, retirees and surviving spouses.
Mr. DAVID COLE (Director, Center for Automotive Study): I think what we heard this morning is very significant, of real substance and indicates that GM is preparing to be a much stronger company than it was yesterday.
VAUGHN: That's David Cole, director of the Center for Automotive Study in Ann Arbor, Michigan. He says General Motors, as well as Ford and Chrysler, face substantial financial burdens that Japanese automakers like Toyota and Nissan don't have.
Mr. COLE: The Big Three have roughly a 2,000 to $2,500 cost penalty vis-a-vis their international competition. The largest single factor in that cost penalty is health care. That, played out over time, is sufficient to kill the traditional industry. And what we have seen here is a very strong frontal attack on that cost problem.
VAUGHN: General Motors has yet to earn a profit this year, posting losses of more than a billion dollars in the first six months of the year. The health-care deal reached with the UAW is just part of the company's overall plan to prop up its bottom line. GM officials say the company will close additional vehicle assembly and parts plants over the next three years to bring its production capacity more in line with consumer demand. Those moves will also mean a loss of as many as 25,000 jobs.
The automaker is also considering the sale of a controlling interest of General Motors Acceptance Corporation, its finance arm. GMAC has steadily produced profits for the world's largest automaker, even when profits from other divisions were non-existent. But CEO Rick Wagoner says there's even more to GM's plan of resurgence.
Mr. WAGONER: We're not relying just on cost reductions. We've got a lot of progress going very intently on the revenue side of the business, and I outline things like our focus on product and our marketing strategy. And so we're confident, as we drive and get these implemented, we'll get back to a profitable position.
VAUGHN: Even as General Motors looks at solving one problem, it may face another if it inherits more liabilities from Delphi, the bankruptcy parts maker of which GM is the former parent company. As GM absorbs billions of dollars' worth of Delphi's pension costs, it could more than offset the gains from today's UAW deal. For NPR News, I'm Jerome Vaughn in Detroit.
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