General Motors has said it will save more than $US3bn a year that can be put into new products and technology as a result of its its landmark deal with the United Auto Workers union.
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According to the Associated Press (AP)) the four-year deal, approved last week by GM’s UAW members, will transfer an estimated $46.7bn of retiree health care liability from the company to a union-run trust and also will pay lower wages to thousands of workers.
The Voluntary Employees Beneficiary Association (VEBA) that must be approved by federal courts would take over about 73% of the health care obligations from 1 January, 2010, leaving GM with $17.6bn in retiree health-care obligations, including costs for salaried employees and hourly workers who belong to other unions, AP said.
GM will contribute nearly $32bn to the VEBA, including $16bn transferred from an existing health-care trust and $2.5bn in upfront cash with $5.6bn in additional payments over 13 years. GM also will pay $5.4bn to the end of 2010, when the VEBA will take over responsibility for retiree health care, and will contribute a $4.4bn note convertible to 109 million shares, paying interest on the note, the report added.
Detailing the agreement, GM told the news agency it anticipates $2.8bn in VEBA-related savings in 2010 and $3.3bn in 2011, although the VEBA will drain $3.3bn in cash from the company in 2008 and $700m in 2009.
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By GlobalDataGM chief financial officer Fritz Henderson reportedly wouldn’t detail how the company would invest the savings but said it will significantly improve GM’s ability to invest in new products and technology.
The company also said the VEBA would reduce its health-care liability for UAW-represented hourly employees to between $6bn and $13bn in 2010.
The Associated Press noted that GM was seeking to reduce a gap of between $25 and $30 per hour in what it pays its US autoworkers in wages and benefits compared with what Toyota pays. Henderson reportedly wouldn’t say how much that gap was reduced by the new contract, but said the savings were “significant” and that GM expects to achieve more savings as employees retire and it offers a buyout plan for current workers.
GM also said that between 65% and 75% of its current workers would be eligible for retirement during the life of the contract, opening the door for thousands of new workers at the lower wage and benefit level, AP said, adding that new workers in both core and non-core jobs also would have a defined-contribution plan in place of company-funded health care upon retirement.
AP added that ,nder the contract, GM would institute a lower wage for some non-core, non-assembly employees and will switch all new recruits to a defined contribution retirement plan. GM reportedly estimated that more than 16,000 of its 74,000 hourly workers would be eligible for the non-core wages, which start at $14 per hour compared to $28 per hour for existing employees.
GM also said wages and benefits for its noncore workers would be $25.65 per hour, compared with $78.21 for existing GM assembly workers. Toyota pays US workers an estimated $48 per hour, the news agency noted.
Importantly, the contract also makes changes to the so-called ‘jobs bank’, which pays employees even when they’re not working, the Associated Press said. Under the contract, a laid-off employee who is offered a job within 50 miles (80km) of his or her old plant must take that job or be placed on leave without pay and benefits. Employees can refuse up to four job offers at plants further than 50 miles away before being placed on leave.
In exchange for the VEBA and other concessions, GM promised new products for 16 US assembly plants and said it would hire 3,000 temporary workers at full wages and benefits. Workers also get bonuses in each year of the contract, including a $3,000 ratification bonus, the Associated Press said.
