GM Has Deal With Union to Cut Health-Care Costs, Posts Net Loss
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 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. The lure of employee- price discounts waned and the rising cost of fuel reduced demand for some of GM's most profitable models. 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 healthcare 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. Chief Executive Rick 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.
What bothered me about this?
Well, turns out that last night I was watching "NOW" on PBS-U (fine show, even finer network). Remember how Delta and Northwest Airlines both filed bankruptcies last month, citing the blooming pension liabilities it had to its retirees?
Well, Delta lost something on the order of $5billion last year. It's unfunded pension liability is around $10 billion.
Northwest came in around half that, as I recall.
GM has a $31 billion unfunded pension liability.
I'll try not to bore you with details of ERISA and how this could happen, suffice it to say that a little accounting magic, and what should have been a funded annuity to ensure that these payments could be made, was not.
And it will be up to the Federal Government (in the form of the Pension Benefit Guaranty Corporation) to make good on these billions, possibly trillions of dollars of payments.
You see, thru the magic of the time-value of money, that $31 billion dollars is not what will have to be paid out. That's what GM would have to deposit now, right now, to make sure all the employees currently in the pension plan would receive the full amounts promised them. Likely, altho I don't have actuarial tables in front of me, and therefore I'm merely guessing, that $31 billion would probably double eveery ten years, and then slowly diminish as the last remaining employee covered by pensions dies off.
And that's presuming GM has switched to 401(k) plans, which are defined contribution (as opposed to a defined benefit plan, like a pension) plans. The unions may not have allowed that to happen.
So what does all this mean?
It means that, between the health care coverage and the pension defaults, corporations are reneging on the social contract they have with their employees: you give us a fair day's work, and we'll take care of you now, and when you retire.
Damnable thing is, corporations have an enormous advantage when it comes to this contract, and now they are starting to abuse that power.