GM job costs to plummet
Sharon Terlep / The Detroit News
General Motors Corp. says its new labor pact with the UAW will slash labor costs by allowing the automaker to eventually replace up to three-quarters of veteran factory workers with lower-paid new hires who won't get costly retirement benefits promised to their predecessors.
Speaking on Monday for the first time about the contract, GM said 56,000 of 74,500 blue-collar workers could retire by 2011.
Many replacements will fall into a second-tier of lower-paid jobs created by the deal. They'll start at $14 an hour -- half the current average wage -- doing jobs outside of core assembly line work, from operating a fork-lift to maintenance to moving finished vehicles.
About 16,000 jobs are considered noncore, but GM said the contract allows it to shift significantly more to the lower tier as workers retire.
Even if new hires move into higher-paying jobs, GM won't pay medical bills in retirement, instead contributing to a 401(k) plan.
The changes, which will likely be adopted in some form by Chrysler LLC and Ford Motor Co., will all but bring an end to lifelong health care and rich starting wages guaranteed for generations.
"The agreement enables appropriate employment levels and introduces wage and benefit structures that support efforts to close the manufacturing cost gap here in the U.S.," GM Chairman Rick Wagoner said during a conference call with Wall Street analysts to explain the deal. "I'd characterize the agreement as very fair for our employees and retirees."
GM said the landmark labor deal, reached Sept. 26 after weeks of intense marathon bargaining and a two-day national strike, will amount to billions of savings over the next four years.
GM to save on benefits
The automaker, which lost a combined $12 billion in 2005 and 2006, set out this year to cut a $25- to $30-an-hour wage-and-benefit gap with foreign rivals led by Toyota Motor Corp. GM wouldn't say on Monday how far the deal went in closing that chasm, but Chief Financial Officer Fritz Henderson detailed areas where GM stands to save big.
A new worker hired into a lower-tier job will cost GM $25.65 in combined wages and benefits -- less than one-third of the $78.31 GM currently spends. Workers will have the opportunity to move into the higher paying jobs as they become available.
But even workers who move into the richer $28.12 an hour will cost the company far less than current employees.
That's because new hires will pay 15 percent of their health care costs while they're actively working, instead of the current 5 percent. And GM will contribute $1 for each hour worked into a 401(k) plan, rather than picking up costly medical bills for its future retirees.
GM, which has the oldest work force among Detroit's Big Three, will hire new workers as senior employees retire. The contract calls for another wave of buyouts to clear out veteran workers. GM says by 2011, 44,200 of its current workers will be retirement age and another 12,200 will be eligible for an early retirement.
Manufacturing expert Ron Harbor said the savings on retiree benefits go a long way in closing the labor-cost gap with foreign-based rivals. Getting more workers into the lower tier jobs is an added bonus.
"This could be a huge thing for GM," Harbour said. "The difference (between GM and foreign rivals) is the cost of retirees."
The labor costs savings come on top of up to $3.6 billion GM says it could save over the next four years by offloading $46.7 billion of retiree obligations to the union.
The UAW will take over retiree health care in the form of a union-run, company funded trust called a voluntary employees' beneficiary association, or VEBA.
GM will contribute $32 billion to the fund and, under the deal, the UAW is prohibited from seeking more money from GM for the VEBA or retiree medical benefits. The end result: GM's overall retiree obligations will shrink to $18 billion, one-quarter of the current tab.
The trust would begin covering retirees on Jan. 1, 2010, or at the time any appeals or court challenges are exhausted, the company said. Once that happens, GM's only remaining retiree obligations will be to its salaried employees, non-UAW union workers and for life insurance benefits.
Time in jobs bank capped
The deal also allows GM to push many workers out of the so-called jobs bank, where laid-off employees receive nearly full pay and benefits. With a few exceptions, workers' time in the bank will be capped and they will be forced out if they turn down offers for other jobs. Under the old rules, workers in the jobs bank were only required to take a job that's in their line of work and within 50 miles of their old job.
UAW rank-and-file workers last week voted to ratify the deal, with about two-thirds in favor of the agreement.
In exchange for the concessions, GM promised new products for dozens of assembly and parts plants and agreed to hire 3,000 temporary workers at full wages and benefits. Workers will also get sizable bonuses in each of the contract's four years, starting with a $3,000 signing bonus in the first.
GM shares, which rose more than 15 percent since the tentative agreement was reached, fell $1.53, or 3.6 percent, on Monday.
Standard and Poor's ratings analyst Robert Schulz said in a report that the contract's benefits won't be realized until 2010.
"We view the new contract as favorable to GM compared with past agreements," he wrote. "We believe the contract will support GM's turnaround plan in North America."
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Print | posted on Tuesday, October 16, 2007 12:29 PM