GM pact to cut union retiree care costs

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The historic contract between General Motors Corp. and its labor union will reduce retiree health care costs by $47 billion and cut hourly labor costs for new union employees in half, the company revealed yesterday.

GM's agreement with the United Auto Workers creates a trust that will be responsible for 73 percent of the automaker's estimated $64 billion in future retiree medical expenses. The trust will assume GM"s liability for health care benefits for GM workers, retirees and their families over their lifetimes.

GM said yesterday it will contribute $32 billion to prime the new health care program. GM's negotiating committee and local union leaders gave unanimous support to the contract last month before it was ratified by 66 percent of the company's union workers.

The contract creates a two-tier wage and benefit system that pays lower wages and less-generous benefits to workers in the lower tier. Lower-wage workers won't receive medical benefits from GM after they retire; they will receive 401(k) funds while they are employed that they can use to pay for medical coverage after they retire.

GM said it intends to promote workers from the second tier to the higher-paying first tier as veteran workers retire. About 75 percent of workers would be eligible to retire by 2011, the company said.

For new hires, health care will be more expensive. Those workers will pay 15 percent of their health care premiums, while current workers will pay 5 percent. GM will no longer pay retirement health care benefits for newly hired workers.

The other two major U.S. automakers, Ford Motor Co. and Chrysler LLC, are expected to design health care retirement plans similar to GM's. However, they are likely to contribute much less to their programs than the $32 billion GM gave its employees.

Chrysler's retiree health care costs range from $17 million to $19 million for nonsalaried employees, and the company is considering contributing around $11 million to a health care fund for them, said Greg Gardener, an analyst at Harbour Consulting of Troy, Mich.

Meanwhile yesterday, UAW President Ron Gettelfinger said the union received "overwhelming approval" for its new contract with Chrysler.

About 25 percent of local union leaders opposed the agreement for varying reasons. Some balked because it does not offer job security to temporary workers, but the main gripe was the lack of guarantees to manufacture new products at Chrysler's U.S. plants when current models are phased out.

Bill Parker, UAW Chrysler National Negotiation Committee chairman, said he will tell union leaders to vote against the contract .