GM reduces debts by $23B
Wednesday, August 09, 2006
GM reduces debts by $23B
Automaker cuts its long-term pension and health care liabilities in attempts to trim costs.
David Shepardson / Detroit News Washington Bureau
WASHINGTON -- General Motors Corp. said Tuesday it had reduced its long-term pension and health care liabilities by $23 billion, part of the automaker's efforts to get a handle on its enormous legacy costs.
In its latest financial statement, GM's pension liability was reduced by $3.9 billion, or 4.4 percent to $85 billion as a result of an improvement in accounting assumptions used to calculate long-term obligations. It also reduced its health care liabilities by $19.3 billion to $62 billion.
The reduced obligations are due, in part, to the decision of 4,400 workers to take buyouts that paid them up to $140,000 to leave the company but limit any future pension obligations.
The company's savings also stemmed from retiree health care changes.
On March 31, a federal judge approved a plan to reduce GM's health costs for hourly retirees by $1 billion. All but the retired hourly workers with the smallest pensions are now paying monthly contributions, deductibles and co-payments for medical services up to a maximum of $370 a year for individuals and $752 for a family. Initially, GM had said the deal would only decrease its long-term obligations by $15 billion.
Kevin Reale, research director in the automotive practice at AMR, said the numbers were an improvement.
"Anything they can do to reduce the obligation is a bonus," Reale said. "They need to be able to shift more dollars to research and development to what they are paying for health care costs."
GM is the largest provider of private health care in the United States. It covers 1.1 million people, of which 530,000 are older than 60.
The company spent $5.3 billion in 2005 on health care. Its prescription drug costs alone were $1.9 billion in 2005, and it said earlier this year it expects its health care costs to soar to $7.4 billion by 2009.
GM has been able to cushion the financial blow through the use of a trust fund, which on June 30 had $18.4 billion.
The automaker withdrew $2 billion from the trust fund on July 31 to pay hourly-retiree health-care and life insurance. GM also withdrew $2 billion in the year.
GM has said it would reduce pension benefits for current U.S. salaried employees by freezing accrued benefits.
Beginning Jan., 1, GM will cap contributions to salaried retiree health care at the level of its 2006 expenditures.
In its filing Tuesday, GM said this may lead to "higher monthly contributions, deductibles, coinsurance, out-of-pocket maximums, and prescription drug payments. Plan changes may be implemented in medical, dental, vision, and prescription drug plans."
Last month, GM said it would take a $3.7 billion charge due to 34,400 early retirements and buyouts. The company will take a $300 million charge later this year to reflect health care costs due to the hourly employees' early retirements, GM spokeswoman Brenda Rios said.
You can reach David Shepardson at (202) 662 - 8735 or dshepardson@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
Other disclosures
GM's plan to cut its annual costs by $6 billion was on schedule, though it had seen its shipping costs increase by $150 million this year, due largely to higher fuel costs.
GM renogiated its $5.6 billion unsecured line of credit and now has a secured $4.5 billion line of credit
GM reduces debts by $23B
Automaker cuts its long-term pension and health care liabilities in attempts to trim costs.
David Shepardson / Detroit News Washington Bureau
WASHINGTON -- General Motors Corp. said Tuesday it had reduced its long-term pension and health care liabilities by $23 billion, part of the automaker's efforts to get a handle on its enormous legacy costs.
In its latest financial statement, GM's pension liability was reduced by $3.9 billion, or 4.4 percent to $85 billion as a result of an improvement in accounting assumptions used to calculate long-term obligations. It also reduced its health care liabilities by $19.3 billion to $62 billion.
The reduced obligations are due, in part, to the decision of 4,400 workers to take buyouts that paid them up to $140,000 to leave the company but limit any future pension obligations.
The company's savings also stemmed from retiree health care changes.
On March 31, a federal judge approved a plan to reduce GM's health costs for hourly retirees by $1 billion. All but the retired hourly workers with the smallest pensions are now paying monthly contributions, deductibles and co-payments for medical services up to a maximum of $370 a year for individuals and $752 for a family. Initially, GM had said the deal would only decrease its long-term obligations by $15 billion.
Kevin Reale, research director in the automotive practice at AMR, said the numbers were an improvement.
"Anything they can do to reduce the obligation is a bonus," Reale said. "They need to be able to shift more dollars to research and development to what they are paying for health care costs."
GM is the largest provider of private health care in the United States. It covers 1.1 million people, of which 530,000 are older than 60.
The company spent $5.3 billion in 2005 on health care. Its prescription drug costs alone were $1.9 billion in 2005, and it said earlier this year it expects its health care costs to soar to $7.4 billion by 2009.
GM has been able to cushion the financial blow through the use of a trust fund, which on June 30 had $18.4 billion.
The automaker withdrew $2 billion from the trust fund on July 31 to pay hourly-retiree health-care and life insurance. GM also withdrew $2 billion in the year.
GM has said it would reduce pension benefits for current U.S. salaried employees by freezing accrued benefits.
Beginning Jan., 1, GM will cap contributions to salaried retiree health care at the level of its 2006 expenditures.
In its filing Tuesday, GM said this may lead to "higher monthly contributions, deductibles, coinsurance, out-of-pocket maximums, and prescription drug payments. Plan changes may be implemented in medical, dental, vision, and prescription drug plans."
Last month, GM said it would take a $3.7 billion charge due to 34,400 early retirements and buyouts. The company will take a $300 million charge later this year to reflect health care costs due to the hourly employees' early retirements, GM spokeswoman Brenda Rios said.
You can reach David Shepardson at (202) 662 - 8735 or dshepardson@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
Other disclosures
GM's plan to cut its annual costs by $6 billion was on schedule, though it had seen its shipping costs increase by $150 million this year, due largely to higher fuel costs.
GM renogiated its $5.6 billion unsecured line of credit and now has a secured $4.5 billion line of credit
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