Saturday, March 17, 2007

GM to Approach Unions for Concessions

GM to Approach Unions for Concessions
AP Business Writer

DETROIT — General Motors will seek relief from its whopping $68 billion post-retirement employee health care obligation in contract talks with the United Auto Workers union, according to an annual report filed with federal regulators.

In the filing Thursday with the U.S. Securities and Exchange Commission, General Motors Corp. said health care is its largest competitive disadvantage, and the burden could grow on a global basis.

The world's largest automaker also said it has determined its internal financial controls are ineffective and that it is working to fix them. It has said previously that federal authorities are investigating its financial reporting.

The comments came only a day after GM's delayed release of financial results for the fourth quarter and full year 2006. The earnings report was delayed as it sorted through accounting issues dating to 2002.

GM told the SEC that it spent $4.8 billion on health care in the U.S. last year, and that is expected to drop only slightly to $4.7 billion this year.

"We must continue to make structural changes to reduce our U.S. health-care cost burden," the company's report said.

GM said it needs to continue to reduce structural and material costs, and its production must become more efficient in order to return to profitability. But it said restrictions in labor agreements could limit cost savings.

"Our current collective bargaining agreement with the UAW will expire in September 2007, and we intend to pursue our cost-reduction goals vigorously in negotiating the new agreement," the company said, adding that a UAW strike or threat of a strike could hamper efforts to cut costs.

GM said it provides extensive pension and retiree health care benefits to more than 400,000 retirees and surviving spouses in the U.S.

In the filing, the company pointed out that the UAW agreed to retiree health-care cost sharing in 2005 that reduced its post-retirement health care obligations by $17 billion, and it capped salaried retiree health care spending levels effective in January.

But Lehman Brothers analyst Brian Johnson said in a note to investors that the 2005 agreement eliminates GM's ability to change retiree health care benefits because it remains in effect until 2011.

A challenge to the agreement remains in a federal appeals court, and Johnson said any new agreement would need court approval, which he said is unlikely.

A UAW spokesman declined to comment on the filing. GM spokesman Dan Flores said health care costs remain under discussion with the union.

"We are looking at a variety of alternatives to address the health care burden. We aren't going to speculate on those options we are exploring, and we are working with our unions to develop solutions together," he said.

On Wednesday, Detroit-based GM reported a 2006 fourth-quarter net profit of $950 million, but the company still lost $2 billion for the year. It also lost $10.4 billion in 2005, and is in the midst of shedding thousands of jobs and closing plants to shrink its factory capacity so that it can compete with Asian automakers, mainly Toyota Motor Corp.

Also in Thursday's filing, GM said it has received subpoenas from the SEC and a federal grand jury investigating its financial reporting.

The investigations include GM's financial reporting for its pension and other post-retirement employee benefits and its transactions with Delphi Corp., GM's former parts operation that was spun off as a separate company.

GM said it is cooperating with the government in the investigations.

"A negative outcome of one or more of these investigations could require us to restate prior financial results and could result in fines, penalties or other remedies being imposed on GM," the filing said.

The company detailed federal investigations into its transactions with Delphi and other suppliers in its 2005 annual report filed last year.

The filing said GM has continued to improve its internal controls, but if it can't fix them permanently, "It may adversely impact our ability to report our financial condition and results of operations in the future accurately and in a timely manner."

Earlier this year, GM said it had hired outside financial advisers to help restructure its corporate controller's office.

Peter Henning, a former SEC attorney who teaches at Wayne State University Law School in Detroit, said the GM filing has standard accounting language that is a result of the Sarbanes-Oxley law, enacted in 2002 in response to the wave of corporate scandals.

The required language, which deals mostly with complicated tax accounting, sounds more ominous than it really is, Henning said.

"It shouldn't be a significant concern for investors because it's more on the reporting side and not on the recording of transactions," he said.

But he said GM's problems have persisted and need to be fixed.

"If it continues for a significant period of time, then it becomes a real concern that they are not able to handle these transactions and they shouldn't be engaged in them," he said.

GM shares were traded down 87 cents, or 2.88 percent, Thursday on the New York Stock Exchange to close at $29.38


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