Gm to slash health care costs

В рубриках: Automobile | Автор: admin 16.11.2010

Gm to Slash Health Care Costs

In its annual report filed last Thursday, General Motors Corp. stated its intention to significantly slash their employees’ health care costs. However, the report added that the cost-cutting push could be hamstrung by an agreement that it struck with the union in 2005. It also does look like the threat of a strike is a risk to GM’s comeback, the report further shared.

In regards to the report, the automaker acknowledged that ‘ineffective accounting methods resulted to repeated restatements of its earnings over the previous years and were in place through the end of 2006’. GM said, those mistakes could further strain the company if the ongoing federal investigations into its accounting lead to fines or other penalties.

The report arrived a day after the automaker released its last quarter report and full-year financial analysis for the previous year. The company said that the earnings report was delayed because it is sorting out accounting issues starting from 2002.

As Volvo fuel injectors continue to boost the performance of the Volvos but GM’s performance is ominously groping in the dark. Earlier, the automaker filed a 200-page report to the Securities and Exchange Commission. It detailed a bunch of other potential risks to GM’s turnaround. The risks include fluctuating gasoline prices, auto parts suppliers, and workforce issues.

The report also laid down GM’s key goals for 2008 in accordance with its restructure plan. In order for the plan to be realized, the automaker has to recover first from more than the $12 billion loss it reported over the past two years.

“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 its health care obligations for retired workers stood at $68 billion at the end of 2006 and could continue to grow. In the United States, the company spent $4.8 billion on health care in 2006. This year, health care cost is expected to plunge to $4.7 billion.

In addition, the 2005 deal could preclude GM from making structural changes in the way retiree health care is funded. This statement is found in the filing. The deal included a class-action lawsuit settlement, which means that any major changes to retiree health care likely would require court approval.

“The retiree health cuts last year should not be read as an indication of more cuts to come, but in fact restrict the company’s and union’s degrees of freedom in 2007 discussions,” Lehman Brothers analyst Brad Johnson said in a research note on Thursday.

GM also said that it is putting in place contingency plans should a strike result from this summer’s contract talks with the UAW. “Any UAW strikes, threats of strikes, or other resistance in connection with the negotiation of a new agreement could materially adversely affect our business,” according to the filing.

Other concerns for 2007 include the rising cost of raw materials, rising fuel costs, potential failure of the company’s sales strategy, negotiations with bankrupt parts supplier Delphi Corp. and the volatility in the supplier base.

“They’ve got to honestly portray worst-case scenarios,” said labor expert Harley Shaiken of the University of California-Berkeley. “And they know the UAW is reading these filings. It’s a combination of GM having a responsibility to stockholders and sending a message.”

Shaiken added, “They’re a bit startling [pertaining to the accounting revelations]. They’re one of the largest corporations in the world and they look like they’re doing their tax returns for the first time. I don’t think it’s fatal, but it’s a headache they don’t need right now.”

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