GM offers workers up to $140K to leave
Severance packages available to 113,000 workers; deal also reached with Delphi to avoid labor dispute.
NEW YORK (CNNMoney.com) - General Motors is offering hourly workers as much as $140,000 each to leave the troubled automaker as it extends its push to cut labor costs and put an end to billions of dollars in losses.
But a person familiar with terms of the offer said that UAW members with at least 10 years of service at the world's largest automaker will get $140,000 if they give up the retiree health care coverage that has become a crippling burden for GM. Those workers will keep their accrued pension benefits.
Those with less than 10 years service will get $70,000 if they leave without the health care coverage.
Industry experts said that relatively few GM employees were likely to take the buyouts, though, since most of them are eligible for an alternative early retirement package announced Wednesday that would allow them to keep their health care coverage.
Some workers could receive more than $100,000 under the early retirement plan, and that could limit the cost-savings to GM, analysts said.
"It's a major step forward but it's certainly no where near all what they have to accomplish to turn North America around," said David Healy at Burnham Securities, who does not have a formal rating on the stock.
The company announced the early retirement package as part of long-awaited contract agreement with bankrupt auto parts maker Delphi and the UAW -- a deal seen as key to avoiding a crippling strike at the parts supplier.
Some analysts said GM's moves were not enough to change their view of the stock, and the stock barely edged higher in afternoon trading on the New York Stock Exchange.
Efraim Levy, an auto analyst at Standard & Poor's, reiterated his "sell" recommendation on GM stock after the announcement. "I don't look at it as a particular positive by itself," he said.
Levy said most workers know the value of the retiree health care plan at GM and will not forfeit that benefit. "I'm sure there are people who could use an immediate cash infusion, but I don't think it'll be a big percentage," Levy said. "I don't think I would take that deal."
He said most who do take it will have another source for health coverage, such as a spouses' health plan, or will be those who doubt GM's retiree health care plan will survive in the long run.
He also said the agreement with Delphi, while an important step to avoiding a strike there, also is not a final solution to the negotiations between the bankrupt auto parts maker and the union.
UAW President Ron Gettelfinger said that while the union leaders support the buyout and early retirement offers, they still have serious disagreements with Delphi.
GM lost $10.6 billion in 2005 and its executives have not said when they expect the company to return to profitability. They have said the agreement with Delphi as well as an agreement with the UAW to cut its own labor costs were keys to return to the black.
Getting GM, Delphi employees to retire
GM CEO Rick Wagoner, who's been under fire and recently took a 50 percent pay cut, said the agreement would help the automaker.
"We said we'd be working with UAW leadership to develop an accelerated attrition program that would help us achieve needed cost reductions as rapidly as possible, while at the same time responding to the needs of our employees," Wagoner said in a statement. "We are pleased that this agreement will help fulfill that important objective."
The top pay for a GM hourly employee is $27 an hour, but with benefits and future health care costs GM estimates that hour of work costs the company $73.73. The flat wage works out to about $56,000 a year before overtime, so those taking a $140,000 buyout would get about 2-1/2 years of pay in the lump sum.
GM has an incentive to offer buyouts and early retirement because of job guarantees for UAW members that run through September 2007. It announced plans in November to close a dozen plants and slash 30,000 jobs in North America, but without employees taking early retirement or the buyouts, GM will have to keep paying them almost their full salary.
GM also has contract obligations to the union members at Delphi, which it spun off in 1999. It said those costs could have gone as high as $12 billion, though last week it said the cost would likely be closer to the $5.5 billion pretax charge it took in the fourth quarter.
GM announced Wednesday it will take additional charges this year as part of the new offer.
Besides those contract obligations, GM had an incentive to help Delphi trim its labor costs to avoid a potentially crippling strike at the parts maker, which is still GM's largest supplier.
Delphi executives, who are seeking steep concessions and set a March 30 deadline for a deal, have threatened to go to the bankruptcy court to have its labor deals thrown out without an agreement. The union has threatened a strike if Delphi takes that step.
"An accelerated attrition plan will help enable the transformation of our U.S. manufacturing and support operations into a much more competitive cost base," Delphi Chief Operating Officer Rodney O'Neal said in a statement.
Delphi said it will keep talking to try to reach a pact with the UAW and other unions at Delphi. But the three-way agreement announced Wednesday could clear the way for those pacts.
S&P's Levy is among those who do not think there will be a strike at Delphi. "There's too much at risk not to reach an agreement," he said.
Under the early retirement offer, GM's eligible workers are being offered $35,000 to retire now. GM also will offer 13,000 Delphi employees with 30 years of service the same $35,000 to retire. And GM is also offering jobs at GM to 5,000 Delphi employees to help its former parts unit cut costs.
GM has 36,000 U.S. hourly employees with at least 30 years of service who are eligible for retirement. Another 27,000 are within three years of that threshold, according to GM.
The latter group will also get an early retirement offer of $30,000 to $36,000 a year as they accrue service. The GM and Delphi employees who take those retirement incentives will retain their health care coverage.
The company says the average GM hourly employee is 50.4 years old and has 24 years of service, so a majority of the U.S. hourly work force is within a couple of years of retirement and will probably not even have to weigh giving up their retiree health care coverage.
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