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Ford Retiree Deal Won't Suit GM, CEO Says

Mike Braddock, left, and David Kaszian check parts at a GM plant in Ohio. GM owes an estimated $20 billion to a retiree health fund; Chrysler owes $10 billion. Both firms must strike a union deal by March 31 to keep their U.S. loans.
Mike Braddock, left, and David Kaszian check parts at a GM plant in Ohio. GM owes an estimated $20 billion to a retiree health fund; Chrysler owes $10 billion. Both firms must strike a union deal by March 31 to keep their U.S. loans. (By Mark Duncan -- Associated Press)

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By Peter Whoriskey
Washington Post Staff Writer
Wednesday, March 18, 2009

When Ford and the United Auto Workers reached an agreement last month on retiree health care, it was touted as a model for the industry, one that could save the companies from faltering under the multibillion-dollar burden.

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But General Motors chief executive G. Richard Wagoner Jr. yesterday emphasized that the Ford approach does not suit GM.

"The Ford program does not meet our needs at all," he told reporters at a Washington breakfast. "It probably works for Ford, it doesn't work for us. We need to do something different."

How to handle retiree health care has emerged as one of the key challenges facing the auto companies.

GM owes an estimated $20 billion to a retiree health fund; Chrysler owes $10 billion.

Under the terms of their loan agreement with the federal government, each company must attempt to strike a union deal by March 31 that would allow them to pay half of their retiree health obligations in stock rather than cash.

Ford's agreement to pay half its retiree health costs in stock was viewed as a potential framework for GM and Chrysler. But there are significant differences between the Ford deal and the type of agreement GM and Chrysler can make.

"Because of demographics, because of history, et cetera, we can have some different needs," Wagoner said. "So what works for Company A doesn't always work for Company B."

One of the key differences is that under the Ford agreement, the company gives up the right to pay its obligations in stock under certain circumstances.

For example, Ford loses the option to pay in stock when the stock price dips below $1 or when it receives a note from its auditors stating it is at risk of no longer remaining a "going concern."

GM has already received such a warning from its auditor.

Moreover, the relative burden of retiree health-care costs is different for GM and Ford.


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