General Motors Corp. moved closer this weekend to winning an agreement with the United Auto Workers to cut health care costs, a deal that could shore up the automaker's deteriorating financial condition.
An agreement could blunt the impact of GM's third-quarter earnings, which the company is expected to release today. Analysts expect another grim report, following GM's loss of $2.1 billion in the first half of the year.
G. Richard Wagoner Jr., GM's chief executive, has struggled this year to put in place a strategy to repair GM's financial performance. Wagoner took control of North American operations in the spring, sidelining a slew of other executives and putting his job on the line to deliver a turnaround. A health care agreement could ease pressure on him. GM's board of directors has been pushing for UAW concessions.
Wagoner has struggled to turn around the North American division. He announced a plan this spring to cut jobs, close plants and significantly trim the company's health care expenses, which are expected to reach $5.6 billion this year. GM pays the health care costs for 1.1 million workers, retirees and family members, making it the nation's largest single provider of health care. Wagoner has called on the UAW to agree to concessions, but the union has strongly questioned whether cuts are necessary.
Paul Krell, a spokesman for the UAW, said the union and GM continued work yesterday to complete an agreement. He said the union continued what he characterized as constructive talks throughout Sunday.
On Friday, the UAW sent an e-mail to its local leaders saying that "we reached a point in the talks where an agreement is possible," Krell said. Also on Friday, UAW President Ronald A. Gettelfinger said in an interview that the union was not working under a deadline to complete negotiations with GM. A GM spokesman declined to comment on the discussions.
Hourly workers at GM have no deductibles and pay no monthly premiums but do have nominal co-payment charges. Overall, they pay about 7 percent of their health care costs; the national average is about 34 percent. GM's salaried workers pay about 27 percent of their costs. As part of the talks, GM aims to narrow the gap.
GM has complained that rising health care and pension costs weigh on the company's bottom line. In European countries and in Japan, the home of major competitors, workers are covered by publicly funded health care programs. In addition, foreign automakers with plants in the United States typically have a younger workforce and few retirees. The UAW has failed to organize those workers. The UAW has repeatedly called for national health care.
GM also is grappling with the reverberations of a Chapter 11 filing for bankruptcy protection by Delphi Corp., GM's largest supplier. Like GM, Delphi has been pressing the UAW for cuts in the company's bill for worker health care. Robert S. Miller Jr., Delphi's chief executive, has said GM faces a bankruptcy of its own if the automaker fails to win health care concessions.
Kevin Tynan, an analyst with Argus Research Corp. in New York, said GM needs even deeper cuts to wages and health benefits than it is asking of the union. Even if the UAW agreed to rather major cuts, the financial impact would not be sufficient, he said. "What they need, the UAW would never agree to," Tynan said. "I think there's a serious bankruptcy risk."
GM has big problems. Demand for large sport-utility vehicles, once a cornerstone of industry profit, continues to erode. The climb in gas prices has caused people to opt for smaller, more fuel-efficient SUVs and passenger cars -- segments dominated by foreign competition. GM is spotlighting its fuel-efficient passenger cars and is rushing to bring out SUV and truck models that get better fuel economy than current models.