GM reduces long-term debts by $23B

[nadepalma]

Source: http://www.detnews.com/apps/pbcs.dll...608090406/1148

GM reduces debts by $23B
Automaker cuts its long-term pension and health care liabilities in attempts to trim costs.
David Shepardson / Detroit News Washington Bureau

WASHINGTON -- General Motors Corp. said Tuesday it had reduced its long-term pension and health care liabilities by $23 billion, part of the automaker's efforts to get a handle on its enormous legacy costs.

In its latest financial statement, GM's pension liability was reduced by $3.9 billion, or 4.4 percent to $85 billion as a result of an improvement in accounting assumptions used to calculate long-term obligations. It also reduced its health care liabilities by $19.3 billion to $62 billion.

The reduced obligations are due, in part, to the decision of 4,400 workers to take buyouts that paid them up to $140,000 to leave the company but limit any future pension obligations.

The company's savings also stemmed from retiree health care changes.

On March 31, a federal judge approved a plan to reduce GM's health costs for hourly retirees by $1 billion. All but the retired hourly workers with the smallest pensions are now paying monthly contributions, deductibles and co-payments for medical services up to a maximum of $370 a year for individuals and $752 for a family. Initially, GM had said the deal would only decrease its long-term obligations by $15 billion.

Kevin Reale, research director in the automotive practice at AMR, said the numbers were an improvement.

"Anything they can do to reduce the obligation is a bonus," Reale said. "They need to be able to shift more dollars to research and development to what they are paying for health care costs."

GM is the largest provider of private health care in the United States. It covers 1.1 million people, of which 530,000 are older than 60.

The company spent $5.3 billion in 2005 on health care. Its prescription drug costs alone were $1.9 billion in 2005, and it said earlier this year it expects its health care costs to soar to $7.4 billion by 2009.

GM has been able to cushion the financial blow through the use of a trust fund, which on June 30 had $18.4 billion.

The automaker withdrew $2 billion from the trust fund on July 31 to pay hourly-retiree health-care and life insurance. GM also withdrew $2 billion in the year.

GM has said it would reduce pension benefits for current U.S. salaried employees by freezing accrued benefits.

Beginning Jan., 1, GM will cap contributions to salaried retiree health care at the level of its 2006 expenditures.

In its filing Tuesday, GM said this may lead to "higher monthly contributions, deductibles, coinsurance, out-of-pocket maximums, and prescription drug payments. Plan changes may be implemented in medical, dental, vision, and prescription drug plans."

Last month, GM said it would take a $3.7 billion charge due to 34,400 early retirements and buyouts. The company will take a $300 million charge later this year to reflect health care costs due to the hourly employees' early retirements, GM spokeswoman Brenda Rios said.

Other disclosures

GM's plan to cut its annual costs by $6 billion was on schedule, though it had seen its shipping costs increase by $150 million this year, due largely to higher fuel costs.

GM renogiated its $5.6 billion unsecured line of credit and now has a secured $4.5 billion line of credit

[MrMax]

The noose loosens.

[W.A.F.U.]

Some savings is not enough. They need to push to bring healthcare and pension contributions in line with the rest of the industry.

[burningsquirrel]

^^^ +1.

[nadepalma]

Originally Posted by W.A.F.U.

Some savings is not enough. They need to push to bring healthcare and pension contributions in line with the rest of the industry.

No doubt, but having an expected $15 billion in savings turn out to be $23 billion is quite a feat. I'd still be looking ahead to the 2007 UAW contractual negotiations to see long(er) term relief before I start to pop the champagne, but this is certainly good news and GM should make sure it gets noticed by the critics in the press and Wall Street. Fact is that with the Renault/Nissan deal haning around Wagoner's head, any good news should be exploited to show that GM is, in fact, able to go it alone.

But that's just my opinion.

[mucker15]

another step in the right direction. Making some progress now before the launches of the new vehicles is very big imo. They have made gradual progress now if the new vehicles are as good as they look it should be a spring board for the General. In my cirlces people are starting to notice GM cars again.

[MOOSTOPHA]

i'm ready to see all of this good news trickle down to the dealership level. these new trucks have got to be a huge success. i'm sure they will be. they look awesome. we've got to have some "gotta have " vehicles to drive traffic. seeing vehicles like the sky and the solstice are encouraging. i run a chevy store. we need some hot vehicles to drive traffic. the hhr has done decent. we need more vehicles in this price range for sure. good luck GM. i for one have my livelihood riding on it.

[mucker15]

Originally Posted by MOOSTOPHA

i'm ready to see all of this good news trickle down to the dealership level. these new trucks have got to be a huge success. i'm sure they will be. they look awesome. we've got to have some "gotta have " vehicles to drive traffic. seeing vehicles like the sky and the solstice are encouraging. i run a chevy store. we need some hot vehicles to drive traffic. the hhr has done decent. we need more vehicles in this price range for sure. good luck GM. i for one have my livelihood riding on it.

A Camaro sure would fill the traffic need, cant wait to see them at Dealerships. Just bought a Chevy myself, a 2007 Trailblazer SS. In my opinion theres is really nothing to compare it to, the SRT8 Jeep was way more money and it cant tow anything . Better looks Better truck much better price. GM products have come a long way but I agree with you something to get them in the showroom so people could see for themselves is indeed needed. Do you by any chance know how many TB SS they are making for 07? just curious,

[kenman923]

It's sure a step in the right direction.

[Canyonaro]

Great news!

If they can actually shift this money back into design and development, then we will be in the right direction. It amazes me how nice the new models are after loosing so much for so long and trying to keep development in it's small budget. I only see it getting better, keep it up!

[tgagneguam]

Good news, though the longterm obligations still appear quite hefty.

...The automaker withdrew $2 billion from the trust fund on July 31 to pay hourly-retiree health-care and life insurance. GM also withdrew $2 billion in the year.

GM has said it would reduce pension benefits for current U.S. salaried employees by freezing accrued benefits.

Beginning Jan., 1, GM will cap contributions to salaried retiree health care at the level of its 2006 expenditures...

Shared pain? Indeed not.

[MrMax]

Originally Posted by W.A.F.U.

Some savings is not enough. They need to push to bring healthcare and pension contributions in line with the rest of the industry.

Since when is $23 billion "some" savings?

[zeobandit]

The news stays positive. All is good. GM is continuing to walk in the right direction!

[bjk]

Originally Posted by MrMax

Since when is $23 billion "some" savings?

It is just some savings when you still have a bill of 140 or so billion left. I you went to a resturant and get a bill for $160 and then the reduced it to $140 you would be happy but the bill is still large.

[MrMax]

Originally Posted by bjk

It is just some savings when you still have a bill of 100 or so billion left.

To a pessimistic mind. If I owed someone $100 and managed to get them to reduce what I owed by $23, that would be something to smile about. 23% is nearly a quarter of the burden. Which in GM's case, is $23 billion they can spend some place else.