Detroit – General Motors Corp., under mounting pressure to turn around its business after losing nearly $3 billion in the first nine months of the year, announced a tentative agreement with the United Auto Workers on Monday that will help lower its spending on health care for workers and retirees.
GM, the world’s largest automaker, said it lost $1.6 billion in the third quarter, or $2.89 per share, compared with a profit of $315 million, or 56 cents a share, a year ago. The loss included charges of $861 million for restructuring and lower asset values in North America and Europe.
Prompted by its deteriorating credit rating, GM also said it may sell a controlling interest in its profitable finance arm, General Motors Acceptance Corp., despite the boost GMAC is giving to the automaker’s bottom line.
GM has been suffering from declining U.S. market share, rising costs for materials like steel and a drop in sales of sport utility vehicles, the company’s longtime cash cows. It cut production by 20 percent in the first three quarters of this year, hurting profits.
The carmaker also faces huge pension-cost issues in the years ahead that some analysts said could push it into a bankruptcy reorganization. But for the day, at least, investors saw the bright side of GM’s outlook. Its shares rose $2.11, or 7.5 percent, to close at $30.09 on the New York Stock Exchange. They gained 12 percent earlier in the day and have traded in a 52-week range of $24.67 to $42.22.
GM vice chairman and chief financial officer John Devine said the tentative agreement on health care would reduce GM’s retiree health-care liabilities by about 25 percent, or $15 billion, over a seven-year period. It would cut GM’s annual employee health-care expenses by about $3 billion on a pretax basis. Cash savings are estimated at around $1 billion a year.
GM pays for health care for 750,000 U.S. hourly employees, retirees and their dependents. The company expects to spend $5.6 billion on health care this year. GM’s UAW members pay 7 percent of their health-care costs.
