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Jun 14, 2005 | 04:41 PM

MrFatbooty

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GM health benefits cutbacks imminent

United Auto Workers officials are delivering a tough message at union halls around the country -- hourly workers with General Motors Corp. should prepare to pay significantly more for health care coverage.

"The writing's on the wall," said Dave Peterson, president of Local 31 in Fairfax, Kan. "Sooner or later we're going to be faced with not enjoying the level of benefits we've currently got. It's going to be sooner than we'd like."

The big question is whether the changes will be forced by GM or come as the result of ongoing negotiations with the UAW. According to several union officials, GM has said it needs to reach an agreement to lower its ballooning health care costs by the end of this month.

Without a deal, GM has indicated it could take unilateral actions to reduce employee health care expenses, which will grow to $5.6 billion this year -- or $1,500 for every vehicle it makes.

UAW spokesman Paul Krell declined to comment on what he called GM's "internal deadline." GM spokespeople have declined to comment on whether the automaker has issued an ultimatum on health care.

Under an existing national labor agreement, GM has some latitude to raise out-of-pocket health care expenses for current and retired workers, according to labor experts and analysts.

While it's too early to say how deep the cutbacks will be, union officials are preparing workers for some reduction in their top-notch health coverage. Over the weekend, members of UAW Local 652 in Lansing were told to expect increases to co-payments, deductibles, premiums or other out-of-pocket medical expenses, although no specifics have been revealed.

"We didn't try to hide it," said Local 652 President Chris "Tiny" Sherwood, who represents 1,800 workers in Lansing. "But it's like pouring salt in a wound. They weren't exactly jumping up and down and applauding."

GM is pressing the UAW for concessions as it faces its worst financial crisis in more than a decade. The company lost $1.1 billion in the first quarter of this year.

Top officials from GM and UAW have been in negotiations for weeks over health care benefits. The UAW has made clear that any changes must be made within the framework of the labor agreement that expires in September 2007.

The talks will be closely watched by GM's crosstown rivals, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group, who are likely to press for any concessions GM is able to negotiate.

Some workers say they won't stand for unilateral cuts by GM.

"That would be a big mistake," said Oscar Bunch, president of UAW Local 14 in Toledo. "Remember Flint. It would be a drastic mistake."

In 1998, workers at a GM Flint metal fabricating plant and a Delphi parts plant went on strike for 53 days, shutting down the automaker's North American operations.

"Some members got up and said they won't be building cars," Eldon Renaud, president of Local 2164 in Bowling Green, Ky., said after briefing some members on GM's plans.

Some UAW members said they don't support any reduction of health care coverage. "Don't touch it," said Robert Johnson, a member of UAW Local 652 who works at GM's Lansing Grand River Cadillac plant. "I don't want to compromise on anything."

Johnson, a GM employee for 27 years, said he'd rather see a program like legal services cut. But Bill Price, who has been placed in GM's "jobs bank" now that his production job has been cut, said he'd "be willing to pay $20 for an office visit. What's good for GM is good for us."

In Toledo, Bunch said the pressure to come up with a negotiated solution is strong, but he wonders whether raising co-pays will make a dent in GM's giant health care bill.

"In 2003, we went to higher co-pays only to have that eaten up the first year by inflation," Bunch said.

Financial analysts also are skeptical about how much GM could save without more sweeping reforms.

GM wants to close the gap in health coverage between its 111,000 U.S. hourly workers and 39,000 salaried workers. Hourly employees pay 7 percent of their annual health care costs, on average, while salaried workers kick in 27 percent.

By instituting health care parity among all employees, GM "could save $2,500 per person and $300 million (per year) overall," Rod Lache, an analyst who follows the auto industry for Deutsche Bank, said in a report released Monday. "Unfortunately this equates to less than one year's health care inflation."

Union leaders are urging that health care benefits for retirees should not be touched, although the potential savings could be significant. About 1.2 million people, including 340,000 UAW retirees, are covered by GM health care coverage. Almost half of the automaker's active hourly work force will be eligible to retire within the next five years.

GM Chairman and CEO Rick Wagoner told shareholders at the automaker's annual meeting last week that he is committed to lowering health care costs.

"What happens if we can't reach agreement with the UAW on this matter promptly? Well, I don't believe that it serves a useful purpose to speculate on that," Wagoner said. "Let me just emphasize that our very strongly preferred approach is to do this in cooperation with the UAW, because we're convinced that is the best way for our employees, our stockholders, all our constituents."

But Wagoner added that "either way, it is crystal clear that we need to achieve a significant reduction in our health care cost disadvantage, and to do so promptly."

At a meeting last week with GM and Delphi Corp. union officials, UAW Vice President Richard Shoemaker reiterated a vow not to reopen the labor contract. But he indicated the union is willing to work within the agreement to give GM some relief, according to union officials who attended the meeting.

The approximately 100 local union officials at the meeting informally voted to back Shoemaker's efforts to continue negotiating with GM -- a move that helped push GM stock up 8.5 percent Friday. GM shares slipped 6 cents or 0.2 percent to $34.45 during Monday's trading session.

Morgan Stanley auto analyst Stephen Girsky told investors last week that "the fact that the UAW appears to be willing to negotiate and that some type of deadline has been set is an incremental positive. However, we would caution that the deadline may just be hypothetical, and other deadlines have slipped in the past."

Some analysts believe Wagoner may be under pressure from GM directors to secure health care concessions before the automaker releases second-quarter earnings July 20, giving him some positive news to report.

GM spokeswoman Toni Simonetti acknowledged the automaker's directors are engaged in the health care issue, but said it has not dictated to Wagoner how to handle the situation.

"The board is not only apprised, but engaged at the strategic level at addressing these very challenging issues we're facing," Simonetti said. "But Rick Wagoner and the GM leadership team are clearly in charge of the company's plan to address this issue."

In addition to lowering health care expenses, GM plans to shed at least 25,000 hourly jobs and close some assembly and parts plants by 2008.

Labor expert Sean McAlinden at the Center for Automotive Research in Ann Arbor said plenty of wiggle room already exists in the labor contract.

"There are all sorts of letters of agreement in the health supplement," McAlinden said. "There are all sorts of joint committees on monitoring costs, disciplining doctors, and forcing people to use generic drugs and probably getting rid of alternative plans except the standard Blue Cross."

http://www.detnews.com/2005/autosins...A01-215266.htm