DETROIT — General Motors Corp. will drastically slash labor costs and save more than $3 billion a year in its landmark deal with the United Auto Workers union, money it can pump back into new products and technology, the automaker said Monday as it laid out details of the agreement for the first time.
The four-year deal, approved last week by GM’s UAW members, will transfer an estimated $46.7 billion worth of retiree health care liability from the company to a union-run trust. It also will pay lower wages to thousands of workers. The agreement set the standard for a tentative contract at Chrysler LLC that was endorsed Monday by Chrysler’s local union leaders. Ford Motor Co. and the UAW are still negotiating.
Reaction on Wall Street was muted after investors sent GM’s shares soaring to a three-year high Friday. GM shares fell $1.53, or 4 percent, to $41.11 in trading Monday.
Burnham Securities analyst David Healy said there were no bombshells Monday and most of the details of the agreement were already known. Healy said some shareholders were disappointed to learn that part of the health-care trust will be funded through a $4.4 billion note convertible to 190 million shares.
“One of the things people hadn’t focused on is that a good chunk will be funded with a 19 percent increase in GM shares outstanding,” Healy said. “It was not known how big an offering that would be.”
JPMorgan auto analyst Himanshu Patel said GM also wasn’t explicit about the savings it can achieve because much still hinges on unknowns, such as how many workers will take a possible buyout deal.
“The company seems to be expecting large savings down the road,” he said.
GM Chairman and Chief Executive Rick Wagoner said the deal was fair to the company and its workers. He added that these were the toughest negotiations he’d been a part of since he started sitting in on UAW bargaining in 1993.
“The 2007 national negotiations were in many ways the most complex and comprehensive that we’ve been engaged in,” Wagoner said in a conference call with financial analysts and media.
The agreement includes a company-funded, union-run trust called a Voluntary Employees Beneficiary Association that must be approved by federal courts. The trust would take over the health care obligations starting Jan. 1, 2010, or on the date that any appeals or court challenges are exhausted.
The VEBA will take over $46.7 billion of GM’s $64.3 billion in retiree health care obligations, or about 73 percent. GM will be left with $17.6 billion in retiree health-care obligations, including costs for salaried employees and hourly workers who belong to other unions.
GM will contribute nearly $32 billion to the VEBA, including $16 billion transferred from an existing health-care trust and $2.5 billion in upfront cash with $5.6 billion in additional payments over 13 years. GM also will pay $5.4 billion through 2010, when the VEBA will take over responsibility for retiree health care, and will contribute the $4.4 billion note convertible to 109 million shares. GM will pay interest on the note.
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