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GM Reaches Deal With UAW To Cut Costs

General Motors reached a deal with its main U.S. union Oct. 17 to cut health care costs as part of an effort to stem massive losses, including a $1.6 billion loss in the third quarter.

The pact, which must be ratified by United Auto Workers rank-and-file, will provide the world's largest automaker with annual cash savings of $1 billion, or $3 billion on a pre-tax basis, while reducing the company's retiree health care liabilities by about $15 billion. .

"This would be the single biggest cost reduction we have been able to announce in a single day in the history of GM." GM chairman Rick Wagoner told employees and reporters during a teleconference to announce the agreement.

Wagoner also said GM was considering selling a controlling interest in its profit-rich General Motors Acceptance Corp. credit arm. Wagoner said the GMAC action was the direct result of recent credit downgrades of GM, which have dramatically increased the cost of borrowing for GMAC.

Further structural adjustments, including plant closures and previously announced cuts of at least 25,000 jobs, will help GM reduce its structural cost by a $5 billion rate by the end of 2006, Wagoner said.

GM said it is targeting "a two billion dollar gross reduction in material costs in 2006, despite higher commodity prices and troubled supplier situations." This would yield "a net reduction of one billion dollars after including the cost of significant product enhancements," the company said. "Two major opportunities to reduce material costs are optimizing GM's sourcing footprint with the most competitive supplier sources and leveraging the globalization of GM's product development," the automaker said in a statement.

Copyright Agence France-Presse, 2005

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