DETROIT, Oct. 17--Seeking a way out of its deepening financial crisis, General Motors said today that it had reached a tentative agreement with the United Auto Workers union to cut $1 billion worth of annual health care benefits for hundreds of thousands of American retirees.
At the same time, G.M. reported a $1.6 billion third-quarter loss, its largest quarterly loss in more than a decade.
In a further reflection of its financial distress, the company, which has lost nearly $4 billion so far this year, said that it would seek to sell a majority stake in the General Motors Acceptance Corporation, the financial services giant that is G.M.'s most steady profit center.
The possible sale, along with the deal, encouraged investors on Wall Street. But for the union, the tentative agreement to cut healthcare benefits marks the biggest strategy shift since the early 1980's, when the U.A.W. made a wave of concessions to head off a bankruptcy filing by Chrysler.
This time, with the future of the entire domestic auto industry increasingly at risk, union leaders agreed late Sunday, after several months of negotiations, to a deal broad enough to require the vote of G.M. workers for approval, after saying repeatedly that they would not reopen their labor contract before it expired in 2007.
But although the specifics of the agreement have not been disclosed, health policy experts said that in shifting more health care costs to retirees, G.M. still appeared to be years behind big companies in most other industries. And the benefits that G.M.'s retirees retain will likely still be the envy of many other retired Americans.
Still, while the challenges of the American labor movement came into sharp relief earlier this year when some prominent unions split from the AFL-CIO, the retreat of the U.A.W. today sends a further signal about just how difficult it has become for American labor unions to preserve previously won gains. Among industrial unions, none has won richer contracts than the U.A.W., at least for Big Three assembly workers and retirees, many of whom pay no monthly premiums, deductibles or co-payments beyond those for prescription drugs.
That will change, though G.M. and the union declined to give details of specific cuts because local union leaders had not yet been informed of the agreement's details.
"This is a very big step forward that we will build on," G.M.'s chairman and chief executive, Rick Wagoner, said in a teleconference today. He called it "the single biggest cost reduction that we've probably been able to announce in a single day in the history of G.M."
G.M. shares rose $2.11, or 7.5 percent, to $30.09.
The Ford Motor Company and Chrysler, now a division of DaimlerChrysler, are already discussing healthcare cost cuts with the union and will seek similar concessions, since all three Detroit-based companies negotiate labor contracts in tandem
"We can't be put at a competitive disadvantage," Chrysler's vice president of communications, Jason Vines, said.
The healthcare agreement would trim about $15 billion from G.M.'s future retiree healthcare liability, which is $61 billion for hourly retirees and $77 billion including salaries retirees. It will also cut the company's annual healthcare expenses by $3 billion before taxes, and save it about $1 billion a year in cash, out of a nearly $6 billion annual medical bill.
In a significant concession to the union, G.M. agreed to make $3 billion in contributions by 2011 to a special fund setup to offset the benefits cuts.
"The tentative agreement on health care matters is the result of an in-depth analysis of G.M.'s financial situation and many weeks of intense discussion between the U.A.W. and G.M," the union president, Ron Gettelfinger, and Richard Shoemaker, the lead G.M. negotiator, said in a joint statement. "We believe it is clearly in the best interests of U.A.W., G.M. active workers, retirees and their families."
Retirees covered by union contracts at the big telecommunications companies, for example, have been paying a growing share of health costs, even as companies like Verizon have added wireless units that do not have unions and have less-generous benefits.
"Telecommunications retirees have had deductibles and co-pays for some years," said Bruce Taylor, a former Verizon benefits official, who is a consultant with Associates & Wilson in Rosemont, Pa. The union also agreed to contribute part of the monthly premium when a cost ceiling is breached, but this has not yet happened, he added.
At SBC Communications, most active and retired workers will switch to high-deductible health savings plans next year, but individuals will still not contribute to premiums. Coverage including a spouse will cost $143 a month. SBC pays 70 percent of employee and retiree health costs, a spokesman, Walter Sharp, said.
"Even the granddad companies that maintained these benefits are on a track moving away from it," said Dallas Salisbury, president of the Employee Benefit Research Institute, a nonprofit research center in Washington.
The three Detroit automobile companies were among a handful of large employers who did not ask retirees, 65 or older, to contribute to premiums, according to Watson Wyatt, a benefits consulting firm. In a survey early this year of 458 employers that had retiree health plans, all but 23 required contributions by the retirees.
Besides autos, the 23 included three drug manufacturers and eight hospital and health services employers.
Local leaders from around the country were summoned to a meeting on Thursday in Detroit to discuss the details of the plan, and a ratification vote could come as early as this weekend. A person briefed on the agreement said it would impose deductibles on retirees and co-payments beyond those for pharmaceuticals.
Retirees, braced for bad news, were waiting to hear the details.
"All you have to do is declare bankruptcy and you can run away from your contract, so the retirees expect the leaders will have to do something to avoid G.M. declaring bankruptcy," said Stan Marshall, 76, a retired G.M. worker and former U.A.W. official, who lives near Flint, Mich. He said many retirees were supporting children who had lost jobs in a state that has one of the nation's highest unemployment rates.
"With your kids and grandkids losing their jobs as the plants are going to Mexico, you feel obligated to help them all you can," he said.
Retirees, however, will probably still have benefits that many other American retirees would envy, if not the eye-popping benefits they have now. Many retirees currently have only co-payments of about $10 for prescription drugs. G.M., which insures 1.1 million Americans, spends about $1,500 per car produced in the United States on healthcare, more than it spends on steel and believed to be about $1,000 more than Toyota spends per car.
Dorothy Bailey, 75, retired early from General Motors in 1967 after just a decade, but still receives benefits. Now she said if the cost of medical coverage goes up too much, she will have to make choices like whether to spend money on pills or groceries.
"It's going to hurt me bad," she said. "But do we have a choice? No we don't."
But Ms. Bailey, a former assembly line worker from Belleville, Mich., said she knew that her benefits were vulnerable because of G.M.'s financial troubles, and she said she had expected to shoulder some of the burden. "I can understand that were going to have to take some cuts, it has to be," she said. "I just have to accept what is."
While a deal on healthcare had been expected, the announcement that the company would seek to sell a majority stake in G.M.A.C. was more of a surprise. The division, which offers an array of financial products like car loans, home mortgages and insurance, has been constrained by G.M.'s junk bond ratings, which make it more costly to issue bonds.
Robert Hinchliffe, an analyst at UBS, said such a sale could reap G.M. $10 billion to $15 billion, though it would also require the company to divide up the division's profits. The three major credit ratings agencies said a sale of a majority stake in G.M.A.C. to an investment grade company could lead them to give G.M.A.C. a higher rating than that of G.M.
Many financial analysts saw today's announcement as a positive step for G.M. But they said much more still needed to be done as the company struggles on a number of fronts, most notably in its failure to make enough cars and trucks that American consumers will buy without heavy discounting. High gas prices have also hurt a company reliant on sales of large sport utility vehicles and pickup trucks.
"It's reflective of the sense of urgency both sides felt," said David Cole, the chairman of the Center for Automotive Research, an industry consulting firm. "The U.A.W. saw the handwriting on the wall. They feared a nuclear option, like killing healthcare benefits for retirees."
G.M. also reiterated its earlier plan to cut 25,000 American blue-collar jobs, but suggested that its plans for cuts and plant closings could come sooner than its previous timeline, which was by the end of 2008. Mr. Wagoner said he would have further restructuring announcements by the end of the year, adding that the company would also continue cutting salaried workers. All of the job, benefit and other cuts are aimed at saving $5 billion annually by the end of 2006.
When Mr. Wagoner and other G.M. executives said in March and April that they needed major healthcare concessions from the union, they spoke of forcing more ambitious cutbacks on the union. In recent months, however, G.M. sought the kind of healthcare cuts they won today, while the union had been counter-offering cuts that would have numbered several hundred million dollars.
That the union agreed to G.M.'s demands shows how labor leaders in a an array of industries, encompassing airlines and steel, have been increasingly under assault. The U.A.W. already has plenty of troubles on its plate.
Earlier this month, G.M.'s former parts division, Delphi, filed for bankruptcy protection, saying it would seek drastic labor concessions, including wages as low as $10 an hour for workers. Delphi is also weighing heavily on G.M., which said today that Delphi's bankruptcy filing could increase its future liabilities by as much as $12 billion, up from its previous estimate of no more than $11 billion. When Delphi was spun off in 1999, G.M. agreed to pay a large amount of health and pension benefits due Delphi retirees.
"It's a one-two punch, and the second one hasn't landed yet," Eldon Renaud, president of a union local in Bowling Green, Ky., said, referring to the Delphi filing and the fact that he did not yet know the fine print of the G.M. deal.
If anything, the company's third-quarter results only reinforced how much work needs to be done to right G.M.'s North American operations, which lost $1.6 billion in the quarter, compared with an $88 million loss a year earlier. The company's share of the North American market fell to 25.6 percent from 28.5 percent a year earlier, as the effects of its employee discount offers waned in the quarter. Efforts to revitalize its car and truck offerings have yet to payoff.
Overall, G.M. lost $1.6 billion, or $2.89 per share, and $1.92 per share, excluding special charges, well below Wall Street's expectations. G.M.'s European operations lost $105 million in they quarter, compared to a loss of $236 million a year earlier. Asia Pacific operations earned $176 million, up from $78 million. Earnings at G.M.A.C. rose to $675 million in the quarter from $620 million a year earlier.