October 21, 2005

Union Offers Details of Health Deal With G.M.

DETROIT, Oct. 20 - The Cadillac of health care plans is being traded in.

The United Automobile Workers on Thursday announced the details of its tentative agreement with General Motors to impose health benefit cuts on union retirees. For the first time, G.M. retirees will have to pay deductibles, monthly premiums and co-payments for services like X-rays.

Altogether, a retired G.M. worker could pay as much as $370 a year for traditional coverage, an option most retirees favor. A retired family could pay as much as $752. They now pay nothing for their coverage. The only medical cost retirees bear at present is a $5 co-payment on prescriptions. Under the new agreement, co-payments for brand-name drugs will increase to $10, while the payment for Viagra and other drugs for erectile dysfunction will triple, to $15.

G.M.'s active workers are also being asked to make their own concession by giving up $1 an hour in 2006 by deferring cost-of-living adjustments and planned wage increases. The money will be contributed to a fund created to help pay retiree medical costs; G.M. will contribute $3 billion to the fund by 2011. Many workers will also see co-payments increase, including the higher co-payments for erectile dysfunction drugs.

The agreement for the retirees would not subject older retirees with pension incomes of $8,000 or less to the new rates.

G.M.'s blue-collar retirees will still have better health care benefits than most other retired people. But the rollback of their current plan, which has been a gold standard of American labor, is only the most recent sign that the benefits built up in the heyday of American industrial might cannot survive global competition. The concessions are expected to affect workers at Ford Motor and the Chrysler division of DaimlerChrysler as well, because the three companies negotiate parallel labor contracts.

"We believe the tentative agreement is an essential step toward ensuring that G.M. is a competitive and financially sound corporation that can continue to provide good wages and benefits for decades to come," Ron Gettelfinger, the U.A.W.'s president, and Richard Shoemaker, the union's lead G.M. negotiator, said in a joint statement.

The two men declined to comment on discussions they were having with Ford or Chrysler.

The tentative agreement, reached on Sunday night, was unanimously approved Thursday by several hundred local union leaders from around the country. A ratification vote by the full membership has not yet been scheduled.

The union acceded to G.M.'s demands after hiring four outside firms to review G.M.'s finances. While Mr. Gettelfinger declined to discuss the findings, he did say at a news conference, "You can rest assured, based on us being here today, we felt like there was a need for us to take some action."

G.M.'s financial crisis was evident enough on Monday, when it reported a $1.6 billion loss in the third quarter, its largest quarterly loss in more than a decade. The company announced the tentative agreement with the U.A.W. the same day.

While the deal would be substantial in many ways - it would decrease G.M.'s $77 billion in future bills for retirees' medical benefits by $15 billion - many financial analysts have said this week it is not enough. This year alone, G.M. projects it will spend close to $6 billion on health care. The deal would decrease its annual costs by about $1 billion.

In a report issued Tuesday, an analyst at Merrill Lynch, John Casesa, said, "Should G.M.'s results worsen, we are concerned that the door to additional U.A.W. assistance would be closed, increasing the chance of a serious strike."

In an interview on Thursday, Rick Wagoner, the chairman and chief executive of G.M., said: "It's a very important step. I didn't say it was the last step, and it's not the first step."

"It is a sizable deal; it's a change in the way we work," he added, sitting in his office on the 39th floor of G.M.'s headquarters in downtown Detroit. "It's validation of the view that they understand that the success of their union and the people they represent is tied very closely to the success of our business."

Mr. Wagoner said he would not discuss whether the company planned to seek further concessions.

"Nobody said this is the last thing we'd ever agree on either to reduce our costs or to improve compensation and benefits for our people," he said. "Nobody's drawing any line in the sand and saying we'll never work on things we need to make the business competitive because it's clear if we're not competitive, it's not good for them either."

One concern for both G.M. and the union is the bankruptcy filing earlier this month of Delphi, the supply giant that was once a division of G.M. Delphi's chief, Robert S. Miller, has said he needs steep concessions from the union and a multibillion-dollar rescue package from G.M.

Delphi is seeking wages as low as $10 an hour, a cut of more than 50 percent. Asked on Thursday if the union might strike over such demands, Mr. Gettelfinger said, "It would be presumptuous for us to say that there would be a strike and it would be just as presumptuous for someone to say there would not be."

Such low wages raise the question of whether autoworkers could even afford new cars. But wages that low are not seen as likely to come to automakers themselves. Assembly workers typically are much better paid than workers at parts suppliers, even if they work at domestic plants operated by Toyota or other foreign companies.

Mr. Wagoner said in the interview that his company faced more burdensome issues like the cost of supporting retirees and jobs bank programs that allow unionized workers to be paid almost a full salary when they have no work to do.

"If I look at our priority list on the things we need to do to get cost-competitive, wage rates are nowhere near the top for us," Mr. Wagoner said. "We have a far greater burden in legacy costs, in flexibility of using our work force, in jobs banks than we do in wage rates."

"I'd never say they're unimportant," he added, "but they are not at the top of our list right now."

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