Struggling GM offers early retirement to hourly workers

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22/3/2006

DETROIT, United States (AFP) - Struggling automaker General Motors Corp. agreed an early retirement deal for more than 125,000 hourly workers, a key element in its massive restructuring plan.

Subject to bankruptcy court approval, the deal with GM's main union and its bankrupt former parts subsidiary Delphi Corp. could help avert a potentially crippling strike at Delphi, which faces a March 30 deadline to void its union contracts.

The agreement also will facilitate plans by the world's largest automaker to eliminate 30,000 workers by 2008 as it attempts to cut costs after posting a 10.6 billion dollar loss last year.

"This is a major accomplishment," said David Healy, an auto analyst with Burnham Securities. "It's expensive as hell to buy out employees and give them early retirement because there are a lot of upfront costs, but they have got to do it."

Union members at both GM and Delphi who are already eligible to retire with full benefits will be offered a 35,000-dollar cash bonus to do so, the United Auto Workers (UAW) said in a statement.

GM workers who are within three years of eligibility will be offered monthly payments until it is time for them to retire with full benefits.

All other GM employees will be offered a buyout of up to 140,000 dollars in exchange for giving up retirement health care and other benefits, the UAW said.

GM will assume responsibility for the payments to as many as 13,000 eligible Delphi workers and will also hire about 5,000 Delphi workers who are not eligible.

About 36,000 GM workers are currently eligible for full retirement but overall acceptance rates will depend on individual employee decisions, GM said.

The US auto giant would not release the estimated cost of the plan but a spokesman told AFP that some of those costs were already calculated into the 5.3 billion dollars in pre-tax charges GM took last year.

GM is responsible for assuming the costs of pension and health-care benefits of its former employees at Delphi should those benefits be nulled during bankruptcy proceedings.

GM said last week that its estimated exposure to Delphi's bankruptcy is now at the low end of a range of 5.5 billion to 12 billion dollars. It has already taken a 3.6 billion dollar pre-tax charge for Delphi, which remains GM's largest parts supplier.

Wednesday's deal offers Delphi the opportunity to cuts its North American workforce in half.

"This is great news for Delphi," said Erich Merkle, analyst with IRN, Inc. in Grand Rapids, Michigan. "In order for Delphi to maintain its viability as a business, they have to reduce their headcount and if they can get enough people to take this it would allow them to make some improvements in that area."

Merkle said the "stakes remain high", in that the projected number of employees may not take the deal, especially since Delphi's post-retirement benefit package could still be changed by the court.

The parts supplier says it plans to continue discussions with the UAW and its other unions to help craft a comprehensive agreement before the March 30 deadline to avoid a strike.

"This deal doesn't take anything off the table," said Delphi spokesman Lindsey Williams. "There are still multiple issues that we have to address."

Shares of GM closed Wednesday essentially flat at 22.01 dollars after a brief morning rally, as investors assessed the overall cost of the deal.

"The accelerated retirements at GM may result in a lower active headcount, but further exacerbates GM's already heavy burden of 2.5 retirees to active worker," Merrill Lynch analyst John Murphy wrote in a research note.

"Furthermore, GM continues to structurally shrink as it loses market share in the US, which means that a smaller company is supporting more retirees. Until GM stabilizes market share, rationalizes capacity at every point in the value chain, and invests heavily in product, its restructuring actions will only allow it to tread water at best."