GM sees $13 bn savings in health-care

GM, according to the deal struck with the UAW last October, will have to contribute $1 bn in 2006, 2007 and 2011 to DC VEBA.

india Updated: Apr 14, 2006 13:57 IST

General Motors Corp said on Thursday that it expects to see net cost savings of about $13 billion over six years from its health-care deal with the United Auto Workers union.

GM, in a Securities and Exchange Commission filing, also said it may take a pre-tax charge of at least $1 billion in the first quarter of 2006 as it begins to account for payments to a fund created for future retiree health-care costs.

GM said it believes the contributions to the fund should be accounted for in the period in which it pays.

"The obligation to make the contribution would be recognized in the period in which it becomes due and payable, so that the charge for the first quarter of 2006 would be $1 billion pre-tax," GM said in the filing.

The automaker said other possible accounting methods include recognizing the fair value of all three payments of a total of $3 billion as expense on March 31, 2006, which would result in a significantly larger charge in the first quarter.

GM, according to the health care deal struck with the UAW last October, will have to contribute $1 billion in 2006, 2007 and 2011 to the Defined Contribution Voluntary Employees' Beneficiary Association, or DC VEBA, over the next six years.

GM said it is currently in discussions with the SEC regarding the accounting of those contributions and aims to resolve the issue before it files its quarterly report for the first quarter of 2006.

Under the health care agreement with the UAW, hourly retirees will have to pay monthly contributions, annual deductibles and co-insurance costs for the first time, amounting to $370 a year.

GM said in the SEC filing that it will begin to realize a reduction in health-care expense in the third quarter.

GM last October had estimated the deal would reduce its health care liabilities for hourly employees by about $15 billion, or 25 per cent, and reduce its annual employee health care expense by about $3 billion before taxes during a seven-year period.

The deal remains in effect until at least September 2011, after which either GM or the UAW may cancel upon 90 days written notice.

First Published: Apr 14, 2006 11:16 IST