GM details savings from UAW health care deal

By Jui Chakravorty and Kevin Krolicki

DETROIT (Reuters) - General Motors Corp (GM.N) on Monday detailed its expected gains from a new trust fund that will take over its $47 billion retiree health care obligation as it looks to capture even deeper savings from a still-pending round of buyouts for its union-represented factory workers.

GM, which just clinched a new four-year deal on wages and benefits for over 73,000 workers represented by the United Auto Workers, said it was negotiating a new round of buyouts with the union that would target workers nearing retirement.

Under the new contract, GM will be able to hire new workers outside core assembly jobs at a total cost of near $26 per hour compared with an existing cost of over $78 per hour.

GM Chief Financial Officer Fritz Henderson, speaking to financial analysts, declined to say how many GM workers would be targeted for buyouts, but said the turnover in the company's payroll could be "significant."

About 75 percent of GM's current blue-collar work force will be eligible for retirement by 2011 and could be replaced by tens of thousands of new hires without the costly retirement benefits enjoyed by their predecessors.

GM also detailed its financial obligations under a new Voluntary Employees Beneficiary Association trust, considered the centerpiece of its cost-saving deal with the UAW.

Under that deal, GM will pay about $31.9 billion into the new VEBA trust which will begin operations in 2010 and assume a $47 billion obligation for providing health care for over 270,000 union-represented retirees.

GM's promised funding was less than some analysts had expected, representing a larger savings. In addition, GM will be able to shift $16 billion from an existing trust fund.

GM said it expected to cut its cost for hourly production wages and benefits to $10.1 billion this year -- roughly 55 percent of what it had spent on factory labor in 2003, the last time it negotiated a UAW contract.

GM also forecast "significant cost reduction" over the term of the just-approved UAW contract without specifying a target.

Analysts said the details of GM's labor contract confirmed much of what investors had come to expect about the cost-cutting potential of the new labor contract during a five-week rally that has taken GM stock higher by 40 percent.

"At least from my perspective, it looks good that they are creating a new class of worker and capping their liability," said Pete Hastings, a senior corporate bond analyst at Morgan Keegan.

JP Morgan analyst Himanshu Patel said in a note for clients that GM's cash savings from the health care deal were largely in line with his estimates but said the company was holding out the prospect of deeper cost-cutting as current workers retire.

"The company seems to be expecting large savings down the road," he said.

VEBA SAVINGS DETAILED