AUSWR
The Association of U S West Retirees
 

 

 

Ford Retiree Deal Won't Suit GM, CEO Says
By Peter Whoriskey, Staff Writer
Washington Post
Wednesday, March 18, 2009 

When Ford and the United Auto Workers reached an agreement last month on retiree health care, it was touted as a model for the industry, one that could save the companies from faltering under the multibillion-dollar burden.

But General Motors chief executive G. Richard Wagoner Jr. yesterday emphasized that the Ford approach does not suit GM.

"The Ford program does not meet our needs at all," he told reporters at a Washington breakfast.  "It probably works for Ford, it doesn't work for us.  We need to do something different."

How to handle retiree health care has emerged as one of the key challenges facing the auto companies.

GM owes an estimated $20 billion to a retiree health fund; Chrysler owes $10 billion.

Under the terms of their loan agreement with the federal government, each company must attempt to strike a union deal by March 31 that would allow them to pay half of their retiree health obligations in stock rather than cash.

Ford's agreement to pay half its retiree health costs in stock was viewed as a potential framework for GM and Chrysler.  But there are significant differences between the Ford deal and the type of agreement GM and Chrysler can make.

"Because of demographics, because of history, et cetera, we can have some different needs," Wagoner said.  "So what works for Company A doesn't always work for Company B."

One of the key differences is that under the Ford agreement, the company gives up the right to pay its obligations in stock under certain circumstances.

For example, Ford loses the option to pay in stock when the stock price dips below $1 or when it receives a note from its auditors stating it is at risk of no longer remaining a "going concern."

GM has already received such a warning from its auditor.

Moreover, the relative burden of retiree health-care costs is different for GM and Ford.

Ford owes $13.1 billion to its retiree health fund, while its market capitalization is about $5.5 billion.

By contrast, GM owes $20 billion to the retiree health fund and has a market capitalization of $1.5 billion.

Together, GM and Chrysler must try to reach new retiree health-care agreements with the union in order to keep their $17.4 billion in loans.  Both companies, moreover, are seeking additional assistance.

As auto sales continue to slide, Chrysler chief executive Robert L. Nardelli is also seeking additional funds for Chrysler Financial, on top of a $1.5 billion loan from the Treasury Department.

"We have gone back to Treasury and said 'we need to re-up that amount,' " he told the financial cable television channel CNBC yesterday.  "We saw the evidence of how that works."

Nardelli didn't give an exact figure, but more loans would open up Chrysler Financial to a wider range of qualifying customers and increase sales as much as 20 percent, he said.

Some members of Congress have suggested other forms of help as well.  In a push to get gas-guzzlers off the road and spur new-car sales, Rep. Betty Sutton (D-Ohio) introduced legislation yesterday that would offer cash incentives to people willing to scrap their old cars and trucks.

Consumers would receive $3,000 to $5,000 for turning in vehicles that are at least 8 years old to buy more fuel-efficient vehicles or use mass transit.  To qualify for the program, new-car purchases must meet a minimum of 27 mpg on the highway and new trucks must meet 24 mpg.  The better the fuel efficiency, the bigger the incentive.

Staff writer Kendra Marr contributed to this report.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031703220_pf.html