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GM seals union deal to speed worker retirement

General Motors Corp. and auto parts supplier Delphi Corp. announced deals with the United Auto Workers on Wednesday that would help the struggling companies cut labor costs by offering early-retirement buyouts to 113,000 U.S. hourly workers.
/ Source: The Associated Press

In one of the largest buyout programs ever, more than 125,000 hourly workers of General Motors Corp. and auto supplier Delphi Corp. are being offered up to $140,000 to give up their jobs to help cut the companies’ crippling labor costs.

GM did not say how many workers it expected to accept the offer, but it is aiming to slash 30,000 hourly jobs by 2008.

Some workers wasted no time in declaring the deal “fantastic” and started calculating what they would get, based on years of service, if they accepted the offer.

GM and Delphi have said that if enough workers sign up for buyouts or early retirement, their operating costs would drop significantly. Analysts warned that it still might not be enough to restore the companies’ financial health or avoid a paralyzing strike.

Under the program, about 113,000 GM workers will be eligible for early-retirement incentives or buyouts of between $35,000 and $140,000 depending on how long they were employed and whether they want to keep health care and other benefits. At Delphi, GM’s former parts division and largest supplier, 13,000 U.S. hourly workers will be eligible for a lump sum payment of $35,000 to retire. Also, up to 5,000 Delphi workers will be eligible to return to GM.

The deal comes at a critical time for GM, which increased by $2 billion its reported 2005 loss to $10.6 billion last week. The world’s largest automaker has been losing U.S. market share to Asian automakers and is saddled with labor agreements that make it difficult to close plants or cut workers. The plan also is crucial for Delphi, the largest U.S. auto parts supplier, which is reorganizing in bankruptcy court after filing for Chapter 11 protection in October.

The companies made no predictions of how many employees might accept the offers or exactly how much they would save in operating costs. GM has a goal of cutting 30,000 hourly jobs by 2008.

David Cole, chairman of the Center for Automotive Research and the son of a former GM president, said the deal is of historic proportions.

“It’s huge, far more than I expected,” Cole said. He said the deal could go a long way toward helping GM return to profitability and to speeding Delphi’s exit from bankruptcy. Cole said he expects many workers will take the buyout.

“For our members, this is fantastic,” said Dan Fairbanks, president of United Auto Workers Local 1618 in Lansing. “There’s some huge incentives here.”

Michael Balls, 49, a pipefitter at the Delphi steering systems plant in Saginaw, was more cautious about his own options after reading details of the agreement.

“I feel a lot better, but I’m still questionable about some things,” said Balls, who with 30 years of service is eligible to retire and would get $35,000. He said he might take the offer — or might return to GM if they will offer him a skilled trades job.

Under the plan, GM would pay for the Delphi early-retirement incentives and assume some post-retirement benefits for Delphi employees who go back to work for GM. GM spokesman Dan Flores said GM didn’t yet know the full cost of the plans, since it’s unclear how many workers will participate.

Himanshu Patel, an auto analyst with JPMorgan, said GM will likely pay around $2 billion for the Delphi buyouts based on recent financial filings, while Merrill Lynch analyst John Murphy said GM will probably pay “well in excess of $1 billion” for its own buyouts.

Several analysts questioned how much GM and Delphi will save. Most workers that retire will get full benefits, which doesn’t relieve GM’s sizable pension obligations, Goldman Sachs analyst Robert Barry said in a note to investors. Barry added that savings gained from the retirement of younger workers will be offset by GM’s assumption of Delphi retiree benefits.

Analysts said it’s also unclear what will happen to the bulk of Delphi’s 34,000 hourly workers. Delphi remains in negotiations with GM and its unions to lower its labor costs, which it puts at $75 an hour in wages and benefits. Delphi has threatened to ask a bankruptcy judge to cancel its union contracts if it fails to settle by March 30. If the judge does cancel those contracts, the unions could call a strike that would cripple Delphi and GM.

“With a looming strike, they had to do something, but how they’re going to address plant closures for Delphi and remaining workers’ salaries are the two loose ends here,” said Rebecca Lindland, an auto analyst with the consulting firm Global Insight.

Lindland added she’s pessimistic about the number of people who will opt for the buyouts, especially younger workers who have no other health insurance. Some older workers also might not be persuaded, she said.

“I feel like people are going to look and say, ’Can I give up my job for $35,000?”’ Lindland said.

The Delphi plan must be approved by the U.S. Bankruptcy Court. Delphi said it will ask a judge to consider the plan April 7. GM’s plan doesn’t require approval, and Flores said retirements could begin as early as June 1. Workers will have up to 52 days to decide whether to take the buyouts once they learn details in plant meetings.

Detroit-based GM said the plan will move it toward its goal of cutting 30,000 hourly jobs by 2008. GM has slightly more than 113,000 hourly workers companywide, but only UAW-represented workers are eligible for now, Flores said. The automaker is negotiating with the International Union of Electronic Workers-Communications Workers of America on a similar deal. Salaried workers won’t be getting the buyout option, Flores added.

“We said we’d be working with UAW leadership to develop an accelerated attrition program that would help us achieve needed cost reductions as rapidly as possible, while at the same time responding to the needs of our employees,” GM Chairman and CEO Rick Wagoner said in a statement. “We are pleased that this agreement will help fulfill that important objective.”

In a memo sent to local union leaders, UAW President Ron Gettelfinger and Vice President Richard Shoemaker said they will ask the bankruptcy court to approve the Delphi plan.

“Working out this agreement required an inordinate amount of time and patience due to the complexities posed by Delphi’s bankruptcy filing,” Gettelfinger and Shoemaker said in a statement.