G.M. Board Wants Cuts in Benefits
By Danny Hakin New York Times
Wednesday, June 15, 2005

DETROIT, June 14 - The board of General Motors has given the United Automobile Workers union until the end of the month to agree to cuts in its members' health care benefits, union officials said Tuesday.

Many local union leaders have said they were willing to make concessions, but not to the extent that G.M. was seeking.  If the union and the company cannot agree by the end of the month, G.M. is threatening to make the cuts on its own.  Such a step could lead to a breakdown in G.M.'s relations with the union and possible strikes.

"I think they're making a mistake," said Eldon J. Renaud, the president of a union local in Bowling Green, Ky., where G.M. has a plant that makes the Chevrolet Corvette.  "It's hard enough for us to agree to concessions without forcing something down our throat.  It takes time to do this."

Asked if a strike was a likely response by the union to a unilateral move by G.M., Mr. Renaud said, "I don't think it leaves us any other option."

Shares of G.M. rose 4 percent, or $1.42, to $35.87, on Tuesday after a report on the deadline appeared in The Detroit News;  it was first mentioned by a local union official in a Bloomberg article on Friday.

The move appears to be a more assertive step by a board that has been invisible during G.M.'s financial crisis of the last three months, while Rick Wagoner, the board's chairman and G.M.'s chief executive, has been revising his strategy.

The directive appears to have come out a board meeting last Tuesday that followed a contentious annual meeting where shareholders questioned Mr. Wagoner's game plan and the qualifications of G.M.'s board.

At the annual meeting, Mr. Wagoner suggested that he would press for health care cost cuts with or without the union's approval.

"Our strongly preferred approach is to do this in cooperation with the U.A.W.," he said, adding, "but either way, it's crystal clear that we need to achieve a significant reduction in our health care cost disadvantage and to do so promptly.  We're committed to do that."

Toni Simonetti, a spokeswoman for G.M., said the board was playing a role in the health care talks but would not say whether there was a deadline or detail its involvement.

"The board would be engaged in critical issues of the company such as this particular one," she said.  "Everyone involved in this process within the company and outside the company acknowledges that time is of the essence, but I would have no comment on the characterization of an ultimatum or a deadline."

"I think it's safe to say that, yes, the board is engaged on this issue, as the board should be on a strategic issue like this," she added.

Paul Krell, a spokesman for the union's leadership in Detroit, said, referring to G.M., "I'm not going to comment on their internal deadlines."

But local union leaders, who gathered in Detroit last Thursday, said they were told about the deadline.

Since G.M. spends nearly $6 billion a year on health care, many investors and financial analysts see cutting back on benefits as an important step in restoring the company to financial health.  G.M. covers 1.1 million Americans, including workers, retirees and family members, making it the nation's largest private provider of medical benefits.  Its hourly workers and retirees pay modest co-payments for prescription drugs, but they do not pay monthly premiums or deductibles.  Salaried employees pay both, and G.M. has said it would like hourly workers to have the same benefits as managers.

Such a change would require reopening the company's labor contract, which does not expire until 2007.  Ron Gettelfinger, the union's president, said in April he would not do so but would agree to make changes allowable within the contract.  Such changes could include compelling more members to purchase drugs by mail, or taking a step similar to one the union took for Chrysler this year.  Because costs of preferred provider organizations, known as P.P.O.'s, have risen sharply, Chrysler workers who use those plans will have to pay annual deductibles ranging from $100 to $1,000.

"Right now, we're doing everything possible to help G.M., because it helps us too.  We don't want G.M. to go under," said Don Swegman, president of an Indiana local whose workers build pickups.  "At the same time, we do have a labor agreement."

In a note to investors, Stephen J. Girsky, an analyst at Morgan Stanley, said, "The fact that the U.A.W. appears to be willing to negotiate and that some type of deadline has been set is an incremental positive."

"However, we would caution that the deadline may just be hypothetical and other deadlines have slipped in the past," he said.

Mr. Swegman said, "They can make all the deadlines they want."  He went on: "We have a four-year labor agreement and as long as what they want to do is laid out within our agreement, it's quite all right to do.  If it's not, we're not going to be too happy about it."