Ford Retiree Deal Won't Suit GM, CEO Says
By Peter Whoriskey, Staff Writer
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
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
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
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
"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.