GM cuts dividend, moves to ease pension, health care costs |

GM cuts dividend, moves to ease pension, health care costs

DETROIT – General Motors Corp., which says a return to profitability will require sacrifices from all involved, announced plans on Tuesday to rein in white-collar pension and health care expenses, slash the dividend and trim executive salaries – moves some analysts say suggest it might seek benefit cuts from union workers.The cuts in health benefits for salaried retirees, planned changes to its pension plan for salaried U.S. workers and decision to cut in half GM’s dividend all support the company’s ongoing North American turnaround efforts, which already include plans to shed 30,000 hourly jobs and close 12 facilities by 2008.GM has been under pressure from one of its largest shareholders, billionaire investor Kirk Kerkorian, to take more aggressive steps to revive profitability.”Everybody’s got a piece of it,” GM Chairman and CEO Rick Wagoner said at a news conference at GM’s headquarters. “What we’re trying to do is look at each piece and say, ‘Where are we really uncompetitive versus the people we run against?’ … If we’re out of line, that’s what we need to work on.”So, it may not be exactly the same sacrifice everywhere, but I think just about everybody’s got a piece of it.”The cut in its dividend alone will reduce GM’s yearly cash payout by about $565 million. Cash savings from the health care changes will grow to about $200 million within five years, GM said, and then continue to increase after that.GM, which is suffering from declining U.S. market share at the hands of its Asian competitors, lost $8.6 billion in 2005 amid high health, pension, labor and materials costs. GM is counting on its new lineup of SUVs to boost sales this year, and is trying to wean itself from the use of costly, confusing incentives.Analysts said Tuesday’s cuts could help provide leverage for GM in contract talks next year with the United Auto Workers. And it could help GM in talks with the union on a possible bailout for hourly workers of Delphi Corp., GM’s former parts division, which filed for bankruptcy last fall.”The dividend cut … is only a modest step,” credit ratings agency Fitch Ratings said in a statement. “The cuts in the dividend and in management compensation could, however, facilitate conversations with the UAW.”Shares of GM closed down 53 cents, or 2.3 percent, at $22.81 in regular trading on the New York Stock Exchange.The announcement came a day after Jerome York, a top aide to Kerkorian, was elected to GM’s board. It mirrored some of the measures York previously proposed – including cutting the yearly dividend to $1 a share and cutting pay for Wagoner and his senior leadership team – to help invigorate GM’s turnaround efforts.York is a consultant to Tracinda Corp., Kerkorian’s private equity firm, which owns 9.9 percent of GM’s common stock and is GM’s third-largest shareholder.Wagoner said the company has long been working on issues such as health care and pension costs. And he said GM didn’t have plans to release profitability goals, cut all white-collar salaries or drop brands like Saab or Hummer, which were among York’s proposals.Himanshu Patel, an auto analyst with JPMorgan Chase, said that with the cap for GM’s health care contributions for salaried retirees, GM is raising the issue of whether hourly workers could see a similar cap. Patel said such a change could slash GM’s long-term liability for health costs.”While near-term cash savings from the announced cost actions are modest, the steps clearly follow Jerry York’s playbook calling for an ‘equality of sacrifice,’ indirectly aimed at extracting UAW concessions, either as part of the ongoing Delphi negotiations or in the 2007 negotiations,” Patel wrote in a research note.Asked Tuesday whether GM’s move might lead to future concessions by the union, however, UAW President Ron Gettelfinger said: “Absolutely not. We’ve done our share. We’re ready to move forward.”Gettelfinger said the union had sought reductions in executive compensation across the board during its discussions about reducing health care costs.”We said it had to be all in, so it just appears that that’s what they’ve done,” said Gettelfinger, who was attending a conference in Washington.Most of the plant closures and job cuts announced by GM in November must be negotiated with the UAW in 2007, when the automaker and the union write a new contract. The UAW already agreed last year to require hourly workers and retirees at GM and Ford Motor Co. to pay more for their health care.Wagoner said GM is working with the union to make the company more competitive, but said Tuesday’s announcement was not intended to send a message to the UAW.As part of Tuesday’s changes, Wagoner will take a 50 percent pay cut. That would reduce his salary to about $1.1 million, based on GM figures for his 2004 compensation. Details on his 2005 compensation – including possible stock options – won’t be released until this spring, but GM said he won’t get a bonus.Vice Chairmen John Devine, Bob Lutz and Fritz Henderson will see their salaries reduced by 30 percent, and Executive Vice President and General Counsel Thomas Gottschalk will take a 10 percent cut. And there will be no annual or long-term cash bonuses paid to GM’s global executives for 2005 performance.The board also reduced its own compensation by 50 percent to $100,000 a year, the company said. Non-employee directors will forgo cash compensation but will keep some of the stock portion of their annual retainer.GM said it would cap its health care contributions for salaried retirees at 2006 levels. The change, which affects retirees hired before 1993, surviving spouses and eligible dependents, will reduce GM’s annual health care expense by almost $900 million before taxes and reduce GM’s retiree health care liabilities by about $4.8 billion, the company said.The automaker said it was evaluating ways to restructure its pension plan for salaried workers, and will announce details early next month. GM said it would freeze accruals under the current plan and implement a new plan for future accruals, possibly a defined-contribution or cash-balance plan.The health care changes will affect about 26,000 current employees and 100,000 retirees, while the pension changes will affect members of GM’s 40,000-person salaried U.S. work force who were hired before 2001, GM said.GM said its quarterly dividend would be 25 cents a share, compared with 50 cents, where it has stood since the first quarter of 1997. The company last cut its dividend in 1992, when it lost a record $23.5 billion, partly as a result of accounting changes.—Associated Press Writers Sarah Karush in Detroit and Ken Thomas in Washington contributed to this report.—On the Net:General Motors Corp.:

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