DETROIT -- Union workers at General Motors ratified a deal to help the automaker cut billions of dollars in health-care costs, but analysts said the move was far from enough to turn things around at the struggling auto giant.
Welcoming the ratification, which was announced by the United Auto Workers union on Friday, GM said the deal would slash its long-term health-care liability by $15 billion, cut its hourly health-care liability by 25 percent, and reduce health-care expenses by about $3 billion annually, before taxes.
GM shares rose more than 4 percent on the news, after spiraling to a 23-year low on Thursday on fears about mounting financial woes at GM and a possible strike at its main auto parts supplier, bankrupt Delphi Corp.
"The deal is a move in the right direction, but no one thinks this is the end to their problems. The laundry list of the things that GM needs to do to fix itself is about a dozen items long, and this deal was a small item on that list," Argus Research Group analyst Kevin Tynan said.
Since GM first announced the health-care agreement in October, it has received subpoenas from the U.S. Securities and Exchange Commission concerning its reporting of pensions and other retiree benefits.
Its U.S. auto sales dropped 26 percent in October, Moody's Investors Service and Fitch Ratings have lowered their ratings on GM debt two levels below investment grade, and the automaker on Wednesday, Nov. 9, said it will restate 2001 earnings, while also restating second-quarter earnings from this year.
"The last couple of days illustrate that there is a lot of work to do at this company and it's debatable whether it's actually doable outside bankruptcy court," Tynan said. "I don't think it is."
NOT A BIG DEAL
Under the terms of the deal, health care will no longer be free for hourly retirees, their spouses and dependents.
Most will pay a maximum of $752 per year for their family health-care coverage, including monthly premiums. Drug co-payments are not included.
Retirees with annual GM pensions of $8,000 and less, whose GM pension benefit rate is $33.33 per month per year of service or less, will continue to get health care free of charge.
"GM needs much larger concessions than this to have a material impact. The kind of cuts that GM needs are cuts that the union would simply not agree to. And GM needs to face that at some point, just like Delphi is facing it now," Tynan said.
GM has lost nearly $4 billion so far this year due to health-care and high commodities costs, stalling sales of big SUVs, which were cash cows but have lost popularity due to high gasoline prices, and the loss of U.S. market share to foreign rivals.
To compound matters, GM's key parts supplier, Delphi Corp., filed for bankruptcy in October and GM, Delphi's former parent, could face up to $12 billion in liabilities for the supplier.
BUMPY ROAD AHEAD
A strike at Delphi, which is asking the court to dissolve its contract with its union, would shut down some plants and could cost GM billions of dollars, possibly forcing it into bankruptcy, analysts have said.
UBS analyst Robert Hinchcliffe said a strike at one or two strategic plants would force GM to use up $19 billion in cash and liquid assets in about 10 weeks. Deutsche Bank analyst Rod Lache said GM may burn through $13 billion in cash if the potential strike were to last a quarter.
BNP Paribas said a strike at Delphi, which it calls "highly likely," would force GM to burn through a "significant portion" of its cash.
"If after three months, no resolution seems apparent, it is not out of the question that GM might have to file for bankruptcy," Pierre-Yves-Bretonniere wrote in a research note on Friday.
"While the (health-care) deal is a positive, they have several other challenges. They are losing too much market share. They have too many plants, too many people and too many models," said Burnham Securities analyst David Healy.