DETROIT -- General Motors said Thursday that it set aside $3.6 billion as a reserve for future costs of covering pension benefits for former hourly employees who transferred to Delphi Corp., the company's former parts unit that is in Chapter 11 bankruptcy.
In October, GM estimated that its possible costs for those workers ranged from zero to $12 billion. The liability now depends on the outcome of negotiations between GM, Delphi and the UAW.
The most likely trigger of GM's guarantee would be Delphi terminating its pension plan with the approval of U.S. Bankruptcy Court in New York. But Delphi CEO Steve Miller has said the company prefers to keep the plan intact even through its bankruptcy restructuring.
GM plays a crucial role in Delphi's reorganization -- and the amount it sets aside could determine how the supplier finances its burgeoning employee liabilities.
"In looking at the situation in closing the books in 2005, we could no longer say the bottom range (of the liability) was zero," said GM CFO Fritz Henderson in a conference call Thursday. "It's still guesswork, though."
GM's earnings statement said: "GM now believes that the range is between $3.6 billion and $12 billion with amounts closer to the low-end of the revised range considered the company's best estimate assuming an agreement is reached between GM, Delphi and its unions."
GM said it established a reserve of $3.6 billion ($2.3 billion after tax), which was accounted as a noncash charge in the fourth quarter of 2005.
The company said the amount of the charge may change before it files its annual disclosure statement with the U.S. Securities and Exchange Commission.
"GM is currently unable to estimate the amount of additional charges, if any, that may arise from Delphi's Chapter 11 filing," the statement said. "A consensual agreement to resolve the Delphi matter may cause GM to incur additional costs in exchange for benefits that would accrue to GM over time."
Henderson said the three-way negotiations are continuing.
"It's moving," he said. "We've had quite a bit and will continue to do so.
"We tried to develop a reasonable scenario that would more appropriately bound our low end of the range. That doesn't mean that's where we'll end up. When you have this large of range, you have to take a reasonable estimate on what the low end would be.
"We did go through reasonable due care and diligence arriving at that range. But it could change as we negotiate."
Delphi, which ranked No. 2 on the Automotive News list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $24.1 billion in 2004, employs about 25,000 UAW members. After its Oct. 8 Chapter 11 filing, the company sought major concessions from the union and signaled plans for significant downsizing in North America. About half of Delphi's business is with GM.
But with threats of strikes rising toward the end of 2005, GM agreed to get involved in accelerated negotiations with Delphi and the UAW. Delphi then withdrew plans to seek a bankruptcy court rejection of its union contracts.
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