Unprecedented economic and credit market turmoil dramatically impacts auto industry and GM results. GM has really taken a hit from the economic crisis our country is in. In April 2006, General Motors‘ plan to require hourly retirees to pay more of their health care costs was approved by a federal judge. Since then, retirees having been losing more and more benefits.
In an effort to reduce costs by $1 billion per year, GM and the United Auto Workers (UAW) agreed that retired hourly workers would start paying monthly contributions, deductibles and copayments for medical services up to $370 per year for individuals and $752 for families. In a March 2006 hearing, some GM retirees requested that the judge reject the settlement with the UAW. At least 1,250 retirees filed objections out of the 476,676 retirees and dependents affected by the agreement.
In October of this year, GM announced that it will no longer provide health insurance coverage for more than 100,000 retirees and their dependents as of January 1, 2009. This will cease medical coverage for its salaried retires ages 65 and older. Even former employees who are already in retirement will lose their benefits. This plan will save General Motors $3.3 billion per year. In order to replace its longstanding health coverage benefit, they will give their retirees an extra $300 in their pension checks so they can buy their own insurance.
GM has little choice but to make cuts this year, including benefits. This move is a part of a package of broad cutbacks to increase company liquidity, including a 20% reduction in payroll for salaried workers and suspension of GM’ annual stock dividend of $1 a share. The company is also temporarily suspending company matching of its 401(k) program as of November 1. GM is suspending tuition reimbursement and adoption assistance programs at the end of year as well. This, though, isn’ even enough to stabilize the company’ finances.
They aren’t the only ones cutting health coverage for hourly and salaried retirees. Ford and Chrysler have already cut health coverage for their retirees. Back in 2006 Ford Motor Co. stated that they will end health benefits for its salaried retirees beginning in 2008; and the time has come. In 2007 began yearly payments of $1,805 to its salaried retirees to cover health care costs after it cut retiree health benefits in a cost-savings move to slash expenses.
GM is the last of Detroit’s Big 3 to cut back on health care coverage benefits. But GM’s plan to increase retiree pension payments by $300 a month is a lot more generous than Ford and Chrysler. This would equal $3,600 a year, whereas Ford gave its retirees $1,800 a year and Chrysler gave its retirees $1,805 a year. As of January 1, GM’s retirees will have to buy their own insurance, including Medicare Part B, which covers doctor’s visits.
GM has hired Extend Health to aid its retirees in choosing a health plan when their coverage ends January 1. Plans range from Medicare Advantage plans with very low premiums but high copayments to Medigap plans with high premiums but rich benefits and low out of pocket costs.
Now is the time for GM’s retirees to look for alternate coverage with the January 1 deadline approaching rapidly.