General Motors Says Costs Related to Health Insurance Contributed to its $1.1bn First Quarter Loss

Main Category: Health Insurance / Medical Insurance
Article Date: 21 Apr 2005 - 10:00 PDT

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General Motors on Tuesday reported a $1.1 billion loss for the first quarter -- "its largest quarterly loss in more than a decade" -- saying that the increased costs of providing health care coverage for its 1.1 million employees, retirees and their dependants was a large factor, the... AP/South Florida Sun-Sentinel reports (Porretto, AP/South Florida Sun-Sentinel, 4/20). For the first quarter of 2004, GM reported a profit of $1.21 billion (Schneider, Washington Post, 4/20). GM in March reduced its full-year earnings estimate from $4 to $5 per share to $1 to $2 per share, but company officials on Tuesday "declined to reaffirm that guidance," the AP/Sun-Sentinel reports. Company officials cited "the uncertainty affecting key elements of our financial forecast such as resolution of the health care cost crisis" as the reason for not affirming its earnings guidance (AP/South Florida Sun-Sentinel, 4/20). GM estimates that its health care costs for 2005 will increase to $5.6 billion from $5.2 billion in 2004 (Silke Carty, USA Today, 4/20). Paul Taylor, an economist at the Virginia-based National Automobile Dealers Association, said manufacturing costs, including health care expenses, are affecting GM's financial performance, saying, "It's a significant factor" (Fitzgerald, Boston Herald, 4/20).

Deductions for Health Care Expenses?
GM Chief Financial Officer John Devine said that the company is considering withdrawing funds from the $20 billion Voluntary Employee's Beneficiary Association fund under an option that allows the company to draw from the fund an amount equal to its health care benefits costs for last year and to date this year. Under the option, GM could withdraw as much as $6 billion from the fund, a sum that the company is not required to repay. Lance Wallach, an accountant who specializes in VEBA funds, said that the withdrawal "could resonate through the auto industry" if GM proceeds with it (USA Today, 4/20). United Auto Workers President Ron Gettelfinger earlier this month said that the union will not reopen a contract with GM to reduce the automaker's rising health care costs but that UAW will work with the company to reduce costs within the confines of the existing agreement. Gettelfinger, who along with other UAW officials met with GM executives at an annual meeting, said he has not been asked to reopen the contract, which expires in 2007 (Kaiser Daily Health Policy Report, 4/15).

Opinion Pieces
Summaries of opinion pieces addressing GM's earnings report are provided below.

• Tom Walsh, Detroit Free Press: GM's "disastrous" first-quarter loss reveals "how vulnerable GM is to even a modest sales decline, thanks to the massive fixed-cost burden of health care and pension benefits for retirees," Walsh writes in a Free Press column, noting that GM's health care costs exceed Toyota's by more than $4 billion. Walsh writes that "GM's retirees, both union and salaried, must prepare for sacrifices if they expect their benefits to keep flowing in the future" (Walsh, Detroit Free Press, 4/20).
  


• Thomas Bray, Detroit News: UAW is "playing a deadly game of chicken, hoping the specter of bankruptcy ... will provide a huge push for national health care," Bray writes in a News column. He adds that, "if [UAW is] successful, that will mean bankruptcy for the country, not just GM or Ford" (Bray, Detroit News, 4/20).

"Reprinted with permission from kaisernetwork.org kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation . © 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.