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GM to Slash Workforce, Delphi Seeks to Drop Retiree Health Care

February 10, 2009
The U.S. auto industry’s most recent casualties of the recession are salaried workers at General Motors and its former subsidiary, auto-parts maker Delphi.

GM said Tuesday, February 10, that it was planning to reduce its salaried workforce by 10,000 people. The cuts are part of GM’s restructuring effort to weather the recession and meet demands for a leaner company—a condition of the federal government’s bailout package.

The GM cuts will eventually reduce the company’s global salaried workforce to 63,000. As of December, GM had reduced its U.S. workforce, including unionized workers, to 93,000 from 177,000 in 2000. GM expects to lay off 3,400 of its current 29,500 salaried U.S. workers.

GM’s announcement comes a week after Delphi sought permission in a February 4 filing with the Bankruptcy Court for the Southern District of New York to eliminate health care benefits as of March 31 for 15,000 retirees who previously were salaried employees. Delphi filed for Chapter 11 bankruptcy in 2005 and expected to emerge from it in April until the economic downturn thwarted those plans.

The Troy, Michigan, auto-parts supplier said in court filings that its business has been decimated by the plunge in auto sales and led to dramatic fourth-quarter losses.

Delphi, which is GM’s largest parts supplier, has been hard hit by plummeting auto sales. GM, which received $13.4 billion from the government as part of an ongoing restructuring program, announced last week that January sales were down 49 percent from a year ago.

GM employees say they knew job cuts were coming after the federal government granted a loan to the company.

Older workers say they are grieving over the demise of the company and jobs once seen as a path to a secure retirement. Older workers who fear for their jobs say being forced out just as retirement age nears leaves them feeling insecure, especially since the company has made reductions to pensions and health care for workers hired before 1993. Those hired after 1993 do not receive retiree health care.

“We cannot stop working when we retire now,” said one senior salaried employee at GM, who spoke on condition of anonymity. “We have to continue to work. We had originally planned when we were hired 30-plus years ago that we would retire and stay home. Now my generation has to retire and it’s not what we expected. We have to go back to work.”

Delphi retirees are reeling over news that the company wants to eliminate their health benefits, says Joe Fortuna, a former medical director of Delphi who has spoken with several current employees who are near retirement or are retired.

According to bankruptcy court documents, Delphi asked for permission to:

• Eliminate eligibility for retiree health benefits to all current and future retirees.

• Cease making payments for medical care on behalf of current and future retirees.

• Cancel all retiree health reimbursement accounts for all retirees eligible for Medicare.

• Terminate Medicare Part B benefit, which is the supplemental insurance that provides for more medical services than Medicare Part A, for current and future retirees and their spouses.

• Stop providing a 1 percent employer contribution to the company’s Salaried Retirement Savings Program for certain active salaried workers.

• Stop providing basic life insurance for current and future active salaried employees as well as stop providing basic life insurance for retirees.

Eliminating these benefits would save Delphi $70 million annually or $200 million between April 2009 and the end of 2011. Terminating retiree health benefits would also remove $1.1 billion from the company’s balance sheet.

“You’ve effectively reduced your retirement income by a considerable amount,” says Fortuna, who left the company before becoming eligible for retiree benefits. “It’s pretty serious stuff, actually.”

A Delphi spokesman did not respond to a request for comment.

Delphi’s action is not without precedent, as the company noted in its court filing when it referenced a Standard and Poor’s report in May on the state of post-employment benefits. That report said that of the S&P 500 companies, 310 offer post-employment benefits totaling $269.1 billion in unfunded obligations.

The Bankruptcy Court for the Southern District of New York is expected to hear the termination request February 24. To read the company’s bankruptcy filing, click here.

—Jeremy Smerd

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