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UAW - GM Health Care Settlement Agreement Receives Court Approval, Allowing GM to Pursue Continued Progress on Turnaround Plan


April 2006
 Filed under: GENERAL MOTORS CORPORATE Car News | GENERAL MOTORS CORPORATE Headlines
March 31, 2006

DETROIT – General Motors Corp. (NYSE: GM) today announced that the U.S. District Court in Detroit has given its approval of the health-care settlement agreement between GM, the United Auto Workers Union (UAW) and the class representatives. The decision by the U.S. District Court Judge Robert Cleland means that GM can immediately begin to implement modifications to the health-care plan for GM’s U.S. hourly retirees. Full implementation is expected to be completed by June 1, 2006.
“When we announced last October our tentative agreement on health care with the UAW, we said that it would significantly reduce GM’s health care costs while allowing GM to maintain high-quality health care benefits for our hourly retirees,” GM Chairman and Chief Executive Officer Rick Wagoner said. “This approval allows us to fulfill those important objectives as we continue to rapidly implement all aspects of our North American turnaround plan.”

As previously disclosed, the health-care agreement is expected to reduce GM’s retiree health-care (OPEB) liabilities by about $15 billion, or 25 percent of the company’s hourly health-care liability, and reduce GM’s annual employee health-care expense by about $3 billion on a pre-tax basis. Cash savings are estimated to be about $1 billion a year.

Approval of the health-care settlement is the latest in a series of important milestones in GM’s North American turnaround plan. The plan features four focus areas (1) product excellence; (2) revitalize sales and marketing; (3) significantly reduce cost while improving quality; and (4) address the health-care cost disadvantage.

Other important actions include:

· Last Wednesday, GM announced that it had reached an agreement with the UAW and Delphi Corp. to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement is subject to court approval in the Delphi Chapter 11 bankruptcy proceeding. This supports GM’s decision to reduce excess production capacity by one million units annually and eliminate 30,000 manufacturing jobs by 2008.

· On March 7, GM announced changes to the U.S. salaried pension plan under which GM will freeze accrued benefits in the current plan at the end of 2006, and implement a new benefit structure for subsequent accruals. This will include a reduced defined benefit plan for some salaried employees and a new defined contribution plan for the other salaried employees. These actions are expected to reduce FAS 87 annual pre-tax pension expense by approximately $420 million in 2007, and reduce GM’s pension liability by approximately $1.6 billion at year-end 2006.

· On Feb. 7, GM announced that it would cap its contributions to salaried retiree health care, effective Jan. 1, 2007. This action is expected to reduce OPEB liability by approximately $4.8 billion and reduce OPEB expense by about $900 million.

These initiatives, when fully implemented, are expected to significantly reduce GM’s structural costs. In late 2005, GM set a target to reduce costs in North America by $7 billion, consisting of a reduction in its structural costs by $6 billion on a running-rate basis, and a reduction in its material costs by $1 billion by the end of 2006.

Largely due to additional cost-reduction actions in the areas of U.S. salaried retiree health care and U.S. salaried employee pension benefits, GM now expects to reduce structural costs in North America by about $7 billion on a running-rate basis by the end of 2006. Approximately $4 billion of the structural cost reduction is expected to be realized during calendar year 2006 which will give GM a real boost in achieving its objective to reduce global structural cost to 25 percent of revenue by 2010, down from approximately 34 percent in 2005.

In addition, this $7 billion on a running-rate basis now takes into account the unfavorable impact on structural costs of $1 billion contributions that GM has committed to make to a new defined contribution VEBA Trust in each of 2006, 2007, and 2011 as part of the health care settlement agreement.

“In addition to the progress we are making to reduce costs, we also are firmly committed to the revenue-enhancement elements in our huge cost reduction initiatives of our turnaround plan, specifically product excellence and revitalizing our sales and marketing strategy,” Wagoner said. He added that in support of GM’s aggressive product offensive, GM expects to increase its capital spending again in 2006 to $8.7 billion.

On the sales and marketing strategy front, in January of this year, GM significantly lowered manufacturer’s suggested retail prices on vehicles accounting for about 80 percent of its GMNA automotive sales volume, further supporting its initiatives to revive the focus on the value of GM’s strong product line-up, and reduce focus on incentives.

“Strong products are the cornerstone of our turnaround efforts,” Wagoner said. “We’re especially pleased with the early sales of our new full-sized sport utilities, the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade, and we expect to build on this momentum with the introduction of the new Saturn vehicles later this year.” GM anticipates that recently launched vehicles will account for 29 percent of its U.S. sales volume in 2006, up from 22 percent in 2005.

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Forward-looking Statements

In this press release and in related comments by General Motors’ and General Motors Acceptance Corporation’s management, the use of the words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” “designed,” “impact,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements in this press release and in related comments, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.

While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and GM’s actual results may differ materially due to numerous important factors that are described in GM’s most recent report on SEC Form 10-K, which may be revised or supplemented in subsequent reports on SEC Forms 10-K, 10-Q and 8-K. Such factors include, among others, the following: the resolution of accounting issues relating to ResCap cash flows, the ability of GM to realize production efficiencies, to achieve reductions in costs as a result of the turnaround restructuring, to achieve reductions in health care and pension costs and to implement capital expenditures at levels and times planned by management; the amount and rate of employee attrition; the pace of product introductions; market acceptance of the corporation’s new products; significant changes in the competitive environment and the effect of competition in the corporation’s markets, including on the corporation’s pricing policies; our ability to maintain adequate liquidity and financing sources and an appropriate level of debt; restrictions on GMAC’s and Residential Capital Corporation (ResCap)’s ability to pay dividends and prepay subordinated debt obligations to us; changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates; costs and risks associated with litigation; the final results of investigations by the SEC; costs and risks associated with litigation; the final results of investigations and inquiries by the SEC; changes in our accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could result in an impact on earnings; changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees; negotiations and bankruptcy court actions with respect to Delphi Corp.’s obligations to GM, negotiations with respect to GM’s obligations under the pension benefit guarantees to Delphi employees, and GM’s ability to recover any indemnity claims against Delphi; labor strikes or work stoppages at GM or its key suppliers such as Delphi or financial difficulties at GM’s key suppliers such as Delphi; additional credit rating downgrades; the effect of a potential sale or other extraordinary transaction involving GMAC on the results of GM’s and GMAC’s operations and liquidity; other factors impacting financing and insurance operating segments’ results of operations and financial condition such as credit ratings, adequate access to the market, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate, and changes in our contractual servicing rights; shortages of and price increases for fuel; and changes in economic conditions, commodity prices, currency exchange rates or political stability in the markets in which we operate.

In addition, GMAC’s actual results may differ materially due to numerous important factors that are described in GMAC’s most recent report on SEC Form 10-K, which may be revised or supplemented in subsequent reports on SEC Forms 10-K, 10-Q and 8-K. Such factors include, among others, the following: the ability of GM, to complete a transaction with a strategic investor regarding a controlling interest in GMAC while maintaining a significant stake in GMAC, securing separate credit ratings and low cost funding to sustain growth for GMAC and ResCap and maintaining the mutually beneficial relationship between GMAC and GM; significant changes in the competitive environment and the effect of competition in the corporation’s markets, including on the corporation’s pricing policies; our ability to maintain adequate financing sources; our ability to maintain an appropriate level of debt; the profitability and financial condition of GM, including changes in production or sales of GM vehicles, risks based on GM’s contingent benefit guarantees and the possibility of labor strikes or work stoppages at GM or at key suppliers such as Delphi Corp.; funding obligations under GM and its subsidiaries’ qualified U.S. defined benefits pension plans; restrictions on ResCap’s ability to pay dividends and prepay subordinated debt obligations to us; changes in the residual value of off-lease vehicles; changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate; changes in our contractual servicing rights; costs and risks associated with litigation; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of GMAC or GM; the threat of natural calamities; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations.

Investors are cautioned not to place undue reliance on forward-looking statements. GM undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.

Use of the term “loans” describes products associated with direct and indirect lending activities of GMAC’s global operations. The specific products include retail installment sales contracts, loans, lines of credit, leases or other financing products. The term “originate” refers to GMAC’s purchase, acquisition or direct origination of various “loan” products.

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