GM Cuts Retiree Health Care; What Next?

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In a huge shock to the salaried employees and retirees,General Motors (GM) announced yesterday that as part of a $15 billion liquidity improvement, it will no longer provide health care coverage in retirement.

The market initially reacted badly to the news, sending shares down to $8.81 intraday, but the stock recovered to $9.84, a rise of 4.9% at close.

The loss of health care will take effect on Jan. 1, 2009. A spokesperson declined to comment on the exact annual health care cost savings that will be part of GM's 20% ($1.5 billion) cost reduction in 2009. The trims will include benefits, headcount and other expenses.

The change affects 197,400 existing salaried retirees and their spouses, who have already seen reductions in their health care coverage going back to 2007. Then, a hold was put on health care contributions at the 2006 level and future pensions were slashed.

It's not all bad news. Retirees under 65 and existing employees will continue to receive coverage under the existing medical arrangements that GM self-funds. GM will not disclose how many of the 36,600 existing employees will be affected, but employees hired after Jan. 1, 1993 are not eligible for health care benefits in retirement.

Existing employees I spoke with were extremely unhappy with the announcement and did not want to be quoted on or off the record for fear of being included in any future layoffs.