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COPYRIGHT 2005 Voxant Inc.
Original Source: NIGHTLY BUSINESS REPORT
PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: General Motors inks a deal with the UAW over healthcare costs, but will it be the right prescription for the automaker`s bottom line? Tonight a look at that historic deal and what it means for General Motor`s future.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Then after the bell, big blue delivers big earnings. IBM beat Street estimates thanks to a rebound in its consulting and hardware divisions.
KANGAS: And a big win for big tobacco. The Supreme Court siding with cigarette makers in their Federal racketeering case. That ruling ignited tobacco stocks. Details coming up.
GHARIB: Also tonight, a glimpse of the toy story to come. The latest earnings from the makers of Barbie and Mister Potatohead don`t bode well for this year`s holiday selling season.
KANGAS: I`m Paul Kangas.
GHARIB: And I`m Susie Gharib. This is NIGHTLY BUSINESS REPORT for Monday, October 17.
Good evening everyone. A breakthrough deal today between General Motors and its auto workers union. GM announced a tentative agreement with the United Auto Workers union to slash its healthcare costs, saving the company more than a billion dollars every year. The news came at the same time that the automaker announced a massive third quarter loss of $1.5 billion. As Diane Eastabrook reports, the sweeping changes at GM could impact the entire auto industry.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The deal General Motors negotiated with the United Auto Workers could cut the company`s health care liabilities by $15 billion. That`s about 25 percent of its hourly health care cost. Chairman and CEO Rick Wagoner called the deal a huge move for GM.
RICHARD WAGONER, CHAIRMAN & CEO, GM: I think today`s tentative agreement with the UAW on healthcare certainly, I think, shows a realistic and focus on how we can work together to address what are clearly some competitive challenges.
EASTABROOK: The tentative agreement would cut GM`s health care expenses by $3 billion annually before taxes. It also includes a defined contribution Voluntary Employee Benefit Association, or VEBA, that the auto maker says would help offset health care cuts to UAW retirees. While industry watchers called the deal historic, some analysts say it doesn`t solve all of the auto maker`s problems.
JERRY MARKS, AUTO ANALYST, RAYMOND JAMES: Taking away 25 percent of your (INAUDIBLE) liabilities is nice. But if you`re still having to pay your UAW workers 95 percent of their pay even if they`re not building a vehicle, that becomes a problem.
EASTABROOK: The scope of GM`s problem was reflected today when it announced yet another quarterly loss. Excluding special items, GM lost a $1.5 billion, or $1.92 a share in the third quarter, more than double the amount analysts expected. It also stood in stark contrast to the profit GM made during the same period last year. But GM says more cost-cutting is needed. It plans to trim materials cost by about a billion dollars annually and structural costs by $5 billion through the end of next year. The company also wants to shed up to 25,000 jobs and close some under performing plants. Marks says those moves could go a long way in GMs overall recovery.
MARKS: Until you start to rationalize your capacity, which General Motors talked a little about in their press release today, that`s the real problem that they need to solve.
EASTABROOK: But before those problems can be fixed, GM and the UAW leadership need to sell the agreement on health care cuts to the union`s rank and file, and labor experts say that could be a tough sell.
ROBERT BRUNO, LABOR RELATIONS PROF., UNIVERSITY OF ILLINOIS-CHICAGO: This appears to be a significant step back, a real punishing concession to make such a huge cut in the health care that they`re provided. It`s a significant change...
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