General Motors Death Watch 36: Wattsamatta U

To paraphrase Bullwinkle J Moose: "Hey Rocky, watch Ricky pull a rabbit out of his hat!" On the very day when Rabid Rick Wagoner revealed that GM had lost $1.6b during the third financial quarter, The General's CEO announced that he'd cut a deal with the United Auto Workers (UAW). The long-awaited, deeply-desired agreement allegedly reduces the automaker's health care costs. Its announcement had an invigorating effect on the press ("Can UAW deal spur turnaround?") and GM's stock price (up $2.11). What's more, it's quelled the chorus of anti-Rick rumblings. How he gets away with this shit is beyond me.

First of all, the accord's exact details are secret. As of this writing, no one outside of the GM – UAW executive loop knows how this "historic agreement" will lop a claimed $3 billion a year from the automaker's health care costs. The most likely instrument is an increase to UAW member's health care co-pays, premiums and deductibles. Which is why Rabid Rick and union boss Big Ron Gettelfinger are keeping shtum; the UAW rank and file must OK the cuts. Say what you will about Big Ron's leadership, but there's a good chance his membership will tell him to take his increased health care costs and put them where the sun doesn't shine.

So what we have here is a tentative deal; as in a long way from done and dusted. Oh, did I mention that the $3b in savings are before-tax dollars? Give Uncle Sam his due and GM's economy shrinks to $1 billion per year. Hmmm. Let's put that in perspective. This year, GM shelled out $5.6b for its workers health care. So the theoretical savings represent, at best, a 25% reduction. With inflation in the sector running at 15%, you're actually looking at a savings of… 10%. Wow. No wonder GM camp followers believe salvation is at hand.

While we're at it, keep in mind that the General lost $1.6b this quarter after increasing sales by five per cent. (Yes, increasing.) That brings GM's total annual losses in the North American market, so far, to about $4.1b, with current sales dead in the water. If we're conservative and deduct another couple of billion from GM's cash reserves for a piss-poor fourth quarter, we're looking at a $6.1b loss for the year. So, if the UAW deal had been in place this year, GM would have lost "just" $5b. Oh, that's alright then.

Also, lest we forget, GM has this annoying habit of losing a billion here, ten billion there. Forbes writer Jerry Flint reckons GM has already pissed away some $21b on its foreign "alliances"– without figuring the cost of what else GM might have done with the cash. Shuttering Saturn, Saab or Buick (an idea whose time came five years ago) would cost GM billions more. Who knows what other billion dollar bombshells lurk in GM's future? While I don't make enough money to call a billion dollars chump change, forgive me for not considering a billion bucks the difference between life and death for The General.

But wait: it gets worse. Much worse. As you'd expect, the UAW's tentative deal was not a one-sided affair. Again, GM's concessions are shrouded in secrecy, but ye olde sources close to The General report that Rabid Rick agreed to assume Delphi workers' pension costs. Previously, GM had claimed that their liabilities to its former workers might be… nothing. Apparently, Rabid Rick will now ADD money to their pension fund, from the previously estimated high ball figure of $9b to a staggering $12b. What will THAT cost The General on an annual basis?

Alarmist? I don't think so. Anyone who didn't hear that Rabid Rick also announced plans to sell off a "majority interest" in GMAC is deaf. GM's finance arm is it: the cash cow. Sure, the estimated $10b in cash from the sale would see GM through the tough times ahead– right until it doesn't. Think of it this way: if GM is losing $1b plus per quarter NOW, with its factories churning-out HHR's and the like, how much will they hemorrhage during the inevitable Delphi strike, when those factories fall silent?

One person who won't remain silent for long is Mr. Las Vegas, Mr. 10%, GM investor Kirk Kerkorian. You may have noticed that we haven't heard a peep out Mr. Kerkorian's Tracinda Corporation since The Rick and Ron Show pulled the wool over the industry's eyes. Anyone who thinks that's because Rabid Rick's last minute UAW deal– sorry, tentative deal– has rescued his reputation underestimates both Mr. Kerkorian's business chops and the true extent of GM's union-related woes. It's only a matter of time before Rick's forced to say "Maybe I should get another hat."