General Motors Corp. will try to reduce its staggering employee and retiree health care liabilities in upcoming contract talks with the United Auto Workers, according to a government regulatory filing Thursday.
The world’s largest automaker also said it has determined its internal financial controls are ineffective and that it is working to fix them. It has said previously that federal authorities are investigating its financial reporting.
The comments came in its annual report filed with the Securities and Exchange Commission only a day after its delayed release of financial results for the fourth quarter and full year 2006. The earnings report was delayed as its sorted throught accounting issues dating to 2002.
GM said in the annual report its obligation for post-retirement health care and other benefits was $68 billion at the end of last year and could grow on a global basis. It spent $4.8 billion on health care in the U.S. last year, and expects that will drop only slightly to $4.7 billion this year.
“We must continue to make structural changes to reduce our U.S. health-care cost burden, the source of our largest competitive cost disadvantage,” the company said in the filing.
GM said it needs to continue to reduce structural and material costs, and its production must become more efficient in order to return to profitability. But it said restrictions in labor agreements could limit cost savings.
“Our current collective bargaining agreement with the UAW will expire in September 2007, and we intend to pursue our cost-reduction goals vigorously in negotiating the new agreement,” the company said, adding that a UAW strike or threat of a strike could affect its business and impair further cost reductions.
GM said it provides extensive pension and retiree health care benefits to more than 400,000 retirees and surviving spouses in the U.S.
In the filing, the company noted that the UAW agreed to retiree health-care cost sharing in 2005 that reduced its post-retirement health care obligations by $17 billion, and it capped salaried retiree health care spending levels effective in January.
A UAW spokesman declined to comment on the filing.
Also in Thursday’s filing, GM said it has received subpoenas from the SEC and a federal grand jury investigating its financial reporting. It had disclosed the investigations last year.
The investigations include GM’s financial reporting for its pension and other post-retirement employee benefits and its transactions with Delphi Corp., GM’s former parts operation that was spun off as a separate company.
The company detailed federal investigations into its transactions with Delphi and other suppliers in its 2005 annual report filed last year.
The filing said GM has continued to improve its internal controls, but if it can’t fix them permanently, “It may adversely impact our ability to report our financial condition and results of operations in the future accurately and in a timely manner, and may potentially adversely impact our reputation with stakeholders,” the filing said.
GM also said it is cooperating with the government in the investigations.
“A negative outcome of one or more of these investigations could require us to restate prior financial results and could result in fines, penalties or other remedies being imposed on GM,” the filing said.
Earlier this year, GM said it had hired outside financial advisers to help restructure its corporate controller’s office.
On Wednesday, GM reported a profit of $950 million for the fourth quarter, but the company still lost $2 billion for the year. It also lost $10.4 billion in 2005, and is in the midst of shedding thousands of jobs and closing plants to shrink its factory capacity to be more competitive with Asian automakers, mainly Toyota Motor Corp.
