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GM Canada cost-cutting has repercussions for retirees

Workers on General Motors 'flex line' build automobiles in Oshawa, Ont.

Kevin Van Paassen/The Globe and Mail/Kevin Van Paassen/The Globe and Mail

A change in the way health care is financed for unionized retirees of General Motors of Canada Ltd. helped its parent company's bottom line, but reduced benefits for more than 30,000 retirees.

GM Canada's unionized retirees began paying more this month for dental coverage and prescription drugs while payments for eyeglasses, extended care and other benefits have been reduced as the trust set up to cover those benefits battles inflation in health-care costs.

The benefit cuts, and a lawsuit by GM Canada's salaried retirees over the same issue, are signs that the descent of its parent company into bankruptcy protection in 2008-2009 is still generating fallout almost three years after taxpayers bailed out the auto maker.

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The financial crisis sent General Motors Corp. into Chapter 11 bankruptcy protection and came close to sending its Canadian unit into protection under the Companies' Creditors Arrangement Act.

When the federal and Ontario governments contributed $10.6-billion to the GM bailout, they insisted GM Canada eliminate or reduce such burdens as the cost of retiree health care and pensions.

The creation of a health care trust to finance benefits and the elimination of about one-third of the company's Canadian dealer network helped keep the company out of CCAA protection.

The Canadian Auto Workers union agreed to the creation of the trust, which shifted the future costs of benefits off GM Canada's books. The company made a one-time contribution of $2.5-billion to finance the plan, which was approved by the Ontario Superior Court.

But cost increases in health care far outstripped the returns the fund was generating.

"We were spending about $123-million for the full year in 2011 and we can afford to spend around $100-million," Gord Graham, executive director of the trust, said in an interview.

Given the cap on GM's contribution, there was no choice but to reduce benefits, the trustees said in a memo to retirees.

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Shifting the costs to the trust led to $749-million (U.S.) financial gain for the North American operations of General Motors Co. , the company said in its year-end financial results.

The creation of the health care trust provides hourly retirees with better security for their future health care, said GM Canada spokeswoman Faye Roberts. It's up to independent trustees to balance the interests of members, the expected return on investment and the need to finance future obligations, Ms. Roberts said.

But the reduction in benefits and increases in co-payments means costs for retirees have soared by about 29 per cent, said Chris White, who worked as an electrician for 32 years at the company's Oshawa, Ont., operations before retiring on Jan. 1, 2009.

"Coupled with no increase in [pension cost of living adjustment] this means the standard of living is decreasing daily for retirees," Mr. White said.

That complaint was echoed by salaried retirees in a $500-million class-action lawsuit filed last year against GM Canada.

"Many of the class members live on modest non-indexed fixed incomes and they are particularly vulnerable as a result of their advanced age, susceptibility to health problems and limited capacity to assume increased financial burdens or to seek additional employment," says an amended statement of claim filed in the case.

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GM Canada responded that it had the right to modify or terminate post-retirement benefits.

"Between 2007 and 2009, GMCL was faced with unprecedented and company-threatening economic circumstances," the company said in a statement of defence. "Consequently, GMCL announced modifications to certain post-retirement benefits provided to salaried and executive retirees and their surviving spouses and dependents, which were designed to save money and help the company survive."

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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