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GM says it will seek givebacks on retiree healthcare costs

Firm says it is a $68b burden

DETROIT -- General Motors will seek relief from its whopping $68 billion post-retirement employee healthcare obligation in contract talks with the United Auto Workers union, according to an annual report filed with federal regulators.

In the filing yesterday with the Securities and Exchange Commission, General Motors Corp. said healthcare is its largest competitive disadvantage, and the burden could grow on a global basis.

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 only a day after GM's delayed release of financial results for the fourth quarter and full year 2006. The earnings report was delayed as it sorted through accounting issues dating to 2002.

GM told the SEC that it spent $4.8 billion on healthcare in the United States last year, and that is expected to drop only slightly to $4.7 billion this year.

"We must continue to make structural changes to reduce our US health-care cost burden," the company's report said.

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 hamper efforts to cut costs.

GM said it provides extensive pension and retiree healthcare benefits to more than 400,000 retirees and surviving spouses in this country.

In the filing, the company pointed out that the UAW agreed to retiree healthcare cost sharing in 2005 that reduced its post-retirement health care obligations by $17 billion, and it capped salaried retiree healthcare spending levels effective in January.

But Lehman Brothers analyst Brian Johnson said in a note to investors that the 2005 agreement eliminates GM's ability to change retiree healthcare benefits because it remains in effect until 2011.

A challenge to the agreement remains in a federal appeals court, and Johnson said any new agreement would need court approval, which he said is unlikely.

A UAW spokesman declined to comment on the filing. GM spokesman Dan Flores said healthcare costs remain under discussion with the union.

"We are looking at a variety of alternatives to address the healthcare burden. We aren't going to speculate on those options we are exploring, and we are working with our unions to develop solutions together," he said.

On Wednesday, Detroit-based GM reported a 2006 fourth-quarter net profit of $950 million, but the company lost $2 billion for the year. It also lost $10.4 billion in 2005, and is shedding thousands of jobs and closing plants to shrink its factory capacity so that it can compete with Asian automakers, mainly Toyota Motor Corp.

Also in the filing, GM said it has received subpoenas from the SEC and a federal grand jury investigating its financial reporting.

The investigations include GM's financial reporting for post-retirement employee benefits and its transactions with Delphi Corp., GM's former parts operation .