CNN Money is reporting GM offers workers up to $140K to leave.

General Motors is offering hourly workers as much as $140,000 each to leave the troubled automaker as it extends its push to cut labor costs and put an end to billions of dollars in losses.

GM announced the agreement with the United Auto Workers union Wednesday, though it did not give the details of the offer extended to all of its 113,000 U.S. hourly employees.

But a person familiar with terms of the offer said that UAW members with at least 10 years of service at the world’s largest automaker will get $140,000 if they give up the retiree health care coverage that has become a crippling burden for GM. Those workers will keep their accrued pension benefits.

Those with less than 10 years service will get $70,000 if they leave without the health care coverage.

Industry experts said that relatively few GM employees were likely to take the buyouts, though, since most of them are eligible for an alternative early retirement package announced Wednesday that would allow them to keep their health care coverage.

Some workers could receive more than $100,000 under the early retirement plan, and that could limit the cost-savings to GM, analysts said.

“It’s a major step forward but it’s certainly no where near all what they have to accomplish to turn North America around,” said David Healy at Burnham Securities, who does not have a formal rating on the stock.

The company announced the early retirement package as part of long-awaited contract agreement with bankrupt auto parts maker Delphi and the UAW — a deal seen as key to avoiding a crippling strike at the parts supplier.

Some analysts said GM’s moves were not enough to change their view of the stock, and the stock barely edged higher in afternoon trading on the New York Stock Exchange.

Efraim Levy, an auto analyst at Standard & Poor’s, reiterated his “sell” recommendation on GM stock after the announcement. “I don’t look at it as a particular positive by itself,” he said.

Levy said most workers know the value of the retiree health care plan at GM and will not forfeit that benefit. “I’m sure there are people who could use an immediate cash infusion, but I don’t think it’ll be a big percentage,” Levy said. “I don’t think I would take that deal.”

He said most who do take it will have another source for health coverage, such as a spouses’ health plan, or will be those who doubt GM’s retiree health care plan will survive in the long run.

He also said the agreement with Delphi, while an important step to avoiding a strike there, also is not a final solution to the negotiations between the bankrupt auto parts maker and the union.

UAW President Ron Gettelfinger said that while the union leaders support the buyout and early retirement offers, they still have serious disagreements with Delphi.

The top pay for a GM hourly employee is $27 an hour, but with benefits and future health care costs GM estimates that hour of work costs the company $73.73. The flat wage works out to about $56,000 a year before overtime, so those taking a $140,000 buyout would get about 2-1/2 years of pay in the lump sum.

GM has an incentive to offer buyouts and early retirement because of job guarantees for UAW members that run through September 2007. It announced plans in November to close a dozen plants and slash 30,000 jobs in North America, but without employees taking early retirement or the buyouts, GM will have to keep paying them almost their full salary.

GM also has contract obligations to the union members at Delphi, which it spun off in 1999. It said those costs could have gone as high as $12 billion, though last week it said the cost would likely be closer to the $5.5 billion pretax charge it took in the fourth quarter.

GM announced Wednesday it will take additional charges this year as part of the new offer.

Delphi executives, who are seeking steep concessions and set a March 30 deadline for a deal, have threatened to go to the bankruptcy court to have its labor deals thrown out without an agreement. The union has threatened a strike if Delphi takes that step.

Delphi said it will keep talking to try to reach a pact with the UAW and other unions at Delphi. But the three-way agreement announced Wednesday could clear the way for those pacts.

S&P;’s Levy is among those who do not think there will be a strike at Delphi. “There’s too much at risk not to reach an agreement,” he said.

Under the early retirement offer, GM’s eligible workers are being offered $35,000 to retire now. GM also will offer 13,000 Delphi employees with 30 years of service the same $35,000 to retire. And GM is also offering jobs at GM to 5,000 Delphi employees to help its former parts unit cut costs.

GM has 36,000 U.S. hourly employees with at least 30 years of service who are eligible for retirement. Another 27,000 are within three years of that threshold, according to GM.

The latter group will also get an early retirement offer of $30,000 to $36,000 a year as they accrue service. The GM and Delphi employees who take those retirement incentives will retain their health care coverage.

The company says the average GM hourly employee is 50.4 years old and has 24 years of service, so a majority of the U.S. hourly work force is within a couple of years of retirement and will probably not even have to weigh giving up their retiree health care coverage.

I am struggling to reconcile two paragraphs from the article:

1) UAW members with at least 10 years of service at the world’s largest automaker will get $140,000 if they give up the retiree health care coverage that has become a crippling burden for GM. Those workers will keep their accrued pension benefits.

2) Under the early retirement offer, GM’s eligible workers are being offered $35,000 to retire now. GM also will offer 13,000 Delphi employees with 30 years of service the same $35,000 to retire. And GM is also offering jobs at GM to 5,000 Delphi employees to help its former parts unit cut costs.

It seems the difference between $35,000 and $140,000 is in giving up retiree health coverage. At $140,000 per employee, does anyone think these terms will ever get better?

Given that GM has an incentive to offer buyouts and early retirement because of job guarantees for UAW members that run through September 2007, it would seem likely that any such offers would be likely to decrease over time. Offers would end abruptly if GM decided to heck with it all and just filed for bankruptcy.

GM has 36,000 U.S. hourly employees with at least 30 years of service who are eligible for retirement. Another 27,000 are within three years of that threshold.

If everyone with 27 years of service takes the offer and drops the medical coverage, that would be 63,000 workers at $140,000 each or $8,820,000,000. That is quite a bit of cash given that Those workers will keep their accrued pension benefits.

Does GM even want to get rid of 63,000 workers? The announced cutback was 30,000 workers. Assume they are willing to get rid of another 15,000 workers. 45,000 workers at $140,000 each would set GM back $6,300,000,000.

But how does that even let GM off the hook? It would chew up considerable cash and GM would still have pension obligations.

It seems to me that this is a more than fair offer and the employees should take it.
Wouldn’t $140,000 buy a lot of medical coverage if one wanted it?
Those over 65 would be eligible for Medicare would they not, so why not take the money and run?

I just do not comprehend this position by the S&P;: Levy said most workers know the value of the retiree health care plan at GM and will not forfeit that benefit. “I’m sure there are people who could use an immediate cash infusion, but I don’t think it’ll be a big percentage,” Levy said. “I don’t think I would take that deal.”

In light of the fact that the S&P; has the odds of a GM bankruptcy at 30% and Levy himself “reiterated his “sell” recommendation on GM stock after the announcement. “I don’t look at it as a particular positive by itself” he said, one can only wonder “What the heck is he thinking?” One can get 2 1/2 years pay and still not lose pension benefits or stay and worry about bankruptcy and the terms thereof for the rest of his life!

As I see it, there should be 63,000 workers scrambling for a mere 30,000 to 45,000 potential offers.

I did a quick post on this earlier today on the Motley FOOL without crunching through the numbers and this is what Kestral had to say:

Having seen people around me who have been offered packages, the right choice so far has always seemed to be to TAKE THE PACKAGE.

A typical example: a friend of mine worked for a school board for 20 years as a teacher assistant and the board needed to cut budget, so they offered her and some of her colleagues a package. She took the package which was a lump sum of money.

The board started doing things to those that stayed to “motivate” them to leave (e.g. assigning the TAs to two schools, one in the morning in the east side of town, then one in the afternoon on the west side). Those people got no package.

In other cases, packages were offered again but a lower amount.

So from what I’ve seen, when the offer a package: Do not pass GO, bypass Boardwalk, take a ride on the Reading Railroad and go directly to PACKAGE. TAKE IT.

On the assumption that $140,000 is indeed a valid offer I have to agree with Kestral “Do not pass GO, bypass Boardwalk, take a ride on the Reading Railroad and go directly to PACKAGE. TAKE IT.”

Mike Shedlock / Mish/