Tuesday, September 04, 2007 Health
Care Marketplace
Growing Number of UAW Members Oppose Plan That
Would Shift Responsibility of Retiree Health Care Costs to
Union
Some United Auto Workers members are opposed to the creation of
a voluntary employee beneficiary association for management of retiree
health benefits, which could be established during contract negotiations
between the union and Ford Motor, General Motors and Chrysler Group, USA Today reports. They are concerned that
the VEBA one day could go bankrupt and leave current and future retirees
uninsured or underinsured (Silke Carty, USA Today, 9/4). Ford
and GM in August asked UAW to assume responsibility for the health care
benefits of more than 1.5 million working and retired employees. Under the
arrangement, the companies would transfer retiree health care obligations
to an independent trust fund that the union would manage. Such a request
was largely anticipated and would free the automakers from future retiree
health obligations. The contract negotiations began in July (Kaiser Daily Health Policy Report,
8/29).
According to USA Today, the
automakers want to fund a VEBA at 60% to 70% of projected health care
costs. Past attempts at creating a VEBA failed because UAW wanted the
automakers to fund the VEBA at 100% of costs. David Cole, chair of the Center for Automotive
Research, said the Big Three must fund a VEBA below full costs to be
financially prudent, adding that if they pay more than 70% of costs, they
would fail to reduce labor costs adequately to increase competitiveness
with rival Asian automakers.
However, some labor activists are
campaigning against a VEBA funded at that level. USA Today
reports that Future of
the Union, a "dissident labor group," has been working to sway union
members to oppose a VEBA agreement in light of failed VEBAs established by
UAW with Caterpillar and Detroit Diesel, both of which ran out of funds.
Funding Levels in Question
All three automakers want to
establish a VEBA, but the "clock is ticking" because the contracts for all
three companies expire on Sept. 14, according to USA Today
(USA Today, 9/4). The Detroit News reports that the discussion on a
VEBA has come down to "two critical questions: How much the automakers
should pay, and how they should pay for it."
People close to the
negotiations have said UAW agrees that it only will make sense for the
automakers to establish a VEBA if they can do so at a reduction of total
health care liabilities, but union leaders and the companies do not agree
on the amount. An executive of one company told the News that
his company could afford 60% but that 70% would be "pushing it." Fitch Ratings, which
sets credit ratings for Ford and GM, has estimated that a VEBA could cost
GM between $30 billion and $35 billion, Ford between $14 billion and $17
billion, and Chrysler between $6 billion and $9 billion, depending on how
much of a discount is authorized. Signing a deal could raise credit
ratings for Ford and GM, the automakers have said.
Funding Mechanisms Considered
Should a VEBA be approved, the
companies also must decide how to fund it. Analysts have said that
although GM and Ford have cash on their balance sheets, they need that
funding for restructuring plans. Therefore, they would seek to fund a
significant portion of a VEBA with stock. Cole said that funding a VEBA
with stock might be beneficial to UAW because the value of Ford and GM
stock likely will increase after signing contracts including a VEBA. "That
alone could significantly increase the value of the stock," Cole said,
adding, "They could take advantage of that kick." If the companies' stock
improves as analysts expect under a VEBA deal, UAW could sell the shares
and diversify its investments, according to the News.
Another funding option would be to spread the payments out over
time. The News reports that both options might be a hard sell
to UAW members because spreading payments out over time or taking stock
payment from companies with financial troubles is risky. "Those benefits
are vulnerable right now, and (union leaders) know it," Cole said, adding,
"They have to have sustainably profitable companies, or they have no
future" (Hoffman, Detroit News, 9/4).
The New
York Times reports that UAW is being advised on the deal by
financial consultant Lazard, with which it has consulted on past health care
negotiations. If the negotiations for a VEBA fall through, the companies
are likely to ask for "significant concessions in other aspects of the
contract, including wages, benefits and work rules," according to the
Times (Bunkley/Maynard, New York Times, 9/4).
UAW Unlikely To Select Lead Negotiator
UAW likely will
negotiate contracts individually with each automaker instead of selecting
a lead negotiator, which is a "break from traditional tactics," the Washington Post reports. In the past, UAW has
picked the company with the best financial situation as its lead contract
negotiator in order to increase its chances of "extracting major
concessions," but sources close to the negotiations have said union
officials are working with all three companies separately, according to
the Post. UAW still could pick a lead company at any time
(Freeman, Washington Post, 9/4).
Experts say that if
a leader is chosen, it likely will be GM because it is "healthier than
Ford and the most intent on creating a VEBA fund," the New York
Times reports. However, the leader also could be Ford because UAW
President Ron Gettelfinger has a long-standing relationship with the
company. Chrysler is the least likely option (New York Times,
9/4).
Strike Vote Takes Place
With the contract's expiration near,
UAW has asked its members to authorize a strike, and voting ended on
Friday, the AP/Chicago Tribune reports. The move is
standard and does not indicate that a strike will occur. The tally has not
been finalized yet, but it is typical for authorization to be approved by
a wide margin (Krisher, AP/Chicago Tribune, 9/3). Company
executives and analysts have said a strike is not expected to occur
because it could severely hinder the automakers or even bankrupt one of
them, according to the Post (Washington Post,
9/4).
Comments
Bradley Rubin of BNP
Paribas said, "It will be a bloodbath if [a VEBA] doesn't happen,"
adding, "That's why it has to happen." Cole said, "The discount and how to
fund it are the really tricky issues right now," adding, "(But) from what
I've heard, they're coming together. I think it's going to happen"
(Detroit News, 9/4). David Gregory, a professor of law at St. John's University,
said, "It would be really remarkable if there was a strike. You'd need a
complete collapse of negotiations," adding, "A strike this time around
could be absolutely lethal for the company being struck" (New York
Times, 9/4).
UAW Vice President Cal Rapson, who is on the
GM negotiation team, on Saturday in Flint, Mich., told hundreds of UAW
members that UAW is "determined not to put any more costs on retirees for
their health care" (Aguilar, Detroit News, 9/2).