Tuesday, October 16, 2007

Health Care Marketplace

GM Releases Details of New Contract With UAW

      General Motors on Monday announced details of its new contract with United Auto Workers, which will save the automaker billions of dollars in retiree health care liabilities through the creation of a union-run voluntary employees' beneficiary association, the Detroit Free Press reports. The VEBA will relieve GM of about $47 billion in liabilities. Beginning in 2010, it should save the company about $3 billion per year, GM officials said.

According to GM CFO Fritz Henderson, the new contract also will save the automaker on labor costs through a two-tier wage and benefit system for noncore workers (Collier, Detroit Free Press, 10/16). Workers hired into the lower tier of the new wage system would receive lower base pay and no defined-benefit pension plans or retiree health care guarantees, according to the Wall Street Journal (Stoll/Valcourt, Wall Street Journal, 10/16).

GM will put about $30 billion into the VEBA, which will include cash; money from a smaller, existing VEBA; and a $4.4 billion convertible note that could be traded for GM stock in the future. GM also agreed to make up to 19 additional payments of $165 million annually in the event the VEBA becomes insolvent (Detroit Free Press, 10/16). The contract prevents UAW from asking for further increases to the VEBA or other retiree health care contributions in future contract discussions, according to the AP/Boston Herald.

The deal leaves GM with about $17.6 billion in retiree health care liabilities for salaried workers and other obligations, according to charts the automaker posted on its Web site. The VEBA will not be established until 2010 or whenever legal issues are resolved. The agreement must be approved by federal courts (AP/Boston Herald, 10/15). GM will pay about $5.4 billion for retiree benefits in 2008 and 2009 before the VEBA is created (Detroit Free Press, 10/16).

According to the AP/Houston Chronicle, "GM is used to making trends," and "other corporations may be watching GM's historic deal with UAW" and "pushing their unions to let them put their pension into trust funds" (Holland, AP/Houston Chronicle, 10/15). David Cole, chair of the Center for Automotive Research, said, "This is absolutely a game-changing agreement. In one fell swoop, the domestic auto industry is now competitive. It can now build a car or truck as competitive with anyone else in the world" (Hammonds, Pittsburgh Post-Gazette, 10/16).

Chrysler Contract Awaiting Vote
UAW President Ron Gettelfinger on Monday said that the tentative contract with Chrysler Group received an "overwhelming recommendation" by a council of local union leaders (Valcourt/Boudette, Wall Street Journal, 10/15). However, approval of the contract by local leaders was not unanimous, as it was with GM, according to the New York Times (Maynard/Bunkley, New York Times, 10/16).

Some leaders were unhappy about Chrysler not naming specific future product guarantees to U.S. factories and not moving temporary workers to permanent positions, which was part of GM's contract, according to the Free Press (Higgins, Detroit Free Press, 10/16). Under the contract, Chrysler would contribute $8.8 billion to the VEBA. It also would pay about $1.5 billion in 2008 and 2009 for retiree health care liabilities before the VEBA assumes them in 2010. The deal also would create a two-tier wage system similar to the one created at GM (Wall Street Journal, 10/15).

Gettelfinger said that UAW has not determined when the 45,000 rank-and-file Chrysler union members will vote on the contract (Krisher, AP/Hartford Courant, 10/16).

Ford Negotiations Ahead
Ford Motor CEO Alan Mulally and UAW Vice President Bob King on Monday suggested that contract negotiations between the union and Ford should be speedy, with a more agreeable tone than the Chrysler and GM talks -- which both included short strikes, the Free Press reports. Although there is a good relationship between UAW and Ford, the automaker's situation might mean it will "require a special concessionary deal" according to the Free Press. One UAW official close to the negotiations said that job security promises are a problem with the Ford discussions, just as they were with Chrysler (Webster, Detroit Free Press, 10/16).