Caretakers of the United
Auto Workersf health care trust are concerned that the slumping
fortunes of Detroitfs
Big Three automakers could leave retirees without health care
benefits.
gObviously, wefre as worried ash the public is, says Teresa Ghilarducci, a member of the 11-person
board overseeing the UAW-run health care trust and a professor of
economic policy analysis at the New School for Social Research in
New York.
She said that given the deteriorating financial state of the
industry, the health care trust may not last as long as the 80 years
UAW leaders first projected.
Ford
and General
Motors announced further heavy financial losses Friday, November
7. Ford revealed a pretax operating loss of $2.98 billion for the
third quarter. GM reported $2.5 billion in third-quarter losses and
said in a statement that its gestimated liquidity during the
remainder of 2008 will approach the minimum amount necessary to
operate its business.h
gImmediate federal funding is needed for the U.S. automotive
industry to weather this downturn,h GM president Fritz Henderson
said in a conference call with investors.
Chrysler, which is privately run by private equity firm Cerberus
Capital Management, does not publicly disclose its finances. The
company was in talks with GM regarding a possible merger, but GM
said Friday that it would not pursue a merger with Chrysler in the
short term.
A union-run health care trust known as a voluntary
employee benefit association, or VEBA, was supposed to help the
automakers escape bankruptcy by capping the amount they would pay
for retiree health care expenses. For the retirees, the VEBA was
described as insurance against losing retiree health care benefits
should the automakers file for bankruptcy. The money would be
available for retiree health care regardless of how the automakers
fared.
But in
July, GM deferred paying $1.7 billion into the VEBA, angering GM
retirees.
gWhat we were promised in the last contract in 2007 in exchange
for very deep concessions was that our health care would be
guaranteed in the event of bankruptcy,h says Gregg Shotwell, 58, a
former GM plant worker and union member who retired last month.
gThat was a lie. Because no money actually changed hands. Here we
are today on the verge of bankruptcy and the VEBA is not funded.
Ifve already been at the back of the line with [former GM
subsidiary] Delphi. I donft want to be at the back of the line in my
retirement.h
The UAW is scheduled to take over responsibility for providing
health benefits to more than 700,000 members and dependents January
1, 2010. Union president Ron
Gettelfinger rallied UAW members to support
the VEBA in 2007 by saying it would secure retiree health care
benefits for the next 80 years. Ghilarducci says that given the
current state of the industry, there is a glow probabilityh that the
fund will last that long. Current retireesf health care benefits
were not in doubt, however.
gIfm convinced that current retirees wonft lose a penny,h she
said. gIf there are tradeoffs, wefll trade the future generations
for the current generation.h
The total value of the health care trust is to be about $60
billion, with GM providing around $33 billion, Ford roughly $15
billion and Chrysler about $9 billion. Each company will fund and
manage the VEBA separately until 2010, after which the UAW will keep
the funds for each companyfs retirees separate.
Part of the VEBA is to be funded by the deferral of a 3 percent
wage increase for current UAW workers. Layoffs of union workers,
however, could reduce the amount paid into the VEBA, though the
agreement with the UAW had some provisions in place to safeguard
against the possibility of layoffs.
Meanwhile, the UAW-run VEBA has been seeded several million
dollars to begin operations. The union is looking for a chief
investment officer and a person to manage retiree health
benefits.
The industryfs fortunes have fallen rapidly. In April 1990, GMfs
stock traded above $90 per share. Today, GM shares are worth less
than $5. The credit crisis, weak consumer demand and high fuel costs
have propelled the industry to the brink of insolvency and
Washington to seek a federal bailout.
gIf we get the money [for the VEBA], wefll be OK,h Ghilarducci
says. gIf the companies go bankrupt, then wefll stand in line with
all the other creditors.h
—Jeremy
Smerd