UAW may run health care for retirees
Wednesday, January 24, 2007
UAW may run health care for retirees
Bryce G. Hoffman / The Detroit News
Detroit automakers and the United Auto Workers are looking at a plan that would transfer responsibility for retiree health care from the companies to the union.
While the idea is considered a long shot by many industry observers, it demonstrates just how open both sides are to considering unconventional approaches to such critical issues as they ramp up for what will be one of the most critical contract negotiations in Detroit's history.
The plan is based on a recent deal that settled a strike between Goodyear Tire & Rubber Co. and the United Steelworkers. It works like this: The automakers would fund the creation of a union-run trust that would be responsible for covering health care costs for retired hourly employees.
The companies would have to put up billions of dollars in cash and stocks, but they would then be free of this burdensome liability. It would be up to the UAW to make sure the fund remained solvent, but its members would have the security of knowing these key retirement benefits could not be taken away by a bankruptcy court judge.
Detroit's automakers say health care costs add about $1,500 to the price of each car and truck they produce, putting them at a huge disadvantage against rivals from countries like Japan where the government shoulders most of the responsibility for retiree health care.
The Wall Street Journal first reported the plan Tuesday.
GM, Ford study idea
GM told The Detroit News on Tuesday it is studying the Goodyear deal and looking into whether a similar setup could work for the automaker. Officials say the discussions are preliminary and that any Goodyear-like arrangement likely would play out differently at the automaker, in large part because GM's $50 billion health care liability is so much larger than the tire company's $1.2 billion tab.
"It would be fair to say that we have more than a passing interest in the Goodyear agreement," GM's Chief Financial Officer Fritz Henderson said earlier this month. Chairman and Chief Executive Officer Rick Wagoner also confirmed the automaker is looking at the deal.
GM has been discussing a similar plan with the UAW since 2005, according to the Wall Street Journal report.
Ford confirmed Tuesday it is familiar with the Goodyear agreement and is studying it, but would not comment further.
Only DaimlerChrysler AG's Chrysler Group ruled it out entirely.
"I would not characterize it as something we're looking at," Chrysler spokesman Dave Elshoff said about the Goodyear deal.
The UAW did not respond to requests for comment, but union dissidents said such a proposal likely would face resistance from some rank-and-file members.
"A lot of members would see it as another concession," said Todd Jordan, a founding member of Soldiers of Solidarity, a militant faction within the UAW. "No autoworker that I have talked to feels like they should have to sacrifice more or put more of their benefits at risk. This is a temporary fix for a continuing problem. It won't help the union. It won't help the automakers. Ultimately we have to push for national health care."
Analysts doubt plan will fly
Wall Street analysts were also skeptical.
Brian Johnson of Lehman Brothers said such a deal might be a way of dealing with health insurance for future retirees, but added that retirees are already protected by the contracts they retired under. Moreover, he said the new Democratic Congress and the prospect of a Democratic White House in 2009 put health care reform back on the national agenda. He said both the automakers and the union might be reluctant to commit to such a plan with such a prospect on the horizon.
But even if they did, it would be difficult for Ford or GM to fund a Goodyear-style program.
JPMorgan analyst Himanshu Patel estimates it would cost GM $33 billion and Ford $13 billion to set up the fund -- assuming they could convince the UAW to accept an investment equal to just 60 cents on the dollar.
It's an encouraging sign
Bradley Rubin of BNP Paribas doubts the union would go for that. Even if it did, he said the two automakers can ill afford that kind of cash as they struggle to pay for massive North American restructuring plans.
Ford has already mortgaged all of its U.S. assets to pay for restructuring.
"It would be great to get this off their books," Rubin said. "But it's still a lot of money."
Labor expert Harley Shaiken of the University of California-Berkeley agreed that "the devil really is in the details," but said the fact that Ford, GM and the UAW are even considering such an option is encouraging.
"The union is exploring a lot of options -- some unconventional -- aimed at cutting costs and preserving benefits," he said. "This is kind of like the prototypes that are shown at the auto show. Some of those prototypes are built; others are not. They're trying to gauge reactions. What it does show is that both sides are exploring some fundamentally different alternatives."
Detroit News Staff Writers Louis Aguilar, Sharon Terlep and Josee Valcourt contributed to this report. You can reach Bryce Hoffman at (313) 222-2443 or bhoffman@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
UAW may run health care for retirees
Bryce G. Hoffman / The Detroit News
Detroit automakers and the United Auto Workers are looking at a plan that would transfer responsibility for retiree health care from the companies to the union.
While the idea is considered a long shot by many industry observers, it demonstrates just how open both sides are to considering unconventional approaches to such critical issues as they ramp up for what will be one of the most critical contract negotiations in Detroit's history.
The plan is based on a recent deal that settled a strike between Goodyear Tire & Rubber Co. and the United Steelworkers. It works like this: The automakers would fund the creation of a union-run trust that would be responsible for covering health care costs for retired hourly employees.
The companies would have to put up billions of dollars in cash and stocks, but they would then be free of this burdensome liability. It would be up to the UAW to make sure the fund remained solvent, but its members would have the security of knowing these key retirement benefits could not be taken away by a bankruptcy court judge.
Detroit's automakers say health care costs add about $1,500 to the price of each car and truck they produce, putting them at a huge disadvantage against rivals from countries like Japan where the government shoulders most of the responsibility for retiree health care.
The Wall Street Journal first reported the plan Tuesday.
GM, Ford study idea
GM told The Detroit News on Tuesday it is studying the Goodyear deal and looking into whether a similar setup could work for the automaker. Officials say the discussions are preliminary and that any Goodyear-like arrangement likely would play out differently at the automaker, in large part because GM's $50 billion health care liability is so much larger than the tire company's $1.2 billion tab.
"It would be fair to say that we have more than a passing interest in the Goodyear agreement," GM's Chief Financial Officer Fritz Henderson said earlier this month. Chairman and Chief Executive Officer Rick Wagoner also confirmed the automaker is looking at the deal.
GM has been discussing a similar plan with the UAW since 2005, according to the Wall Street Journal report.
Ford confirmed Tuesday it is familiar with the Goodyear agreement and is studying it, but would not comment further.
Only DaimlerChrysler AG's Chrysler Group ruled it out entirely.
"I would not characterize it as something we're looking at," Chrysler spokesman Dave Elshoff said about the Goodyear deal.
The UAW did not respond to requests for comment, but union dissidents said such a proposal likely would face resistance from some rank-and-file members.
"A lot of members would see it as another concession," said Todd Jordan, a founding member of Soldiers of Solidarity, a militant faction within the UAW. "No autoworker that I have talked to feels like they should have to sacrifice more or put more of their benefits at risk. This is a temporary fix for a continuing problem. It won't help the union. It won't help the automakers. Ultimately we have to push for national health care."
Analysts doubt plan will fly
Wall Street analysts were also skeptical.
Brian Johnson of Lehman Brothers said such a deal might be a way of dealing with health insurance for future retirees, but added that retirees are already protected by the contracts they retired under. Moreover, he said the new Democratic Congress and the prospect of a Democratic White House in 2009 put health care reform back on the national agenda. He said both the automakers and the union might be reluctant to commit to such a plan with such a prospect on the horizon.
But even if they did, it would be difficult for Ford or GM to fund a Goodyear-style program.
JPMorgan analyst Himanshu Patel estimates it would cost GM $33 billion and Ford $13 billion to set up the fund -- assuming they could convince the UAW to accept an investment equal to just 60 cents on the dollar.
It's an encouraging sign
Bradley Rubin of BNP Paribas doubts the union would go for that. Even if it did, he said the two automakers can ill afford that kind of cash as they struggle to pay for massive North American restructuring plans.
Ford has already mortgaged all of its U.S. assets to pay for restructuring.
"It would be great to get this off their books," Rubin said. "But it's still a lot of money."
Labor expert Harley Shaiken of the University of California-Berkeley agreed that "the devil really is in the details," but said the fact that Ford, GM and the UAW are even considering such an option is encouraging.
"The union is exploring a lot of options -- some unconventional -- aimed at cutting costs and preserving benefits," he said. "This is kind of like the prototypes that are shown at the auto show. Some of those prototypes are built; others are not. They're trying to gauge reactions. What it does show is that both sides are exploring some fundamentally different alternatives."
Detroit News Staff Writers Louis Aguilar, Sharon Terlep and Josee Valcourt contributed to this report. You can reach Bryce Hoffman at (313) 222-2443 or bhoffman@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
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