AUTO INDUSTRY
UAW, Ford OK health-care deal
Union says it will allow automaker to use Ford stock as its contribution to a trust fund that covers health costs of retired autoworkers.
Tuesday, February 24, 2009
DETROIT — The United Auto Workers and Ford Motor Co. said Monday, Feb. 23, they agreed to let the automaker change how it pays for a health care trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC.
Ford said the agreement allows it to make payments to the union-managed trust with up to 50 percent of company stock instead of cash. Having the UAW take equity frees up cash for operations.
Ford, like its Detroit and foreign competitors, is seeing a huge drop in sales as consumers shy away from purchasing new cars during a recession. However, the company has not asked for low-interest federal loans from the government. General Motors and Chrysler have asked for a total of $39.6 billion, and have received $17.4 billion so far.
Under terms of the government loans, Chrysler and GM must exchange half their cash payments to the trusts, called voluntary employee beneficiary associations, or VEBAs, for equity in the companies. Money freed up by supporting the VEBA with equity would potentially pare down the amount of money GM and Chrysler would borrow from the government.
For Ford, which isn't receiving government aid but is trying to cut costs, the agreement announced Monday is another in a series of concessions from auto workers.
Terms of previous deals were not announced, but they were expected to eliminate the jobs bank in which laid-off workers get most of their pay, as well as make work rule and other changes that the government loan terms set out so the companies' labor costs are competitive with their Japanese counterparts that have U.S. factories. The UAW, meanwhile, said the health care trust deal helps save jobs, as a failure to help the auto companies cut cost could lead to a bankruptcy filing and massive layoffs across the industry. Although Ford was not required to re-negotiate terms of its VEBA with the UAW, the company entered talks with the union, and said it would not be "disadvantaged" as GM and Chrysler sought concessions.
The VEBAs were established as part of the landmark 2007 contract reached with the UAW. The trusts would pay health care bills for about 800,000 UAW retirees, spouses and dependents and move billions in liabilities off the companies' books. GM expects to save about $3 billion a year, while Ford says it will save $1 billion annually.
Ford owes $6.3 billion to its VEBA at the end of this year. GM has to pay roughly $20 billion into its health care trust, while Chrysler must pay around $9.9 billion.
The UAW's willingness to strike a deal with Ford first is significant, because it shows that the UAW is acknowledging the challenges Ford is facing, said Hal Stack, director of the Labor Studies Center at Wayne State University in Detroit.
"The question is whether they make a similar agreement with GM and Chrysler," he said.
"It adds a certain element of risk to the equation for the UAW at a time when most people are nervous about any (financial) risk."
The agreement between Ford and the UAW, along with other previously agreed to concessions must be ratified by union members. The UAW is expected to meet with heads of its local branches this week.
