UAW Agrees To Allow Ford To Make VEBA Payments In Company Stock

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 25 Feb 2009 - 3:00 PDT

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United Auto Workers and Ford Motor on Monday announced a tentative plan that would allow the automaker to pay up to half of the $13.6 billion it owes to a retiree health care fund using company stock, the New York Times reports. Although Ford is not asking for federal loans requiring that it cut operating costs -- as is the case with loans granted to General Motors and Chrysler Group -- the company believes the concessions will allow it to become more competitive (Bunkley, New York Times, 2/24).

The three automakers and UAW in 2007 established the voluntary employees' beneficiary association, which will provide health coverage for about 800,000 retired workers and their spouses. Under that deal, Ford owes about $6.3 billion to the VEBA by the end of the year, while GM owes about $20 billion and Chrysler owes about $9.9 billion (Johnson, AP/Kansas City Star, 2/23). The VEBA is scheduled to pay all health care costs for union workers beginning Jan. 1, 2010 (New York Times, 2/24).

Ford spokesperson Mark Truby in a written statement said, "We are pleased with this agreement, which provides us the option to settle with Ford common stock up to 50% of each scheduled payment" (Downs, Louisville Courier-Journal, 2/23). He said, "We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value" (AP/Kansas City Star, 2/23). UAW President Ron Gettelfinger said, "The modifications will protect jobs for UAW members by ensuring the long-term viability of the company." The agreement requires ratification by UAW members and must receive court approval (Whoriskey/Dennis, Washington Post, 2/24).

University of California-Berkeley labor studies professor Harley Shaiken said, "The alternatives looked worse" for UAW, adding, "This clearly was not the union's first choice, but given the collapsing industry and the position Ford is in, the union felt that this was the most secure alternative in a risky environment" (Shepardson, Detroit News, 2/24). Shaiken said, "Stocks are inherently volatile, and they're especially volatile in the automobile industry," adding, "Health care for retirees is a pivotal issue for workers and the union, so the volatility of stocks made the union reluctant to sign on" (Silke Carty, USA Today, 2/24).

GM, Chrysler
GM and Chrysler are required by the terms of the federal loans to ask that UAW accept half of their VEBA payments in stock. They are required to present a plan by March 31 for becoming and remaining financial viable (Snavely, Detroit Free Press, 2/24). The agreement with Ford "makes it likely the union will do the same for" GM and Chrysler because UAW usually gives all of the Big Three automakers "about the same level of concessions to ensure one company is not more financially competitive than the other two," USA Today reports (USA Today, 2/24).

However, a person familiar with the negotiations said despite this history of "pattern bargaining," UAW may seek different deals with the other two firms because they are in worse financial condition (Dolan/Bennet, Wall Street Journal, 2/24). Clark University professor of industrial relations Gary Chaison said reaching an agreement with Ford before the other firms "gives (the UAW) wonderful leverage" in bargaining with the other automakers (Snavely, Detroit Free Press, 2/23).

Jim Decker, who heads the restructuring unit at investment banking firm Morgan Joseph, said Ford may have been able to secure better terms if it had waited for one of the other automakers to strike a deal first or go bankrupt. He said, "In bankruptcy, the treatment of the union contracts would be much harder on the union and Ford could benefit from that, arguing they need the same concessions." Monday's deal would allow Ford to seek further concessions from the union if GM or Chrysler get better deals or file for bankruptcy (Wall Street Journal, 2/24).

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