UAW Leadership To Promote New GM Contract To Rank-and-File Members

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 01 Oct 2007 - 8:00 PDT

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United Auto Workers on Friday will begin a "massive, meticulous effort to sell a landmark" contract with General Motors that includes the creation of a voluntary employees' beneficiary association to rank-and-file union members, the Detroit News reports (Terlep, Detroit News, 9/28).

Under the VEBA, GM will transfer about $50 billion in retiree health care obligations to an independent trust fund to be managed by the union. Earlier this month, UAW selected GM, which has been the strongest proponent among the automakers of creating a VEBA, as its lead negotiation partner. The GM contract expired on Sept. 14 and was extended on an hourly basis during negotiations. Contracts with Ford Motor and Chrysler Group were extended indefinitely while negotiations between UAW and GM were under way (Kaiser Daily Health Policy Report, 9/27).

People briefed on the agreement said GM will fund the VEBA with about $35 billion in cash and securities (Merx, Detroit Free Press, 9/28). GM also will backstop the fund at between $1.5 billion and $2 billion, providing additional funding at a later date if health care inflation rises more quickly than estimated, the Wall Street Journal reports (McCracken/Stoll, Wall Street Journal, 9/28).

UAW local presidents and chairs on Friday will meet with UAW President Ron Gettelfinger in Detroit to discuss details of the new contract, which includes a VEBA, a two-tier wage system and no cost-of-living adjustments. A regional leaders meeting is scheduled for Saturday (Detroit News, 9/27). Local presidents and chairs on Thursday said that they are expected to hold meetings with rank-and-file members early next week and should hold a vote on the contract within a week (Merx, Detroit Free Press, 9/28). Ratification of the contract requires a majority vote.

Outlook
According to the News, the "contract is widely expected to pass," but "no one is declaring it a done deal." Analysts and labor experts have said it is unlikely the deal will be rejected by rank-and-file members who are more concerned about job security. Soldiers of Solidarity, a UAW dissident group, is critical of the plan. "GM execs laughed all the way to the bank," an e-mail from the group stated.

David Cole, chair of the Center for Automotive Research, said, "This contract was very difficult to do -- it is probably not something that will get 70% ratification this time," adding, "The main focus of the union right now is getting this ratified."

Harley Shaiken, a labor expert at University of California-Berkeley, said, "The wild card is when workers get angry at the situation and vote against something because they're angry, but that doesn't seem to be the case here" (Detroit News, 9/27).

Next Automaker to the Table
Although Gettelfinger on Wednesday said UAW will attempt to conduct negotiations with Ford and Chrysler simultaneously, some experts and analysts say the union will meet with Ford next, the Free Press reports. Gettelfinger has said he expects the GM contract to be a pattern-setting deal, and both remaining companies have received the tentative contract for review. The companies might consider areas in which they want to tailor the contract to their needs.

Some experts say that a lot of work remains in negotiations between UAW and the other automakers. "There could be a surprise or two at Ford or Chrysler. The circumstances are somewhat different," Shaiken said, adding, "At Chrysler in particular, we'll see what kind of difference the new ownership makes." Chrysler recently was taken private by Cerberus Capital Management (Webster/Higgins, Detroit Free Press, 9/28).

Ford might have trouble raising money for the VEBA because of its financial situation. It also might seek to reduce its work force, according to Gary Chaison, a labor professor at Clark University. Chaison said, "The UAW is going to argue to protect jobs." He also said, "The problem with Chrysler is it will depend on what Cerberus wants. I don't know if Cerberus wants to invest long term in a VEBA" (Kaiser Health Policy Report, 9/27).

Negotiations with the two companies might not resume until Monday or until the ratification process for the GM contract is almost concluded, according to a person familiar with the negotiations (Webster/Higgins, Detroit Free Press, 9/28).

Changes for GM
If the UAW contract with GM is ratified, it could save the company $2 billion to $3 billion annually, several industry analysts have said. The VEBA portion of the deal erases about $3.3 billion per year in retiree health care costs, but some of the savings will be offset by other parts of the deal. Himanshu Patel, a JPMorgan analyst, on Thursday in a note to investors said that the annual savings for GM from the new contract will be about $2 billion, with the VEBA contributing 60% to 70% of that (Krisher/Durbin, AP/Washington Post, 9/27).

GM also will be able to buy out as many as 24,000 UAW workers and replace them with new hires that receive lower pay, according to UAW officials and management briefed on the contract. In addition, GM has about 15,000 to 20,000 UAW workers eligible for retirement, so GM might be able to offer buyout packages to them and replace them with new hires paid at the second tier, according to the Journal (Wall Street Journal, 9/28).

The savings will give GM the opportunity to invest in developing new products, such as alternative-fuel cars, analysts have said (AP/Washington Post, 9/27).

Wall Street Eyes VEBA
Wall Street investment firms are closely observing developments surrounding the VEBA, which could produce a fund worth tens of billions of dollars, the Free Press reports. If workers for the Big Three ratified a combined VEBA to transfer retiree health care liabilities to UAW, the union could be looking to banks, financial-service firms and investment companies to manage the fund, which ultimately could be worth about $70 billion.

Bob Bowman, state treasurer for Michigan from 1983 to 1991, said UAW is "going to want to find the very best talent" to manage the fund (Tompor, Detroit Free Press, 9/28).

Opinion Piece
With the "biggest cost problem" at GM being "health care, particularly for retired workers," UAW "came up with an innovative way to help GM" by proposing a VEBA, columnist E.J. Dionne writes in a Washington Post opinion piece. Although UAW is "taking a risk because health care costs could rise faster than the trust fund does," it "got guarantees of medical benefits and a pledge that GM would invest in its American plants," he writes.

Dionne continues, "The lesson of the New Treaty of Detroit is that in the face of globalization's challenges, risks and rewards can be shared if there's a will to negotiate them." He adds that it is the "turn of Democratic candidates to explain how they will be as creative as GM and UAW" (Dionne, Wall Street Journal, 9/28).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation© 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.