UAW, Ford Revise Pact on Retiree Health Care Funding

Auto workersEven the United Auto Workers knows that sometimes it’s necessary to bite the bullet to come out ahead in the long term. On Monday, February 23, the UAW and the Ford Motor Co. announced they had hammered out the details of a new agreement to preserve retiree health care benefits without jeopardizing the company’s existence. The pact would have Ford to pay the union up to half its liabilities in the form of company stock. Given precipitous declines in auto industry stock prices over the last year, it’s a sensible way to avoid disaster. 

In the fall of 2007, the union had worked out separate agreements with Ford, General Motors and Chrysler to transfer full responsibility for retiree health care expenses from the manufacturers to a union-run voluntary employee beneficiary association, or VEBA. The new entity, set to take effect at the start of 2010, would set premiums and provide coverage for about 800,000 retired workers and their spouses. The automakers would make contributions to the fund up until the official transfer. According to investor presentations, Ford’s share of the liability was $13.6 billion; the portions for GM and Chrysler were a respective $31.9 billion and $11 billion. But the issue of what form the payments would take remained unresolved. With the industry beginning a brutal slide, the company understandably preferred to pay as little with cash as possible.

Ford wanted to avoid going the bailout route. Late last fall, while GM and Chrysler were receiving a federal commitment for a combined $17.4 billion in emergency loans to cover operating costs (they’ve since asked for additional $21.6 billion), Ford management turned down the help. But that was largely contingent upon working out a VEBA agreement to minimize cash outflow. Company officials are satisfied with the outcome. “We are pleased with this agreement, which provides us the option to settle with Ford common stock up to 50% of each scheduled payment,” noted Ford spokesperson Mark Truby in a written statement. “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.”

UAW President Ron Gettelfinger likewise is satisfied with the settlement. “The modifications will protect jobs for UAW members by ensuring the long-term viability of the company,” he said. The union ideally wanted to avoid stocks, especially given their price volatility. But it had little room to drive a hard bargain. As University of California-Berkeley labor studies professor Harley Shaiken notes, “(G)iven the collapsing industry and the position Ford is in, the union felt that this was the most secure alternative in a risky environment.” The UAW isn’t over the hump yet. Rank-and-file members still have to approve the agreement. And the agreement must receive court approval.

Are GM and Chrysler going to follow suit? Some observers say they will, noting that the $17.4 billion bailout requires the two companies to ask the UAW accept half of VEBA payments in stock. While the Auto Workers don’t have to say yes, the union in the past has engaged in pattern bargaining so as to minimize the likelihood of one company gaining a clear edge. Still, other persons insist that the union may cut more favorable deals with GM and Chrysler because of the latter’s two’s more precarious condition. Clark University professor of industrial relations Gary Chaison says that reaching an agreement with Ford “gives (the UAW) wonderful leverage” in bargaining with the other two automakers. Anyway one slices it, there’s a lot of money involved. The combined agreements of 2007 amounted to $56.5 billion, or 64 percent of projected long-term retiree health care liabilities. The union-controlled board overseeing VEBA operations will have their hands full keeping corruption at bay. (, 2/24/09; Washington Post, 2/24/09).