More Details Emerge in Auto Workers’ Health Care Deal
A new contract between United Auto Workers and General Motors that includes the creation of a voluntary employees' beneficiary association awaits ratification by rank-and-file union members, with voting likely to start this weekend, the AP/San Mateo County Times reports (AP/San Mateo County Times, 9/27).
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.
A key dispute in the VEBA negotiations was a gap of billions of dollars between the automaker's proposed funding level and the union's desired amount (California Healthline, 9/26).
The contract will be sent to local UAW presidents for review before facing a vote this weekend by GM's 74,000 rank-and-file members. If members vote against the agreement, the union could go back on strike.
However, UAW President Ron Gettelfinger says he is confident that union members will ratify the deal. If the deal is finalized, it would have to be approved by courts and reviewed by the Securities and Exchange Commission (AP/San Mateo County Times, 9/27).
Gettelfinger said the fund should be solvent for 80 years (Higgins, Detroit Free Press, 9/27).
GM will pay about $36 billion into the fund, which is about 70% of its retiree health care liabilities, according to the Kansas City Star (Heaster, Kansas City Star, 9/26).
The VEBA will be funded mostly with cash, in addition to convertible preferred securities and the diversion of active employee cost-of-living raises, according to people familiar with the talks.
It will be paid over at least two years, with the first payment likely to occur in January 2008, according to the Detroit Free Press. Retirees probably will see higher premiums and copayments as a result of the VEBA, along with an increase in pension payouts funded by an excess of $17 billion in the pension plan now. Higher pension payouts are expected to make up for the health care increases, the Free Press reports (Merx/Higgins, Detroit Free Press, 9/27).
Bob Christenson, a partner at Fisher & Phillips, said the VEBA likely will be an independent fund. "Because of the way labor laws operate, and probably because the UAW does not want to be tainted with all of this stuff, it's really going to have to be an independent board of trustees," he said, adding, "There will certainly be union representatives on it, but the majority of voting power is going to have to be independent. It's not right to say that the union is going to be running this fund" (Higgins, Detroit Free Press, 9/27).
John Melton, bargaining chair of UAW Local 31, said, "I think people will be pleasantly surprised with the agreement," adding that it "takes care of our major issues: job security and health care for our retirees and active work force."
Experts disagree on whether the agreement will increase GM's competitiveness.
Peter Morici, an economist at the University of Maryland, noted, "The union can come back in four years and demand more money for the VEBA, so that cost never really goes away," adding, "This is not going to make GM that much more competitive against Toyota and Honda, particularly with the economy slowing" (Kansas City Star, 9/26).
Gettelfinger said UAW likely will try to finish negotiations with Ford and Chrysler simultaneously. He said there could be some differences in the two remaining contracts but that "for the most part it will be a pattern agreement" (Higgins/Webster, Detroit Free Press, 9/27). According to the Detroit News, Ford might have trouble raising money for the VEBA because of its financial situation.
In addition, it 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 added that Chrysler is going to be a "wild card" because it recently was taken private by Cerberus Capital Management.
Chaison 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" (Valcourt, Detroit News, 9/27).
Michigan Medicaid Director Paul Reinhart said that the VEBA deal could have unexpected consequences for the state's Medicaid program, causing it to lose hundreds of millions of dollars in federal aid. He said that in 2003, when GM made a payment of $16 billion into its underfunded pension plan, about $6 billion was included as part of the state's aggregate personal income for the year.
That figure is used to calculate the state's share of federal funding for Medicaid, and the contribution made the state's population appear more wealthy than it really was, he said.
If the VEBA contribution is handled the same way, the Free Press reports it could cost the state up to $400 million in federal Medicaid funding (Walsh, Detroit Free Press, 9/27).
The Detroit News reports the deal could cause the state to lose up to $800 million (Kozlowski/Feighan, Detroit News, 9/27).
Michigan filed an appeal to recover the amount lost from the GM pension payment, but it is awaiting federal action. Reinhart asked federal Medicaid officials if the VEBA deal could have the same effect, but he has not received an answer (Walsh, Detroit Free Press, 9/27).
"It could have a very substantial impact on the state," Reinhart said, adding, "It could cripple the program" (Kozlowski/Feighan, Detroit News, 9/27).
The new contract between UAW and GM "marks the dawn of an uncertain new era for the American auto industry and its unionized work force," the Wall Street Journal reports. The Big Three and UAW for nearly the past half century have set the standard for pay and benefits of the U.S. middle class, but that trend might be coming to an end, according to the Journal.
The contract will allow GM to buy out thousands of workers, mostly in nonproduction jobs, and replace them with new employees who will have lower wages and reduced benefits. This step will help bring the company closer to Toyota in production costs. The "tentative pact appears to ratify what has become increasingly clear over the past several years: that Toyota Motor Corp., not GM or the UAW, now sets the bar for labor costs in the U.S. auto industry," the Journal reports (White et al., Wall Street Journal, 9/27).
The deal also puts pressure on the automakers to deliver on their promises to be more competitive, because under a VEBA, they no longer will be able to blame health care for differences in labor costs, according to analysts. Analysts say the Big Three will have to create a "New Detroit" with "lower costs" and "leaner and more efficient factories," in addition to building cars that will sell, according to the New York Times (Maynard, New York Times, 9/27).
The deal also will alter the playing field for UAW, which could find itself with a "louder political voice in Washington" because of the VEBA, USA Today reports. UAW has lobbied "to no avail" for universal health care, but the VEBA might give them more of a national presence, according to USA Today.
David Cole, chair of the Center for Automotive Research, said, "There is no question about it ... that gives them a lot more clout," adding, "They'll just continue pushing" for a national health care system (Silke Carty, USA Today, 9/27).
Harley Shaiken, a labor expert at the University of California-Berkeley, said, "The size and visibility of this trust fund puts the UAW at the epicenter of the health care debate. It expands the UAW's visibility, influence and clout in a major way" (Hoffman/Shepardson, Detroit News, 9/27).
However, according to the Los Angeles Times, the VEBA deal also could mean that GM and UAW no longer will push Congress for a national health care system because they already have "tackled that problem for themselves."
Nelson Lichtenstein, a labor history professor at University of California-Santa Barbara, said the deal is a "vote of no confidence" in universal health care coverage (Zimmerman/Selvin, Los Angeles Times, 9/27).
Several broadcast programs reported on the health care-related provisions of the agreement. Summaries appear below.
- American Public Media's "Marketplace": The segment includes comments from Steven Ferruggia, who develops health care funds for Buck Consultants, and Brett Hoselton, an auto industry analyst for KeyBanc Capital Markets (Roth, "Marketplace," American Public Media, 9/26). Audio and a transcript of the segment are available online.
- NPR's "All Things Considered": The segment includes comments from Rebecca Lindland, an analyst at Global Insight; Gettelfinger; UAW Vice President Cal Rapson; and GM spokesperson Tom Wickham (Langfitt, "All Things Considered," NPR, 9/26). Audio of the segment is available online.
- NPR's "Day to Day": The segment includes a discussion with Steve Tripoli, a correspondent for "Marketplace," about the health care provisions of the agreement and the potential impact on the U.S. health care system. The segment also includes comments from Shaiken (Cohen, "Day to Day," NPR, 9/26). Audio of the segment is available online.
- PBS' "Nightly Business Report": The segment includes comments from Gettelfinger; Bradley Rubin, an auto specialist at BNP Paribas; and Effraim Levy, an auto equity analyst at Standard & Poor's (Gurvey, "Nightly Business Report," PBS, 9/26). A transcript of the segment is available online.
- PBS' "NewsHour with Jim Lehrer": The segment includes a discussion with Micheline Maynard, Detroit bureau chief for the New York Times, about health care and other issues in the agreement (Ifill, "NewsHour with Jim Lehrer," PBS, 9/26). Audio of the segment is available online. Video and a transcript will be available Thursday afternoon.