It has long been expected, but now it’s official: General Motors and the Ford Motor Company both want the United Auto Workers to take over the health care programs for retired and current union autoworkers. In exchange, each automaker would make a one-time lump sum payment to a trust fund to be administered by the UAW.
The size of the payment would be enormous. But it would get the auto companies out from under the continuing economic drain of providing these benefits to both past and present workers. The Detroit Three’s health care benefits for this year will exceed $10 billion, with $6.4 billion of that going to retiree health care benefits. Ironically, the same steps the automakers have taken to reduce the size of the current labor force by offering lump sum payments to workers to induce them to retire early have added to the expense of retiree benefits.
Ron Gettelfinger, president of the UAW, has publicly said that the union is not interested in such a plan, which is technically termed a “VEBA,” for voluntary employee benefit association. However, the United Steel Workers Union made exactly that deal, albeit on a smaller scale, with the Goodyear Tire & Rubber Company only last year. The money involved in reaching a similar deal with GM and Ford, however, would dwarf the Goodyear deal. Goodyear made a one-time $1 billion payment. Were a VEBA to be accepted by the UAW, it is expected that the payment by GM would be $29 billion and Ford would have to pay $12.5 billion.
Both automakers have the money. GM sold a controlling interest in its finance arm, GMAC, last year. Ford has not only liquidated assets, but last year arranged bank lines of credit totaling over $40 billion.
Though the UAW may prefer to avoid it, a VEBA makes a certain amount of sense for all concerned, including the union’s leaders and membership. Accepting a VEBA is the easiest way for the union to allow automakers to reduce their labor costs without sacrificing employee benefits or reducing hourly wages. Detroit automakers estimate their labor cost per vehicle to be $3800 more than the foreign competition and attribute $1500 of that to health care costs.
Nonetheless, there are questions about the leadership capability of the UAW. The leaders of the United Steelworkers, who made the Goodyear deal, have a reputation for imaginative thinking. Moreover, the president of the Steelworkers has a Wall Street finance background and has used that background to work with steel manufacturers to bolster the industry and, thereby, preserve jobs. Though Ron Gettelfinger is an accountant, he has not exhibited the slightest trace of imagination in his public remarks prior to the current contract negotiations.
Moreover, if a VEBA were to be accepted by the UAW leadership, it seems likely that Gettelfinger would try to sell it to the membership as the best than be done, rather than as a good deal for the members, in and of itself. In fact, though, a VEBA may be a very good deal for the membership because it protects them against the risk that either company will go bankrupt. Were that to happen, pension benefits would be taken over by the federal government, but health care benefits would not be so well protected.
Chrysler declined to comment on whether it had also made a VEBA proposal to the UAW. While Chrysler has less money than GM and Ford, it would also likely be making a smaller payment. A Chrysler spokesman said only that a VEBA would have to “make economic sense” for the company.
It is, however, difficult to see how it would not, particularly if the other automakers have negotiated VEBA agreements themselves.