An agreement between General Motors and the United Auto Workers union is being hailed as a significant breakthrough for the loss-making American car industry, after years when its competitive edge has been blunted by open-ended, multi-billion-dollar healthcare lia-bilities.
As part of a new pay deal, the car maker's estimated $51bn (£25bn) in retirement healthcare commitments will be transferred to an independent trust, at a stroke ridding the company of liabilities that add somewhere between $600 and $1,000 to the cost of every vehicle it makes.
Negotiators had haggled over the amount of money, company shares and other assets GM must put into the trust immediately, and over the circumstances in which it might have to be topped up in future, but leaders of the two sides emerged happy yesterday.
GM chief executive Rick Wagoner, who had put the creation of the trust at the top of his list of priorities for the round of talks, said the agreement "helps us close the fundamental competitive gaps that exist in our business". The big three US car makers – where Ford and Chrysler make up the three – have long argued that their historic commitments to more than half-a-million retired employees put them at a disadvantage compared to new Asian manufacturers such as Toyota, which are more recent entrants to the US market.
The creation of the trust – known as a voluntary employee beneficiary association, or VEBA – removes healthcare benefits from the list of bargaining counters that the UAW will have in future negotiations, but unions across the manufacturing industry have begun to reach VEBA deals as a means of at least protecting current levels of benefits.
The UAW will oversee the Veba and may face the invidious responsibility for cutting benefits if the trust proves insufficient. But Ron Gettelfinger, union president, said GM had agreed to put in enough cash to properly fund the healthcare trust for 80 years. The figure is believed to be in the range of $35bn. There are also guarantees to prop up the trust if healthcare cost inflation outstrips assumptions or if investment returns fall short – as well as provisions for GM to reduce its future funding commitments if car sales slump.
"I think our retirees will be exceptionally pleased with this contract and for our active membership, there will be some changes, but overall they will be very pleased with the outcome of this negotiation and the job security that is associated with this," Mr Gettlefinger said.
The deal emerged in the small hours of yesterday morning after round-the-clock talks aimed at halting a national strike by 73,000 General Motors workers, which the UAW called in frustration on Monday. Negotiations on new pay and conditions had dragged on since July and the previous four-year deal expired last Friday. The short-lived strike was the first national walk-out at GM since 1970.
While the broad outline of the Veba deal had been agreed last week, the UAW had been holding out for other concessions from GM management, including bonuses for workers and some job guarantees. The details of the final package were not immediately made public, although they are believed to have included one unexpected concession from the UAW – namely, that unskilled workers hired from now on can be paid at a lower rate than current members.
Wall Street was also pleased, sending GM shares soaring in early trading, and by lunchtime they were up 5 per cent.
Rod Lache, auto industry analyst at Deutsche Bank, told clients: "From our perspective, the VEBA deal is the single most important change for this company, potentially reducing labour cost by $18-$19 per hour, and reducing the cost of producing a car by over $600 per vehicle. We also believe that the second tier wage is significant. Through normal retirements, GM's active workforce should decline to roughly 50,000 by the end of the contract, from 73,000 currently. Replacing workers with new hires at a significantly lower cost could therefore have a material impact on GM's overall competitiveness."
The UAW will quickly move into the final phase of similar talks with Ford and Chrysler, for which the GM deal could prove a blueprint.Reuse content