[Oct 01, 2007]

      Local United Auto Workers leaders on Friday unanimously voted in favor of a new contract with General Motors that includes the creation of a voluntary employees' beneficiary association, the Detroit News reports (Terlep, Detroit News, 10/1).

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, 9/28).

Local UAW officials now are presenting the contract to the union's 73,000 GM rank-and-file members, and they have until Oct. 10 to vote on ratification, according to the Detroit Free Press. People with knowledge of the contract said that if enacted, it would come close to narrowing the gap between GM's average wage-and-benefit rate and Toyota's (Merx, Detroit Free Press, 9/29).

VEBA Details
GM will pay $29.9 billion into the VEBA. UAW on Friday said that GM will continue to pay for retiree health care benefits until Jan. 1, 2010, at a cost of about $5.4 billion. After that date, the VEBA will begin administering retiree health care benefits. UAW said that under the new contract, retiree benefits cannot change before 2012. The following are additional provisions related to the VEBA:

• Copayments for beneficiaries will not increase more than 3% annually through 2015 and afterward might increase 4% annually;
  
  
• To help fund the VEBA, active workers will see diversions in some wage increases and cost-of-living adjustments;
  
  
• GM will pay up to $1.6 billion over 20 years into the VEBA any time it is projected to be insolvent for at least 25 years (Higgins, Detroit Free Press, 9/29);
  
  
• The VEBA funding will include a $4.37 billion convertible note that is tied to GM's stock price, a "mechanism that's designed to be a windfall for the VEBA in the event of a GM stock price increase" that "essentially works like a standard bond" if the conversion is not triggered, according to the Wall Street Journal (McCracken/Kosdrosky, Wall Street Journal, 9/29); and
  
  
• GM will pay interest on the convertible note, according to the AP/Minneapolis Star Tribune (AP/Minneapolis Star Tribune, 9/28).

GM will make a $24.1 billion payment on Jan. 1, 2008, into the VEBA, according to UAW. UAW President Ron Gettelfinger has said the VEBA will be solvent for 80 years (Higgins, Detroit Free Press, 9/29). The AP/Star Tribune reports that GM could save about $3 billion annually if the contract is ratified (AP/Minneapolis Star Tribune, 9/28).

Ford/Chrysler
Experts are predicting that Ford and Chrysler will "zero in" on aspects of the GM deal that "aren't beneficial to them and will seek better terms to help them survive," the Free Press reports. According to the Free Press, the GM deal has many provisions that benefit the company and its UAW work force specifically, but some of them "seem potentially damaging" to Ford and Chrysler.

John Casesa, an auto analyst and managing partner of Casesa Shapiro Group, said, "Because the main feature of the [GM] agreement is relief on health care for retirees and GM has the highest active-to-retiree ratio, it's disproportionately better for GM." GM has four times as many retirees as active workers, while Ford has two times as many and Chrysler has an equal amount.

Casesa also said Ford's financial situation "remain fragile," so UAW will have to give it a different deal. Experts say they are uncertain if UAW will strike Ford or Chrysler to get a similar deal. Gettelfinger has said he would like the GM deal to be a "pattern" for the other contracts (Webster, Detroit Free Press, 9/29).

Deal Might Affect Other Industries
Corporate leaders have seen an "intriguing possibility in GM's off-loading of $50 billion in eventual costs for UAW retirees" as they are "struggling with health care costs," the Free Press reports (Gallagher et al., Detroit Free Press, 9/30).

Mark Pauly, a professor of health care systems and economics at the University of Pennsylvania's Wharton School, said, "I see firms with large numbers of retirees like General Motors forming a VEBA, as it transfers the uncertainty of paying for health care to the workers away from the company." In addition, the deal "could shine a spotlight on the problem of ever-increasing health care costs" as the 2008 elections approach, the Pittsburgh Tribune-Review reports (Stouffer, Pittsburgh Tribune-Review, 9/28).

Unions have seen the VEBA as a "new mission" for labor organizations and also a possible new tool for recruitment, the Free Press reports (Detroit Free Press, 9/30). There are at least 2,700 VEBAs already running nationwide, according to Labor Notes (Pittsburgh Tribune-Review, 9/28).

Broadcast Coverage
PBS' "Nightly Business Report" on Friday reported on the contract and how it could affect the U.S. health care system. The segment includes comments from Joseph Antos, a health policy analyst at the American Enterprise Institute; Gail Wilensky, an economist at Project Hope; and Douglas Greenfield, a labor lawyer at Bredhoff & Kaiser (Gersh, "Nightly Business Report," PBS, 9/28). A transcript of the segment is available online.