UAW Leaders Recommend Approval of Chrysler Deal That Would Fund VEBA With Equity, Union Would Be 55% Stakeholder in Automaker
Factory-level United Auto Workers leaders on Monday voted unanimously to recommend approval of concessions intended to keep Chrysler out of bankruptcy, in exchange for an equity stake worth about 55% of the firm that could help fund a retiree health care fund, the AP/Denver Post reports. The deal comes as the automaker seeks to meet an April 30 deadline for presenting the federal government with a restructuring plan for becoming and remaining financially viable; the plan is required to receive the remainder of federal loans granted in December 2008 by then-President George W. Bush (Goodman/Krisher, AP/Denver Post, 4/28).
The loans carried the caveat that automakers must ask UAW to accept half of their contributions to a voluntary employees' beneficiary association in the form of company stock, or in the case of Chrysler, which is a private firm, equity (Kaiser Daily Health Policy Report, 12/22/08). Chrysler owes $10.6 billion to the VEBA, which will pay for health benefits for retirees and their spouses starting in 2010 (AP/Denver Post, 4/28).
According to a summary of the deal voted on by union leaders Monday, Chrysler would issue a $4.59 billion note to the VEBA, in addition to the equity stake. The firm would pay $300 million in cash to the fund in both 2010 and 2011, and increasing amounts up to $823 million in the years 2019 to 2023 (Kellogg/Maher, Wall Street Journal, 4/28). The union also would get a seat at the automaker's board, according to the deal. UAW would have the option of selling shares of the stock to fund the VEBA. Retirees would not have dental and vision coverage under the VEBA, and additional benefit cuts would be likely in 2010 and 2011 because of uncertainty over the value of the automaker's stock, according to a summary of the agreement. However, if the stock price rises, benefits could be restored, according to the AP/Denver Post. UAW leaders expect ratification votes nationwide to be complete by Wednesday.
The deal likely will "serve as the template" for a UAW deal with General Motors, which also must present a restructuring plan to the government to receive the remainder of the 2008 loans, the AP/Post reports. Ford, which already signed a deal with UAW, said it will see if the other two firms get a more preferable deal (AP/Denver Post, 4/28).
UAW President Ron Gettelfinger said, "While we realize the proposed sacrifices for UAW members are painful, we fought to maintain our wages, our health care and our jobs" (Wall Street Journal, 4/28). Clark University professor of labor relations Gary Chaison said the deal "puts the UAW in a strange position," adding, "If it takes company stock as a part owner in the company, it would be bargaining against itself. It can never act as adversarial in that relationship," and "it's in a position that to make the company more stable, it has to reduce health care benefits of its own retirees" (Whoriskey, Washington Post, 4/28).
GM on Monday proposed to the Obama administration a plan that would use company stock to pay half of its $20.4 billion VEBA obligation. The deal would make UAW a 39% owner of GM. In addition, the government would receive at least half ownership of the firm (Stoll/Terlep, Wall Street Journal, 4/28). GM has until May 31 to receive approval of a restructuring plan (Vlasic/Bunkley, New York Times, 4/28).
The Detroit Free Press on Tuesday examined how allowing Chrysler and GM to pay only half of what they owe to the VEBA would be "putting the fund on shaky ground." The number of UAW workers is decreasing as the number of retirees is increasing, according to the Free Press. Lance Wallach, a consultant, said, "I said a year ago it wasn't viable when the market was going up." He added, "Instead of the VEBA failing in 15 years, now it will fail in six" (Gardner, Detroit Free Press, 4/28).