GM, UAW Nearing Deal To Use Company Stock for Half of VEBA Obligation, Sources SayGeneral Motors and the United Auto Workers are close to finalizing a deal that would reduce the automaker's cash obligation to a retiree health care trust fund, according to people with knowledge of the matter, the Wall Street Journal reports. UAW in 2007 agreed to establish the voluntary employees' beneficiary association, totaling $35 billion, that would cover health care costs of retired GM workers and their spouses starting in 2010. GM has paid about $15 billion into the fund, but under the deal now being discussed, the remaining $20 billion obligation could be paid using about $10 billion in cash and a 39% equity stake in the restructured GM that will be formed under the Treasury Department's "controlled bankruptcy" plan for the firm.
The deal would be subject to approval by UAW's 60,000 GM members, who likely would face "steep cuts" in pay and benefits as a result, as well as 20,000 additional layoffs, according to the Journal. Union officials also have expressed concern that the GM stock making up the equity stake is "illiquid and hard to value, posing a big risk for UAW members," the Journal reports. GM and UAW could agree to a final version of the deal "as early as next week," according to the Journal (Stoll, Wall Street Journal, 5/15).
A federal bankruptcy judge on Thursday denied a request from a group representing Chrysler's retired salary workers to have an official retiree committee participate in the firm's bankruptcy proceedings in an effort to protect the group's health care benefits. U.S. Judge Arthur Gonzales said decisions related to the benefits will be made by Chrysler's new owners, which could include a large stake for Italian automaker Fiat. Lawyers for the National Chrysler Retirement Organization stated that because responsibility for the group's health care benefits might not be transferred to the Chrysler that will emerge from bankruptcy, the group had a right to negotiate with the firm during the bankruptcy process.
Chrysler provides benefits to about 19,000 salaried retirees and spouses, estimated to cost about $7.3 million monthly. Retirees younger than 65 receive medical and dental benefits similar to those of active Chrysler workers, while those older than 65 receive contributions to health care savings accounts that they can use for costs not covered by Medicare. NCRO noted that while these benefits currently are planned to be maintained under the new firm, with increased costs for higher-income retirees, the final decision will be made by the new firm. Chrysler attorney Pedro Jimenez said the automaker reserves the right to change the benefits as it sees necessary. Gonzales said that NCRO can present its motion again if conditions change during bankruptcy proceedings, and that it can oppose the sale if and when it comes up for court approval (Fowler, AP/Kansas City Star, 5/14).