After Years of Labor Gains, Autoworkers Face Losses

Nelson N. Lichtenstein, a labor historian at the University of California at Santa Barbara, said U.S. automakers went along with the system as part of an effort to tame the radical union movement and build up a sense of company loyalty among workers.

He said automakers paid little attention to escalating medical costs, which were rising steeply even in the 1950s.

"When it came to the long-range costs, neither the insurance companies nor the auto companies really looked at this in a serious way," Lichtenstein said. "They only looked a few years in advance to the next contract."

At the time, it was a young labor force, and the programs were small and not too burdensome. Over the years, however, the UAW pushed for more in each new contract. Today, the average age of autoworkers at GM, Ford and Chrysler ranges from the late 40s to early 50s, and paying for retirement benefits is a key issue as more older workers begin to retire in the next several years, especially with market share declining for U.S. automakers.

"Finally, we get to 2005 and it's a horrendous burden," said Douglas A. Frasier, a former UAW president. "Not only is the cost there, but it's got to be paid."

As a result, automakers have come to pin their hopes on the health-care trust model, known as a voluntary employee benefit association (VEBA).

Last year, a VEBA model was adopted as part of a contract between Goodyear Tire & Rubber and the United Steelworkers union. Goodyear agreed to a payment of $1 billion in cash and stock to create the fund. The deal came after a costly three-month strike.

Dana, a large Toledo auto-parts supplier operating under Chapter 11 bankruptcy protection, hammered out a similar deal this month with the UAW, paying $780 million in cash and stock.

It was not clear how U.S. automakers would come up with the billions of dollars needed to fund the accounts properly. Goodyear and Dana are small companies compared with GM, Ford and Chrysler.

Analysts said a VEBA deal would reduce the likelihood of an auto company filing for bankruptcy protection, where a judge could assign a low priority to paying worker health-care benefits.

Wall Street already is cheering. J.P. Morgan Chase issued a research note July 10 upgrading Ford and GM in anticipation that UAW leaders would accept a Goodyear-style deal. "If the leadership perceived such discourse as undermining its support from rank-and-file [workers], history suggests it would have rebutted, and rebutted fiercely," the research note said.

So far, UAW President Ronald A. Gettelfinger has not said much about the VEBA concept. In a March speech to UAW leaders, Gettelfinger told automakers not to view the collective-bargaining process as "collective begging," warning them not to push the union too hard. The UAW already has given in to pressure from GM and Ford for special concessions in health care for retirees in a 2005 agreement that was viewed at the time as unprecedented.

Frasier, the Michigan professor, says the VEBA idea has major pitfalls. "It looks like you are going to get something for nothing," Frasier said. "It seems like we have a 'eureka' button. God help us if we go into a depression or recession and the value of the fund plummets and the UAW is sitting there with this huge liability."

For their part, rank-and-file autoworkers are still struggling to figure out what a VEBA is and what other kinds of health-care changes might be looming.

David Moore, 71, a UAW retiree who lives on a Ford pension and Social Security, said he wasn't aware of all the talk about the health-care insurance fund. But he said he expects the company to keep pressing him to pay more for health care.

"They are not just going to leave retirees alone," he said. "They are going to hit us some kind of way."