After Years of Labor Gains, Autoworkers Face Losses

By Sholnn Freeman
Washington Post Staff Writer
Tuesday, July 17, 2007

Larry Boynton is slowly coming to a realization that would have been unthinkable for an American autoworker just a decade ago: that he will have to accept deep cuts in medical benefits or risk one day losing his job.

"We are almost understood that we are going to give up something, especially with health care," said Boynton, 56, a Chrysler worker from Detroit. "It's like they are slowing pulling the cover off you, and you got to be happy you got a little bit on."

On Friday, bargaining between the United Auto Workers union and General Motors, Ford and Chrysler is to open with a round of ceremonial news conferences in Detroit. As Boynton and other autoworkers look forward to a negotiating process that was predicted to last about two months, their expectations are as low as they have ever been.

The Detroit automakers, which collectively lost $16 billion last year, and investors are demanding what some have called a breakthrough agreement: a transformational labor contract that would slash costs and free up cash as the companies move through a dire period of restructuring and transition.

Some union members, after seeing their employers cut jobs, close plants and lose money, say they would rather give up some of their historically generous benefits than risk losing them if one or more companies go out of business.

"Something is going to be worked out here," said James P. Womack, who has written about changes in the American auto industry for more than 25 years. "The alternative is that all three of these companies can hit the wall. We've had quite a lot of experience with bankruptcies in the airline and steel industries. It turns out that unions don't get very much."

In what would be the most dramatic shift, the automakers are asking the UAW to consider creating and managing a special trust fund for health-care and other benefits for retired autoworkers.

Such a proposal would involve the automakers contributing lump-sum payments to the fund and leaving to the union decisions about investing assets and paying benefits.

By each company making one last, mammoth payment and handing responsibility to the unions, the automakers would dispose of more than $117 billion in projected costs, according to their figures. GM has 332,000 hourly retirees and a $68 billion post-retirement health-care obligation, about $50 billion of which is UAW-related. Ford has $31 billion in overall post-retirement liabilities. Chrysler owes $16 billion to $19 billion.

The automakers say that shedding those burdens would give them needed room to maneuver as they take on their more profitable rivals from Japan, including Toyota, whose U.S. sales are booming. Last year, GM spent $4.8 billion on health care, which the company estimates could have paid for four new vehicle plants, six new vehicle model lines, or renovation of 16 assembly-plant paint shops.

UAW workers have long enjoyed gold-plated health-care coverage, including no monthly or weekly premiums, and low costs for drug prescriptions and doctor visits.

Such guarantees date to the early 1950s, when U.S. companies and the powerful industrial unions like the UAW agreed to offer health care after a failed campaign by President Harry S. Truman to create a national health-care system.

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."