Union Picks GM to Lead Contract Talks

Labor talks in Detroit intensified yesterday, with the United Auto Workers selecting General Motors as lead company in contract negotiations that analysts and auto officials say could determine the survival of the Big Three automakers.

For weeks, union negotiators had been crafting contracts simultaneously with all three companies. Traditionally, the UAW completes a master contract with one company that serves as the pattern for all three.

In the past, the UAW picked the healthiest automaker in hopes of boosting the union's chances of extracting major concessions. Automakers typically have competed for the lead position, viewing it as an opportunity to tailor the best deals for themselves while putting rivals on the defensive.

Analysts suggested yesterday that GM was chosen to lead the talks because GM officials have already been at the forefront of discussions on the top item on the automakers' wish list: an independent, union-managed fund to pay the retiree health benefits that the automakers are obligated to pay.

As the lead company GM also becomes the strike target for the union should talks break down. UAW officers at GM plants have been told to prepare for picket lines or work stoppages.

Although the UAW agreed yesterday to extend negotiations with Ford and Chrysler beyond the deadline of midnight tonight, sources said GM was not given that extension. The union's intent, the sources said, was that by giving GM the lead position in negotiations, it could pressure the company to conclude negotiations. The sources spoke on condition of anonymity because negotiators have demanded secrecy.

The automakers appeared to be moving closer to securing the UAW's agreement to pursue creation of an independent retiree health fund. UAW President Ronald A. Gettelfinger is meeting with officials from each of the Big Three this week to talk about the health-care fund, according to people familiar with the talks who spoke on condition of anonymity.

Seeking ways to cut costs and make more money available for reorganizing their companies, the automakers have come to pin their hopes on such a health fund, known as a voluntary employee benefit association, or VEBA.

Last year, a VEBA model was adopted in a contract between Goodyear Tire & Rubber and the United Steelworkers union. Goodyear agreed to pay $1 billion in cash and stock to create the fund.

Dana, a large auto parts supplier in Toledo, Ohio, and operating under Chapter 11 bankruptcy protection, made a similar deal in July with the UAW, paying $780 million in cash and stock.

Deals with U.S. auto companies would be far larger. Collectively, the Big Three have more than $90 billion in unfunded retiree-health-care obligations, covering about 1.5 million working and retired employees.

"What is pathbreaking here is the scale of the VEBA and the amount of money involved," said Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues. "That is going to be closely watched throughout American industry."

Automakers say the billions of dollars they pay for health care each year are ultimately added to vehicle prices, putting the companies at a disadvantage to foreign rivals before consumers even walk into showrooms. Bringing down those costs would free billions of dollars that could be spent to make vehicles more attractive or to cut prices.

A number of financial questions hang over the health-plan discussions, the sources said. It remains unclear whether there would be a single super-fund or an individual trust for each of the three companies. And all parties have to decide how much the obligations amount to and how much the companies would be expected to contribute.

In exchange for acquiescence on retiree health, the UAW might win job guarantees or be able to fight off other concessions that the automakers are seeking. The auto companies, which are busy expanding operations in low-wage countries, could also reassure union leadership that more North American manufacturing capacity won't go overseas. Gettelfinger has vowed not to demand a deal that would jeopardize the health of the car companies.

Shaiken said the VEBA deal could be the best protection of union health-care benefits in the future.

"Ironically, this might be less risky for the union than the system currently in place, simply because the financial shape of the Detroit automakers is precarious," he said. "If a company like Ford begins cratering and runs out of money, the UAW wages and benefits would take a major hit."

It isn't clear where the companies would get the billions of dollars necessary for the health-care funds. They have been stockpiling cash, but officials have said much of that is needed to pay for ongoing business functions. Last year, Ford borrowed $23 billion to keep the company afloat, and Chrysler's new owners are scouring operations for cash savings. GM is in similar shape.

"There's lots of ways to work it, but it's definitely not the ideal time to be borrowing or even selling assets," said Kevin Tynan, an analyst at Argus Research, an independent research firm. "Theoretically it makes sense. But there is a lot of big numbers and moving parts that are in between the theory and reality of getting one done."