UAW, Ford Cut Deal On Health Benefits
Tuesday, February 24, 2009
The United Auto Workers and Ford have reached a new agreement on how to fund health benefits for retirees, possibly creating a model settlement for the other two major U.S. automakers as they battle to fend off bankruptcy.
The deal, announced yesterday, would allow Ford to pay as much as half of its $13.2 billion obligation to retirees with stock rather than cash, a bargain that essentially relieves the company of the cash requirement but makes health care a far riskier proposition for retirees. The agreement must still be ratified by union members and win court approval.
"The modifications will protect jobs for UAW members by ensuring the long-term viability of the company," UAW President Ronald A. Gettelfinger said in a statement.
The agreement was reached as the Obama administration's auto industry task force begins to grapple with the question of whether GM and Chrysler should be granted billions more in government loans. The group plans to meet with GM chief executive G. Richard Wagoner Jr. and Chief Operating Officer Frederick A. Henderson on Thursday.
Yesterday, the administration named private equity executive Steven Rattner, 56, to lead the panel. Once considered a leading candidate to be the government's so-called "car czar," Rattner told colleagues he will serve as an adviser to Treasury Secretary Timothy F. Geithner on a variety of economic and financial matters.
Rattner is a co-founder of the private equity firm Quadrangle Group, and brings business acumen to the auto industry task force. The group includes the secretaries of transportation, commerce, labor and energy, along with top officials from the president's Council of Economic Advisers, the Office of Management and Budget and the Environmental Protection Agency.
Among the designees is Lisa Heinzerling, a Georgetown University law professor and senior EPA adviser who was the lead author of a brief in Massachusetts v. EPA in 2007, in which the Supreme Court ruled that the EPA has the authority to regulate carbon-dioxide emissions.
Other designees include Diana Farrell, formerly of McKinsey & Co., now deputy director of the National Economic Council; economist and Geithner counselor Gene Sperling; Jared Bernstein, chief economist to Vice President Biden; Edward Montgomery, senior adviser at the Department of Labor; Austan Goolsbee, staff director and chief economist of the Economic Recovery Advisory Board; Dan Utech, senior adviser to the secretary of energy; Heather Zichal, deputy director of the White House Office of Energy and Climate Change; Joan DeBoer, chief of staff for the Department of Transportation; and Rick Wade, senior adviser at the Department of Commerce.
In an e-mail to friends and colleagues Monday, Rattner wrote: "I wanted to let you know directly that after 26 fulfilling years on Wall Street. . . . I have begun a new phase of my life, in the public sector . . . We are obviously at a critical moment in our nation's history, particularly with regard to our economy, and I am honored to have this opportunity to serve my country in a meaningful way."
Members of the presidential auto task force are exploring an array of funding options for the auto industry besides additional government loans. One possible approach that has been discussed would be to secure private funding with a promise from the government to guarantee the loans. Such financing could take the form of debtor-in-possession loans to provide companies short-term operating funds while they work their way through bankruptcy.
Officials said the ultimate approach remains unresolved.
"It should not be taken as a signal that government is resigned to bankruptcy -- that's not the case." said an administration official, who spoke on the condition of anonymity because the discussions are not public.
One of the key issues for the automakers and the Obama administration is how to reduce the cost of negotiated wages and other benefits, which tend to be higher than those paid to American workers at plants owned by foreign carmakers. Last week, GM, Chrysler and Ford announced they had reached an agreement with the UAW on certain wage concessions. Yesterday, the union said it had reached an agreement with Ford on payments to a retiree health-care trust fund.
The massive size of the trust fund is considered one of the major competitive disadvantages of the U.S. industry.
GM has estimated that it owes $20 billion to the health trust; Chrysler $10 billion; and Ford $13.2 billion.
Federal officials urged GM and Chrysler to modify those obligations so they can pay as much as 50 percent in stock rather than cash as part of a deal giving them $17.4 billion in government loans. The demand is effectively what Ford and the UAW agreed to do in the deal announced yesterday.
"This establishes a model for GM and Chrysler," said Gary N. Chaison, professor of industrial relations at Clark University in Worcester, Mass.
While details of the agreement have not emerged, the proposal that half the retiree health funding could come in stock represents a significant concession from the union. The alternative, however, could have been worse, because if the companies go into bankruptcy, the retirees risk getting even less.
"It appears the union is taking a big hit," Chaison said. "The real dilemma for the UAW is you can't get payment from a company that doesn't have any money. They were between a rock and a hard place, and they chose the hard place."
Ford remained noncommittal about when and if it will use stock to meet its obligations to the retiree health fund.
"We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value," Joe Hinrichs, group vice president for global manufacturing and labor affairs at Ford, said in a statement.
Staff writer Kendra Marr contributed to this report.