The United Auto Workers union sought court approval yesterday for its tentative agreement with General Motors Corp. to cut health care benefits for employees, retirees and their families.
By law, the company and union must get court approval for cuts in retiree benefits. The court process allows retirees a chance to voice their concerns. If a court approves the cuts, the union would be protected from retiree lawsuits.
The details of the health care agreement have not been released as the UAW is in the process of telling its local union leaders and retirees about the plan. The UAW and GM announced the tentative agreement Monday. If the deal is ratified by UAW members, the company said it expects to save $3 billion a year before taxes in health care costs.
Hourly workers at GM currently have no deductibles and pay no monthly premiums but do have nominal co-payment charges. Overall, they pay about 7 percent of their health care costs; the national average is about 34 percent.
The agreement signals a major change in negotiating and a realization that health care costs have climbed to an unsupportable level, industry experts said.
"What's particularly notable is kind of the forward-thinking mutual self-interest," said Neil Trautwein, assistant vice president for human resource policy at the National Association of Manufacturers. "So much of the history of pattern bargaining in Detroit has been here and now and, particularly on the labor side, how much they can secure. That model -- and the concept that employers can pay for unlimited health benefits -- is pretty well dead."
The concessions were the most significant the UAW had made in more than two decades, when it agreed to reopen its contract with Ford and GM nine months early in 1982. Those negotiations resulted in major union concessions on vacation time, cost-of-living pay adjustments and job security issues.
The union did not have to reopen its contract early this time, but it did make big concessions.
"This was difficult for the union to do, but the union is being pragmatic. Its goal is to preserve jobs," said Harley Shaiken, a labor professor at the University of California at Berkeley. "It realizes the severity of the situation that GM is in."
Bond investors, meanwhile, continued to cheer GM's decision to sell a controlling stake in GMAC, its highly profitable finance arm. GMAC's most heavily traded bond, an 8 percent note due in 2031, traded above face value on Tuesday for the first time since March. The bond is up 12 cents on the dollar since Monday's announcement about GMAC.
Bond investors said the rally is based on hope that a large financial services firm with an investment-grade credit rating will step in to take control of GMAC. That could lift GMAC's credit rating, held down in recent moths by troubles at GM, out of junk status. Such a move could set up a further rally in GMAC bonds because many large institutional investors are allowed by their bylaws to hold only investment-grade debt.
James Cusser, senior bond trader at Waddell & Reed Financial Inc., said investors think that a blue-chip firm will step in to take control of GMAC. "The most significant one, the one I hope for, is General Electric," Cusser said.
Cusser said only a few large companies, including GE, could afford the asking price of between $10 billion and $15 billon for control of GMAC.
A GE spokesman did not return a call for comment. Other firms mentioned as possible GMAC buyers include Bank of America Corp. and Citigroup Inc.