By on September 5, 2007

downward_spiral.jpgUnlike enlightened TTAC readers, your average Wall Street type believes that The Big 2.8's survival recovery hinges on transferring their health care liabilities to a union-administered health care superfund (a.k.a. VEBA)– PROVIDED they pay somewhere around 60 to 70 cents per dollar of health care liability. BUT to do the deal, GM would have to find some $30b, Ford would need some $15b,and Chrysler around $7b. Guess what? They don't have that kind of money hanging around, and their current "distress" makes the cost of borrowing somewhere between "onerous" and "usurious." SO the automakers are looking at paying for the VEBA with a large percentage of their own stock– except for Chrysler who might want to pay cash on the installment plan instead. BUT the union doesn't like the idea of a health care fund paid for by stock or deferred payments all that much, because, well, what if the automaker goes belly-up? Only, again, Wall Street thinks they won't go bankrupt IF the carmakers create a health care VEBA. And THAT means if they do the deal the cost of borrowing to fund the deal would go down AND their stock would go up. And IF the union had agreed to take stock in lieu of cash money AND the stock goes up, the rise would cover the aforementioned discount on the full health care liability. That's IF the union cashes out at the top of the market and invests in something less volatile than their employers' stock. Like, I dunno, Toyota stock. Don't laugh. It could happen. Anyway, if you want to try that again, we recommend Kaisernetwork.org's summation.

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7 Comments on “UAW Health Care Fund Would Fund UAW Health Care Fund...”


  • avatar
    starlightmica

    Stock chart for Toyota: http://finance.google.com/finance?client=ob&q=TM

    To compare vs. GM, Ford, and Honda (which did even better in the last 14y):
    Click: Zoom -> Max
    Click: Compare, add GM, F, HMC, and what the heck, S&P500

    Assuming Toyota’s stock continues to outperform, someone with enough money up front (lots) could use the gains and dividends to buy a new Toyota or Lexus every few years.

  • avatar

    Clicking on Toyota’s five year stock price profile was most instructive.

  • avatar
    KatiePuckrik

    You know, all of GM’s problems (Retirees, health care liabilities, etc) could all be solved if they built cars people want. If they cracked that problem everything would fall in place. Such a simple thing, yet GM (and most of Detroit) continue to miss the point.

    Mind you, let’s play Devil’s Avocodo here. Let’s say Detroit DO buy cars people want and Japan’s big 2.54 is nothing but a distant memory, what would we all talk about on TTAC?

    Ironically, Rabid Rick Wagoner, Bob Putz and “On the Fritz” Henderson are keeping TTAC in a job and giving people bored at work, something to do!

  • avatar
    Luther

    In a kinda wierd way, this is correct.

    Gettelfinger and Buzzard will never go for stock funding because it might just stop the Us vs. Them mentality which is the base of Union “Leader” power. Imagine the rank-n-file working with 2.801 corporate in order to raise stock price. Can’t have that now can we.

  • avatar
    jthorner

    Four years ago I gave up on GM and sold the stock I had owned for quite sometime. You see, there was a time when I believed that the global resources of GM were finally being pointed in the right direction and that they would turn around. Then I gave up, sold my GM stock and reinvested the proceeds in Toyota stock. It took me a long time to wise up, but I finally did the smart thing.

  • avatar
    GS650G

    Nice fat dividends and a 30 degree angle on the growth curve. Honda tracks right along with TM, higher and higher they go. Ford and Gm go down nice and steady. Even a politician can figure that one out. Even Nissan is hanging in there. American auto manufacturing is doomed.

  • avatar
    RobertSD

    Even if Ford and GM built the best vehicles by a long shot, they couldn’t survive forever with these health care liabilties. Basically, these costs appear as $60 billion of liabilities on their balance sheets. Their credit-ratings are in the dump because their ratios are terrible. So, their borrowing costs are higher. The struggle continues. Nothing short of the best cars ever sold for prices competitive with everyday Camry’s, say, would accomplish this, and not even Toyota has ever had a silver bullet like that. It has taken YEARS for Toyota to become what it is through consistency and good, if not stellar, product. It looks like Ford and GM are trying to do the same, but they cannot do it in the time they have, not even if Ford brought the Mondeo to the U.S. Just not happening.

    So, this is the ideal time to get rid of those excess costs. Good products are starting to come out of the Big 2.8 (well GM and Ford, at least) and will accelerate in 2009-2012, and as fortunes improve and sales go up (or at least stop falling), it will only get harder to eliminate or contain costs like retiree health care.

    And, as ironic as it sounds, using Ford or GM stock to shore up the UAW fund is probably a great way to do it. The upside on both stocks is quite large, and a deal with the UAW would allow that upside to be realized. It is sort of a weird thing: allowing, say, Ford to use stock as a funding source would go a long way to helping the stock do better at which point the UAW trust is funded. Then, if the UAW agrees to use their stock and a heap of cash because borrowing is too difficult, it will help eliminate most of a big liability on the balance sheet. The result will be easier borrowing because of decreased credit risks.

    Let’s just hope the UAW cooperates. A strike would not only finish off Ford and maybe Chrysler, but it would probably all but end the UAW.


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