The Truth About Cars » VEBA http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Fri, 12 Sep 2014 16:56:11 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.2 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » VEBA http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com Fiat Says No Chrysler IPO Before 2014 http://www.thetruthaboutcars.com/2013/11/fiat-says-no-chrysler-ipo-before-2014/ http://www.thetruthaboutcars.com/2013/11/fiat-says-no-chrysler-ipo-before-2014/#comments Tue, 26 Nov 2013 11:30:54 +0000 http://www.thetruthaboutcars.com/?p=663890 Though Chrysler-Fiat CEO Sergio Marchionne had previously said that an initial public offering of Chrysler stock could take place by the end of 2013, the Italian automaker announced that stock sale will not take place before the new year. “The Board of Directors of Chrysler Group … has determined that it will not be practicable for Chrysler […]

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Though Chrysler-Fiat CEO Sergio Marchionne had previously said that an initial public offering of Chrysler stock could take place by the end of 2013, the Italian automaker announced that stock sale will not take place before the new year. “The Board of Directors of Chrysler Group … has determined that it will not be practicable for Chrysler Group to launch and complete an initial public offering prior to the end of 2013,” Fiat said in a statement.

 

The sale could help resolve the dispute between Fiat and the UAW’s health benefits trust, which owns 41.% of Chrysler, over the valuation of that stake, but a delay in the IPO could also delay Fiat’s full acquisition of the Auburn Hills based automaker. Marchionne would like to merge Fiat and Chrysler to create the world’s 7th largest auto firm and give Fiat access to Chrysler’s profits. Chrysler had initially filed paperwork for an IPO in late September.

The Wall Street Journal reports that Chrysler would raise between 1.5 and 2 billion dollars with the IPO. That would give the company a market valuation of 9 to 12 billion dollars. Fiat declined to comment on the report.

Marchionne wants to merge the Fiat and Chrysler to create the world’s seventh-largest carmaker. Fiat has been hurt by the weak European market. The company’s plan to reduce losses in Europe depends on sharing technology, cash and dealer networks with Chrysler. The merger would also give Marchionne access to Chrysler’s profits and allow him to use that cash to shore up Fiat and expand its product offerings. The companies, while managed by the same people, must currently keep their finances separate.

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Nine Speeds Of Grey: What’s Really Going On With Cherokee Transmissions? http://www.thetruthaboutcars.com/2013/10/nine-speeds-of-grey-whats-really-going-on-with-cherokee-transmissions/ http://www.thetruthaboutcars.com/2013/10/nine-speeds-of-grey-whats-really-going-on-with-cherokee-transmissions/#comments Thu, 17 Oct 2013 20:00:03 +0000 http://www.thetruthaboutcars.com/?p=626681 As the plot thickens in Toledo and un-shipped Cherokees start to pile up in the storage lots, there’s a new conspiracy theory being passed around to explain Chrysler’s problems. We received this email earlier today, and while we can’t vouch for the writer or the contents, what if he’s right? I was going to send […]

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As the plot thickens in Toledo and un-shipped Cherokees start to pile up in the storage lots, there’s a new conspiracy theory being passed around to explain Chrysler’s problems.

We received this email earlier today, and while we can’t vouch for the writer or the contents, what if he’s right?

I was going to send to TTAC Staff… but I heard [from] a few Chrysler engineers that part of the 9 speed launch issue at Toledo was being drawn out to lower the VEBA price if the shares got into court proceedings by end of the year.

Now, this really sounds less likely than the reality that Chrysler and their supplier just FUBARed it by running simulations instead of real world testing until it was too late, which I have also heard. But, this rumor is more fun and don’t forget Machiavelli was Italian and wore a sweater vest!

Well, that may be a rumor too.

But, with the price being a couple BILLION dollars different that’s still less than a few months hit on a late launch.

BTW, these guys… were sure the issue was going to be fixed before their UF Chrysler 200 launch in March/April… even though they use the same engines and FWD part of the 9 speed. Classic, just classic.

So. Crazy conspiracy theory or on the level? To me it fails part of the test for this sort of thing, which is that it requires the connivance of too many people. I want to believe that there is a secret Star Chamber making long-term tactical decisions to ensure the future success of Chrysler, but if such a group exists, surely they were formed extremely recently. At least after the 2.7-liter V-6. Unless that was part of the conspiracy too.

In fact, you can easily argue that anybody powerful enough to create the scenario above would also be powerful enough to keep me from writing an arti

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Italian Autoworkers’ Union, Fim Cisl, Sends Delegation to Detroit to Lobby UAW on Chrysler Fiat Merger http://www.thetruthaboutcars.com/2013/10/italian-autoworkers-union-fim-cisl-sends-delegation-to-detroit-to-lobby-uaw-on-chrysler-fiat-merger/ http://www.thetruthaboutcars.com/2013/10/italian-autoworkers-union-fim-cisl-sends-delegation-to-detroit-to-lobby-uaw-on-chrysler-fiat-merger/#comments Thu, 17 Oct 2013 13:49:34 +0000 http://www.thetruthaboutcars.com/?p=626001 The UAW has enlisted the help of the German IG Metall labor union in its effort to organize Volkswagen’s U.S. operations. Now Fiat has apparently gotten the union that represents its Italian workers, Fim Cisl, to reach out to UAW officials in an effort to resolve the issue of just how much Fiat is going […]

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The UAW has enlisted the help of the German IG Metall labor union in its effort to organize Volkswagen’s U.S. operations. Now Fiat has apparently gotten the union that represents its Italian workers, Fim Cisl, to reach out to UAW officials in an effort to resolve the issue of just how much Fiat is going to pay the UAW’s retiree health benefits trust for the 41.5% of Chrysler the VEBA owns. Fiat and Chrysler CEO Sergio Marchionne wants to merge the two companies and that can’t be done without buying that stock. Fiat and the VEBA sides are more than a billion dollars apart.

Marchionne would like to avoid an initial public offering of Chrysler stock, which would complicate his merger plans. Per the VEBA’s rights, the process for an IPO has been started. Also no doubt the Fiat CEO would like to come to an agreed price before a trial for the valuation of some of the VEBA’s shares begins next September.

In an interview with the Automotive News, Ferdinando Uliano, who is in charge of relations with Fiat for Fim Cisl, said, “We are concerned that a Chrysler initial public offering would harm a combination of the two carmakers. We’ll tell the UAW that only a merger of Fiat and Chrysler would grant a positive future for both companies’ workers.”

The Fim Cisl delegation plans to meet with UAW president Bob King and other UAW leaders in Detroit.

Merging the two companies would give Marchionne access to Chrysler’s $12 billion in cash to help finance Fiat’s turnaround in Europe. The Italian automaker is currently not profitable and it is losing market share in its home market of Europe. Fiat’s September sales in Europe were off by 3.4% as the overall market was up 5.5%.

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Trial to Set Price Fiat Will Pay VEBA for Chrysler Shares Scheduled for Sept. 2014 http://www.thetruthaboutcars.com/2013/10/trial-to-set-price-fiat-will-pay-veba-for-chrysler-shares-scheduled-for-sept-2014/ http://www.thetruthaboutcars.com/2013/10/trial-to-set-price-fiat-will-pay-veba-for-chrysler-shares-scheduled-for-sept-2014/#comments Wed, 16 Oct 2013 11:15:47 +0000 http://www.thetruthaboutcars.com/?p=625585 Fiat will have almost a year to negotiate a price for the 41.5% of Chrysler that is owned by the UAW employee health benefits trust. That’s because the Delaware Court of Chancery set a date in September of 2014 for the lawsuit Fiat has filed against the trust, known as VEBA, to determine the sale […]

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Fiat will have almost a year to negotiate a price for the 41.5% of Chrysler that is owned by the UAW employee health benefits trust. That’s because the Delaware Court of Chancery set a date in September of 2014 for the lawsuit Fiat has filed against the trust, known as VEBA, to determine the sale price.

 

Judge Donald Parsons split the difference between the UAW’s preferred date of January 2015 and the May trial that Fiat requested. Fiat even offered to fly executives from Italy for depositions to speed the process. After the scheduled five day trial closes, the judge will likely issue his ruling within 90 days.

The UAW’s trust became Chrysler’s second largest shareholder in exchange for foregoing future health care payments. The VEBA now wants to cash out to fund the health benefits. Fiat CEO Sergio Marchionne is also interested in cash, the cash Chrysler is generating. Fiat’s sales are concentrated in Europe, where the car market continues to be weak and Marchionne needs access to Chrysler’s cash. Some analysts say that without Chrysler’s money, Fiat has no future.

The trial will have jurisdiction over the first of five call options that would allow Fiat to acquire 16.6 percent of Chrysler over time. In total, the difference between the two sides could amount to more than $1 billion. Earlier, Fiat valued a 54,000 share tranche of stock at $139.7 million while the trust put the value of those shares at $343.1 million.

It is assumed that if Fiat and the VEBA do not arrive at an agreed upon price by the start of trial, Judge Parsons ruling will likely establish a price for the remaining 25% of Chrysler stock whose value will not be adjudicated in the trial.

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Under Pressure From UAW VEBA, Chrysler Files For IPO, Fiat Not Thrilled http://www.thetruthaboutcars.com/2013/09/under-pressure-from-uaw-veba-chrysler-files-for-ipo-fiat-not-thrilled/ http://www.thetruthaboutcars.com/2013/09/under-pressure-from-uaw-veba-chrysler-files-for-ipo-fiat-not-thrilled/#comments Tue, 24 Sep 2013 10:30:55 +0000 http://www.thetruthaboutcars.com/?p=526513 After Fiat and Chrysler’s retired UAW workers’ health care benefits trust were unable to agree on a price for the Voluntary Employees Beneficiary Association‘s 41.5% share in the Auburn Hills automaker, at the trust’s request Chrysler has filed initial paperwork for a public stock offering to sell part of the VEBA’s stake, about 16% of […]

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After Fiat and Chrysler’s retired UAW workers’ health care benefits trust were unable to agree on a price for the Voluntary Employees Beneficiary Association‘s 41.5% share in the Auburn Hills automaker, at the trust’s request Chrysler has filed initial paperwork for a public stock offering to sell part of the VEBA’s stake, about 16% of overall Chrysler shares, the first time in over a decade that the public will be able to own shares in Chrysler, which formerly was wholly owned by Cerberus and before that Daimler. Fiat certainly would rather the IPO not take place now as it complicates Fiat and Chrysler CEO Sergio Marchionne’s plans for the Italian automaker to acquire full ownership of Chrysler. The benefits trust has the legal right to force Chrysler to make the stock offering so the VEBA can cash out on the shares it received in exchange for giving up financial claims against Chrysler during the company’s bankruptcy and bailout by governments in the United States and Canada.

Not only does the VEBA have an opportunity to get a windfall of cash, a billion dollars or more, it also gets a chance to let the open market decide on the value of the remaining ~25% of Chrysler it will still own after the IPO, as the trust continues to negotiate with Fiat. Some automotive industry pundits see the request for the IPO as a tactic by the trust to get a higher price from the Italian car company. “It’s a very, very high-stakes battle going on here,” said Harley Shaiken, a professor of labor at the University of California-Berkeley. “Both sides are being quite strategic, and we’ll see how it plays out.” Marchionne told analysts earlier this year, “Fiat remains available to continue the discussion.”

In the background there is also an ongoing court case over the valuation of the trust’s stake, said by Fiat to be worth $3 billion and by the VEBA significantly more than that.

There are risks in an IPO for all three parties, the VEBA, Chrysler, and Fiat. Possible investors might shy away since the logical buyer, Fiat, won’t be participating. That could depress the stock value, which wouldn’t be a good thing for Chrysler, or for the matter, Fiat, which owns the other 58.5% of Chrysler.

The IPO would not change Fiat’s control over Chrysler, but without 100% ownership, Fiat cannot tap into the cash reserves Chrysler has banked on its success since the bankruptcy. In the second quarter of 2013, Chrysler profits were over half a billion dollars, up 16% from the same quarter in 2012. Those revenues have helped offset weakness in Fiat’s main market in Europe.

The JPMorgan Chase bank will be underwriting the I.P.O.

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Marchionne: No Deal Yet For VEBA Shares, Chrysler IPO Would Delay Fiat Merger http://www.thetruthaboutcars.com/2013/09/marchionne-no-deal-yet-for-veba-shares-chrysler-ipo-would-delay-fiat-merger/ http://www.thetruthaboutcars.com/2013/09/marchionne-no-deal-yet-for-veba-shares-chrysler-ipo-would-delay-fiat-merger/#comments Mon, 16 Sep 2013 11:00:46 +0000 http://www.thetruthaboutcars.com/?p=520289 On Friday, Sergio Marchionne, who heads Fiat and Chrysler, told reporters in Milan, Italy that he hasn’t gotten any closer to making a deal with the UAW’s retiree health care trust for Fiat to purchase the VEBA’s shares in Chrysler and take full ownership of the Auburn Hills automaker. The UAW health care trust owns […]

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On Friday, Sergio Marchionne, who heads Fiat and Chrysler, told reporters in Milan, Italy that he hasn’t gotten any closer to making a deal with the UAW’s retiree health care trust for Fiat to purchase the VEBA’s shares in Chrysler and take full ownership of the Auburn Hills automaker. The UAW health care trust owns 41.5% of Chrysler and the two parties have not been able to agree on a price. The trust is demanding $5 billion for its shares. Marchionne told the LaPresse news agency, concerning the UAW trust’s suggested price, “They should buy a lottery ticket.”

Marchionne said that though an initial public offering of Chrysler stock could delay a merger with Fiat, his team was preparing for such an IPO in order to comply with a request from the VEBA, which has the legal right to ask for an IPO. The filings with the U.S. Securities and Exchange Commission will be ready by the end of the month. Marchionne said that an IPO for Chrysler could be ready by the end of the year but that he thought that financial markets would be more receptive in the first quarter of 2014.

The Fiat CEO would rather buy the trust’s shares in a block rather than have to buy them back piecemeal from the public should the trust sell them on the open market.

After a July court ruling siding with Fiat over the VEBA concerning the price of a smaller tranche of Chrysler shares, the two sides have failed to agree on a price for the trust’s remaining stake.

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Chancery Judge Rejects Fiat’s Valuation of UAW VEBA’s Chrysler Shares, Merger Delayed http://www.thetruthaboutcars.com/2013/07/chancery-judge-rejects-fiats-valuation-of-uaw-vebas-chrysler-shares-merger-delayed/ http://www.thetruthaboutcars.com/2013/07/chancery-judge-rejects-fiats-valuation-of-uaw-vebas-chrysler-shares-merger-delayed/#comments Thu, 01 Aug 2013 01:59:15 +0000 http://www.thetruthaboutcars.com/?p=497685 Sergio Marchionne’s plans to merge Chrysler and Fiat have been delayed because Fiat failed to convince a Delaware Chancery Court judge to set the value of Chrysler stock owned by the UAW’s health care fund known as VEBA. Judge Donald Parsons rejected Fiat’s request to find that a call-option agreement covering at least 54,000 Chrysler shares […]

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Sergio Marchionne’s plans to merge Chrysler and Fiat have been delayed because Fiat failed to convince a Delaware Chancery Court judge to set the value of Chrysler stock owned by the UAW’s health care fund known as VEBA. Judge Donald Parsons rejected Fiat’s request to find that a call-option agreement covering at least 54,000 Chrysler shares valued the stock at slightly less than $140 million. That decision means that the dispute over the shares’ value will now proceed to trial.

According to Bloomberg Judge Parsons ruled that Fiat officials haven’t shown the union fund “is required to deliver the shares in return for Fiat’s payment of $139.7 million. It would be premature for me to enter an order requiring” VEBA to turn the stock over to Fiat.

The decision may in fact encourage the two parties to settle the dispute, now about a year old, out of court.

The court’s decision may push Fiat and the union’s trust to find an agreement on the shares and end the dispute over the value of the holdings that’s gone on for about a year. Analysts estimate that when that agreement is eventually made, it will cost Fiat about $4 billion to take full control of the Auburn Hills automaker.

Fiat now owns 58.5 percent of Chrysler. The UAW healthcare fund came out of Chrysler’s bankruptcy owning the remaining 41.5% of the company in exchange for the union taking on the responsibility of Chrysler UAW retirees’ health care.  Those responsibilities had made the UAW one of pre-bankruptcy Chrysler’s largest creditors.

Fiat puts the value of the first tranche of available union shares at ~$140 million, about $200 million shy of the UAW trust’s valuation. On the UAW’s full stake, the difference could be as much as a billion dollars. Hence the parties’ presence in Delaware Chancery Court.

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Fiat To Merge With Chrysler When VEBA Case Solved http://www.thetruthaboutcars.com/2013/05/fiat-to-merge-with-chrysler-when-veba-case-solved/ http://www.thetruthaboutcars.com/2013/05/fiat-to-merge-with-chrysler-when-veba-case-solved/#comments Thu, 30 May 2013 12:35:04 +0000 http://www.thetruthaboutcars.com/?p=490020 Fiat can’t wait for a full merger with now again cash-rich and profitable Chrysler, but it will wait until its legal dispute with the UAW’s VEBA healthcare trust has been resolved. “We intend to wait for the Delaware verdict before moving forward on the merger” with Chrysler, Fiat Chairman John Elkann told Reuters. “The verdict […]

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Fiat can’t wait for a full merger with now again cash-rich and profitable Chrysler, but it will wait until its legal dispute with the UAW’s VEBA healthcare trust has been resolved. “We intend to wait for the Delaware verdict before moving forward on the merger” with Chrysler, Fiat Chairman John Elkann told Reuters.

“The verdict is due 90 days from the April 25 hearing,” Elkann told Reuters. Elkann did not rule out an out of court settlement with VEBA ahead of the verdict, which will help determine the price of the 41.5 percent stake in Chrysler held by the trust.

Elkann said Fiat was not planning to spin off luxury sportscar maker Ferrari to finance the takeover. He did not mention Alfa. Elkann said the new company’s name would include both Fiat and Chrysler (FiatChrysler anyone?), and that Sergio Marchionne will stay on past 2015 to run the combined group.

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Analysis: VEBA, The UAW And The Warren Walkout http://www.thetruthaboutcars.com/2013/03/analysis-veba-the-uaw-and-the-warren-walkout/ http://www.thetruthaboutcars.com/2013/03/analysis-veba-the-uaw-and-the-warren-walkout/#comments Mon, 04 Mar 2013 18:45:12 +0000 http://www.thetruthaboutcars.com/?p=479965 The 12-person protest that took place at Chrysler’s Warren, Michgan truck plant got little notice in the automotive news cycle, save for a couple of mentions on the usual aggregators. In truth, it’s not the juiciest story to sell in this click-driven wasteland, though these stories tend to raise the most interesting questions. This example […]

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The 12-person protest that took place at Chrysler’s Warren, Michgan truck plant got little notice in the automotive news cycle, save for a couple of mentions on the usual aggregators. In truth, it’s not the juiciest story to sell in this click-driven wasteland, though these stories tend to raise the most interesting questions. This example highlights an issue that is going to dog the UAW for some time – how will the UAW control their workers when they are also the owners?

For the sake of context, let’s recap the story. 12 workers decided to protest a recently implemented schedule at the Warren plant, which is building the 2013 Ram 1500. As the Detroit News explains it

The new system — which has already sparked controversy at other Chrysler factories in Michigan — would split the workforce into three shifts, each working four 10-hour days a week. Those shifts would be staggered over six days, meaning that many workers would have to work Saturdays. 

Saturdays, of course, means time-and-a-half pay. If you believe the Detroit News, then the rank-and-file are unhappy about the move and are determined to fight it. But the UAW is distancing itself from the protest, noting that the move to the current schedule was first approved a decade ago.

The protest coincided with a report by the Detroit News, citing leaked internal documents that show rampant quality problems with the new Ram 1500, a crucial product for Chrysler that is enjoying a lot of momentum in a very competitive segment.

During the first hour of production Thursday, workers at the Warren truck plant built 58 pickups. But only 16 of those vehicles passed final inspection, according to company documents. Quality improved as the day went on, but just over half of the trucks assembled by the first shift were approved for shipment. A company source told The News that number should be at least 78 percent and higher than that to meet the plant’s quality goals.

Wednesday’s numbers were similar, and many employees were ordered to stay late to repair the defective vehicles, according to the source. But the number of problem pickups in the plant’s lots continued to grow. Though nearly 200 vehicles were repaired overnight, there were still 1,078 trucks parked outside the plant Thursday morning that could not be shipped because of defects, according to a company document.

The same report made sure to preface that “…morale problems sparked by the new shift schedule are only making these problems worse…”, adding another barb to a series that is uncharacteristically critical considering that the Detroit News is the hometown paper for Chrysler.

It would be tempting to ascribe more sinister motives to nefarious factions within Chrysler, the UAW or both, but the reality is that the issues plaguing Warren are really just a perfect storm of bad circumstances. On a base level, human are notoriously bad with change. Having chatted with former union members in domestic auto plants, it’s evident that these sorts of shift changes are often presented in a manner that glosses over the ugly details so that the union bigwigs can get the measure approved. When it comes time for the changes to be implemented, the rank-and-file are inevitably unhappy (though our source notes that the blame cuts both ways; caveat emptor and all that).

So, take a bunch of disgruntled workers adapting to a new shift schedule and throw in a new model launch. What did you expect? Workers and management singing kumbaya around the camp fire? It’s hard to think of a bigger recipie for disaster, save for having Bob King ride into Chattanooga on an organizing drive while piloting a Chinese-built Wrangler with a Romney/Ryan bumper sticker. Combining the shift change with a new model launch and production ramp-up may have been a poorly judged move, but in all likelihood, the defect rate will settle down in a month or two.

Meanwhile, the UAW, through the VEBA health benefits organization, currently owns roughly 41 percent of Chrysler. While Fiat is currently attempting to buy the remaining stake from the VEBA, the retiree health benefits of the union members are largely dependent on auto maker stock as well as the overall financial health of the companies. The two parties are currently locked in tough negotiations over the remaining stake, but this is likely too far removed from quality defects at one plant to have any effect on potential stock prices or the respective bargaining position of either side. What is in the mutual self-interest of both parties is the continued success of Chrysler’s auto sales – and with Ram and Jeep being the two pillars holding Chrysler up right now, the UAW knows which side their bread is butter on.

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UAW: We Shall Not Be Moved To Sell http://www.thetruthaboutcars.com/2012/11/uaw-we-shall-not-be-moved-to-sell/ http://www.thetruthaboutcars.com/2012/11/uaw-we-shall-not-be-moved-to-sell/#comments Tue, 13 Nov 2012 12:43:07 +0000 http://www.thetruthaboutcars.com/?p=466736 Sergio Marchionne can’t wait to get his hands  on the 41.5 percent of Chrysler, which are in the hands of the UAW’s VEBA trust. Once Fiat is in total control, Fiat and Chrysler could be merged, and the cash could be used to … but you know the drill from years back. Currently at stake […]

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Sergio Marchionne can’t wait to get his hands  on the 41.5 percent of Chrysler, which are in the hands of the UAW’s VEBA trust. Once Fiat is in total control, Fiat and Chrysler could be merged, and the cash could be used to … but you know the drill from years back. Currently at stake are 3.3 percent. Fiat has a call option, but the UAW trust doesn’t want to fork the shares over.

Fiat’s wants to pay $139.7 million, the union demands at least $342 million, says Reuters.

The UAW says it would be a crime to sell the nice shares for anything less than $342 – literally “Sale of the called shares at the price calculated by Fiat would constitute a transaction prohibited by applicable federal law,” the UAW Retiree Medical Benefits Trust said..

Fiat sued. The fund countersued. The matter is now in Chancery court in Delaware.

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VEBA Shortfalls And Rising Health Care Costs: A Recipe For Disaster http://www.thetruthaboutcars.com/2012/10/veba-shortfalls-and-rising-health-case-costs/ http://www.thetruthaboutcars.com/2012/10/veba-shortfalls-and-rising-health-case-costs/#comments Thu, 18 Oct 2012 19:14:11 +0000 http://www.thetruthaboutcars.com/?p=464196 The Voluntary Employee Beneficiary Association, or VEBA, was initiated as a way to get retiree healthcare costs off the books of Detroit’s auto makers. While VEBA makes balance sheets look better, they are still an exorbitant legacy costs for the Big Three, and things are about to get a lot worse. Reuters reports that a […]

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The Voluntary Employee Beneficiary Association, or VEBA, was initiated as a way to get retiree healthcare costs off the books of Detroit’s auto makers. While VEBA makes balance sheets look better, they are still an exorbitant legacy costs for the Big Three, and things are about to get a lot worse.

Reuters reports that a U.S. Department of Labor document shows that GM’s VEBA obligations were underfunded by 40 percent in 2o11, versus 26 percent in 2010. Ford didn’t fare much better, with a 37 percent deficit in 2011, up from 26 percent the previous year.

While VEBA was designed to safeguard the health benefits of 824,000 retirees if the Big Three’s fortunes go south, VEBA was forced to take payment in stock rather than cash, something the UAW was opposed to but ultimately complied with. The declining value of the shares is cited as a primary cause of the funding shortfall.

Increased health care costs are another giant disaster-in-waiting for the Big Three. As Reuters reports

“The GM VEBA trust said if the rate of health care cost increases moves up by 1 percent, its benefit obligation would increase by $6.4 billion. For the Ford trust, a 1 percent swing would increase the obligation by $3.8 billion.”

Given the rate of increases in health care costs in America, the automakers are in an extremely precarious position relative to their health care legacy costs – the very same costs that hurt them so badly in the first place, and the very same costs that were supposed to be shed post-bankruptcy.

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GM To Buy Government Preferred Stock http://www.thetruthaboutcars.com/2010/10/gm-to-buy-government-preferred-stock/ http://www.thetruthaboutcars.com/2010/10/gm-to-buy-government-preferred-stock/#comments Thu, 28 Oct 2010 17:28:26 +0000 http://www.thetruthaboutcars.com/?p=370611 News that the government will sell only $6b-$8b worth of its GM equity has been joined by an even more surprising GM IPO announcement: GM will buy the Treasury’s entire $2.1b holding of preferred stock in the initial offering. GM has not announced how much it will pay for the stake, and the Detroit News […]

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News that the government will sell only $6b-$8b worth of its GM equity has been joined by an even more surprising GM IPO announcement: GM will buy the Treasury’s entire $2.1b holding of preferred stock in the initial offering. GM has not announced how much it will pay for the stake, and the Detroit News reports that it’s not yet clear if GM will also buy some $400m in preferred stock held by the Canadian and Ontario governments. We’re also getting word via Twitter that GM will put $4b in cash and $2b worth of its stock into its overdrawn UAW pension fund, as well as making a $2.8b payment to the UAW VEBA account. With a $5b line of credit secured, GM says these and other steps will reduce its debt by $11b over an unspecified timeline. And speaking to Reuters, GM CEO Dan Akerson made it clear what the point of these moves are:

It’s up to people like you and me, the burden we share, that we deliver on the promise and return the investment to the American taxpayers. We are going to do our level best to make that happen, and we will only do that by expanding our industrial base and entering new markets and being a better competitor.

Of course, we’ll have to see what value The General places on the preferred stock to know how seriously Akerson should be taken. After all, talk is cheap and money isn’t. [UPDATE: It appears that GM will buy the preferred stock for $25.50 each, essentially giving the Government its book value of $2.14b]

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GM To UAW: Take This Job And Keep It http://www.thetruthaboutcars.com/2010/05/gm-to-uaw-take-this-job-and-keep-it/ http://www.thetruthaboutcars.com/2010/05/gm-to-uaw-take-this-job-and-keep-it/#comments Wed, 19 May 2010 21:11:30 +0000 http://www.thetruthaboutcars.com/?p=356949 When the music finally stopped at Old GM, the UAW’s VEBA fund was left holding a lot of IOUs. On those merits, the union’s benefit trust was given about 17.5 percent of the equity in the bailed-out and re-organized New GM. UAW leadership has always maintained that having its membership’s benefits staked on the company’s […]

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When the music finally stopped at Old GM, the UAW’s VEBA fund was left holding a lot of IOUs. On those merits, the union’s benefit trust was given about 17.5 percent of the equity in the bailed-out and re-organized New GM. UAW leadership has always maintained that having its membership’s benefits staked on the company’s financial performance would not change its mission, and that VEBA’s representative on GM’s board, Steve Girsky, would operate free from union influence. And one hopes he would, considering he’s being paid well to advise CEO Ed Whitacre. But the tension between GM’s IPO sprint and the UAW’s non-VEBA interests never goes away, and the Wall Street Journal [sub] is reporting that the latest spat is over the old hobbyhorse of buyouts.

The UAW apparently thinks its 2006 again, and is “pressing” GM to bring back buyouts. These cash-for-quitting offers were the preferred method of getting rid of workers who had become too senior to afford, under such great GM CEOs as Rick Wagoner. And the union’s argument is rife with the attitudes of the bad, old days. Let’s not sully the subtleties of the WSJ’s take:

If GM doesn’t thin its ranks, scores of veteran factory workers in the next few years will find themselves without jobs or unemployment benefits.Laid-off factory workers once could remain on GM’s payroll for years receiving almost full pay and benefits, but now they can remain on the rolls no longer than two years before their company-paid unemployement benefits run out.

See? Before, laid-off workers could receive full pay and benefits for years, and now laid-off workers only receive benefits for years. And now, having cut costs all over, GM isn’t interested in paying experienced workers to learn. With production steadily expanding, GM has “restored or created 9,100 jobs” since bankruptcy, and under two-tier wage structures those new workers are being paid competitively. So the old guys who are making nearly twice as much should get their own private bailouts, at the expense of GM’s financial health (on which the larger union’s benefits depend)? Time Magazine knows what’s up, and chronicles the toxic effects of two-tier wages on the union, complete with quotes like “It destroys solidarity.”

But GM doesn’t want to go back to 2006, when it paid $3.8b to buyout 34,000 workers (do the math). With today’s announcement it has essentially ruled out any further buyouts. Now it’s up to the UAW to balance its own competing interests and do the right thing.

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GM Sued By UAW For $450m Delphi VEBA Shortfall http://www.thetruthaboutcars.com/2010/04/gm-sued-by-uaw-for-450m-delphi-veba-shortfall/ http://www.thetruthaboutcars.com/2010/04/gm-sued-by-uaw-for-450m-delphi-veba-shortfall/#comments Wed, 07 Apr 2010 17:59:39 +0000 http://www.thetruthaboutcars.com/?p=351723 As if to confirm that GM’s  benefit obligation situation could actually be worse than today’s GAO report lets on, Automotive News [sub] is reporting that the UAW has sued GM over $450m in unfunded healthcare obligations for Delphi retirees. GM promised to fund a $450m Voluntary Employee Benefit Association for Delphi retirees in 2007, and […]

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As if to confirm that GM’s  benefit obligation situation could actually be worse than today’s GAO report lets on, Automotive News [sub] is reporting that the UAW has sued GM over $450m in unfunded healthcare obligations for Delphi retirees. GM promised to fund a $450m Voluntary Employee Benefit Association for Delphi retirees in 2007, and Delphi’s bankruptcy court confirmed the commitment in last October. But, according to the UAW suit:

the UAW made a written demand that the company honor its contractual obligation to make the foregoing payment [last October... but] that UAW demand was rejected and since that time the company has failed and refused to make the contractually required payment.

That obligation apparently was not voided by GM’s bankruptcy, although The General’s spokesfolks have yet to officially comment on the UAW’s suit.

One thing is for certain though: this news clearly aggravates GM’s benefit cash crunch at a time when it is still barely able to cover its “cost of sales” with sales revenue and is still bleeding cash.According to the GAO report, GM’s payment schedule to meet minimum pension obligations looks something like this:

Adding another nearly half-billion dollars in Delphi VEBA costs doesn’t make a huge difference in light of these giant looming obligations, but it’s just one more cash suck that will weaken GM at a time when it needs to conserve cash on hand for these future outlays. Not to mention the necessary investments in new products, rescues of struggling overseas divisions in Germany and Korea, and maintaining the incentives that have been necessary to achieve current volume levels. To use the parlance of our elected leaders, a billion here, a billion there, soon you’re talking about real money.

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With GM And Chrysler IPOs AWOL, VEBA Auctions Ford Stock Warrants http://www.thetruthaboutcars.com/2010/03/with-gm-and-chrysler-ipos-awol-veba-auctions-ford-stock-warrants/ http://www.thetruthaboutcars.com/2010/03/with-gm-and-chrysler-ipos-awol-veba-auctions-ford-stock-warrants/#comments Mon, 29 Mar 2010 18:46:35 +0000 http://www.thetruthaboutcars.com/?p=350669 The UAW’s VEBA health care trust fund currently owns 17.5 percent of GM and 55 percent of Chrysler, but with IPO plans still nebulous at both, the fund is short on options for improving cash flow. Remember, the union doesn’t want to own these companies… it would have preferred cash, thanks. But since bailout negotiations […]

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The UAW’s VEBA health care trust fund currently owns 17.5 percent of GM and 55 percent of Chrysler, but with IPO plans still nebulous at both, the fund is short on options for improving cash flow. Remember, the union doesn’t want to own these companies… it would have preferred cash, thanks. But since bailout negotiations allowed the automakers to fund their VEBA obligations with stock and warrants, VEBA has little choice but to monetize them. And while GM and Chrysler limp towards an eventual IPO, VEBA’s 362.4m Ford stock warrants are actually doing pretty well relative to their $9.20 exercise price. So it’s no huge surprise to hear [via Automotive News [sub]] that VEBA is planning on dumping its entire allotment of Ford warrants, in a move that could be worth “at least” $1.27b. And it’s no coincidence that this news comes on the same day that Ford is announcing a $3b debt prepayment, and the day after its sold Volvo to Geely for $1.8b.

By flooding the market with stock, the UAW’s announcement  is keeping Ford stock below $14 (which it reached in pre-trading before the market opened today), essentially wiping out any stock price benefit from the debt and Volvo news. In fact, at the time of publishing, Ford’s stock is actually down about 2.5 percent on the day, despite the good brand sale and debt news. Of course it’s impossible to say that this is solely due to the UAW’s warrant auction, but there is sure to be much back-slapping around Solidarity House right now. After all, how often do you get to make over a billion bucks and slap down the stock price of a competitor firm at the same time?

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GM To Pay UAW VEBA Director $900k For Advice http://www.thetruthaboutcars.com/2010/01/gm-to-pay-uaw-veba-director-900k-for-advice/ http://www.thetruthaboutcars.com/2010/01/gm-to-pay-uaw-veba-director-900k-for-advice/#comments Fri, 15 Jan 2010 23:44:39 +0000 http://www.thetruthaboutcars.com/?p=341991 A lot of what you hear about Steve Girsky sounds decidedly positive: an outspoken critic of GM, Girsky lasted less than a year as Rick Wagoner’s “roving aide-de-camp,” reportedly due to frustration with management heel-dragging. He even earned TTAC’s “lesser-of-two-evils” endorsement to be Presidential Car Czar over Steve “Chooch” Rattner. When he was appointed to […]

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The $900,000 smile

A lot of what you hear about Steve Girsky sounds decidedly positive: an outspoken critic of GM, Girsky lasted less than a year as Rick Wagoner’s “roving aide-de-camp,” reportedly due to frustration with management heel-dragging. He even earned TTAC’s “lesser-of-two-evils” endorsement to be Presidential Car Czar over Steve “Chooch” Rattner. When he was appointed to be the UAW rep on GM’s board, representing the union’s VEBA trust which owns 17.5 percent of GM’s stock, he was lauded as someone who could keep his union allegiances at bay. But as special advisor to GM CEO/Chairman Ed Whitacre, Girsky had better be prioritizing GM’s best interests. Reuters reports that he’s being paid a cool $900k in stock grants for his advice. That’s in addition to $200k director’s salary and reimbursement for “living expenses and travel to and from Detroit.” Not bad considering the fuss people are making over compensation at TARP-recipient financial institutions.

So what exactly is Girsky up to? According to AN [sub]:

Nick Reilly, president of GM Europe, said Tuesday in an interview that Girsky was aiding Whitacre by keeping tabs on GM’s operations outside North America. Whitacre is focusing on North America, Reilly said.

That’s a big job, what with the Opel and Daewoo debacles bubbling away overseas, but Girsky earns his hefty pay in other ways too. The Freep reports that another component of Girsky’s job description involves keeping the boss from embarassing himself.

To ease into his job, Whitacre said former Wall Street analyst Stephen Girsky was essentially acting as his executive Sherpa, explaining “terms like residuals and throughputs. That’s all pretty mystifying to a guy who comes from the outside,” he said.

It’s usually better to over- rather than under-pay babysitters. Especially when they work for the union. Still given the less-than-stellar news coming from GM’s International ops and the collapse of the Girsky-led Saturn spin-off attempt, the auto industry’s answer to Zelig might be getting a wee bit more than he’s worth. But hey, who are we to question the dread Feinberg?

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Ford Completes $13.2b Health Care Liability Transfer To VEBA http://www.thetruthaboutcars.com/2010/01/ford-completes-13-2b-health-care-liability-transfer-to-veba/ http://www.thetruthaboutcars.com/2010/01/ford-completes-13-2b-health-care-liability-transfer-to-veba/#comments Mon, 04 Jan 2010 23:04:17 +0000 http://www.thetruthaboutcars.com/?p=340712 Ford has wrapped up some much-needed financial wrangling today, as it struggles with with its monstrous pile of debt. According to Automotive News [sub], Ford transferred $13.2b in debt and about $4b in cash to the UAW-run health care trust fund, completing a long-awaited liability consolidation. $1.4b of the transfer was a scheduled payment on […]

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(courtesy:hannahautosound.co.uk)

Ford has wrapped up some much-needed financial wrangling today, as it struggles with with its monstrous pile of debt. According to Automotive News [sub], Ford transferred $13.2b in debt and about $4b in cash to the UAW-run health care trust fund, completing a long-awaited liability consolidation. $1.4b of the transfer was a scheduled payment on a $6.7b note, while $500m more was a prepayment on that note. Ford paid $610m (cash) on another $6.5 billion note, transferred $620m from a temporary account and $3.5b from an internal VEBA fund and handed over warrants to purchase 362 million shares of Ford common stock at $9.20 per share. All together, the move reportedly adds $7b in debt to Ford’s balance sheet.

Ford’s CFO hailed the move, which culminates a process began with the 2007 UAW contract, saying it “will significantly improve our competitiveness in the US.” If nothing else, the move does show that Ford is less worried about its liquidity than we may have thought: both the pre-payment and the use of cash rather than stock to pay the scheduled VEBA payment indicate confidence in the balance sheet. And unlike the huge amounts of “equity” in GM and Chrysler owned by VEBA, Ford’s stock is actually worth money. In fact, Ford’s stock is currently worth about a dollar more per share than VEBA’s $9.20 option price, meaning VEBA will probably convert them soon for a quick profit. After all, they’ll be waiting quite a bit longer for their GM and Chrysler stock to be worth more than the paper it’s printed on.

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