UAW – Big 2.8 Negotiations Set to Start: Veni, Vidi, VEBA

Frank Williams
by Frank Williams
uaw big 2 8 negotiations set to start veni vidi veba

When it comes to the United Auto Workers (UAW) contract negotiations with The Big 2.8, employee and retiree health care is the 1000lbs. monkey on the automakers' backs. General Motors' health care obligations total $46b, Ford clocks in at $23b and Chrysler's looking at an $18b tab. And consider this: GM's 432k retirees pay roughly $750 per year out of their own pockets for medical care, while their former employer shells out $3.3b on their medical benefits. That's a Hell of a lot of bananas.

The Big 2.8's beancounters estimate that retiree medical coverage adds $1k to $1.5k to the price of every new car and truck they sell. In response, the UAW has been calling for a national health care policy. But even if Michael Moore's mantra passed into law tomorrow, it would take years for the new policy to have any effect on the automakers' bottom line. And right now is when the automakers need relief.

The Big 2.8 has to do something at the bargaining table; at the least, they must show both Wall Street and their stockholders they're not down for the count. So they've decided to go cold turkey and foist all their retiree health care obligations onto the UAW.

There is precedent. In last year's contract with the United Steelworkers (USW) union, Goodyear agreed to transfer all their USW retiree medical obligations to a Voluntary Employees' Beneficiary Association (VEBA).

A VEBA is a trust fund set up specifically to pay eligible medical expenses. It's funded by employer contributions, payroll deductions and other sources (e.g. cashing-out unused leave upon retirement). The assets in the account are tax exempt, and they can be used to pay medical expenses directly or reimburse participants.

At the time the contract was signed, Goodyear's total health care obligation to their retirees stood at $1.2b. Goodyear will make a one-time $1b payment in cash and stock into the VEBA. After that, the company will have no further obligation to their retirees, current or future. They get to move a $1.2b liability off their balance sheet. In return, Goodyear's retirees get medical benefits that can't be touched should Goodyear file for bankruptcy.

If The Big 2.8 succeed in setting up a similar arrangement with the UAW, the initial payments would be high, but the long term savings would be impressive. If GM got the same deal as Goodyear– paying 83 cents on the dollar– they'd end up forking out a bit over $38b to rid themselves of a $46b debt. Ford would pay just over $19b, and Chrysler could shell out just under $15b. A lower rate would save even more money.

It's likely the UAW would agree to such a plan. Again, there's precedent. When the UAW signed its "historic health care giveback" with GM (upping members' contributions), the General set up a $3b company-controlled VEBA [partly] to cover members who couldn't afford the additional payments.

The UAW knows they've got to do something. At a union seminar earlier this month, UAW vice president Bob King acknowledged that Ford could easily be forced into bankruptcy. Assuming the UAW wants to help Ford avoid Chapter 11 (and believes it can), and assuming Ford could find the money to fund the plan, a union-controlled VEBA would certainly be viewed as "helpful."

And of course, if Ford gets a health care VEBA, GM and Chrysler will want one too. And that means the UAW could end up running one massive medical fund for all their automotive industry retirees. And, as the UAW has been recruiting members from other industries, it's logical to assume other employers would want to join the VEBA club.

The U.S. health care industry is one of the UAW's growing "partners." That's right: the UAW's organizing an industry they could soon be paying to support. In fact, under the VEBA scheme, the UAW would become their own customer. The prospect of the UAW entering into the health care management business creates some interesting "what ifs?"

If the union went looking for the lowest health care services rates possible (as most medical plans do), would they refuse to pay for care at a hospital where the charges are higher to cover the increased benefits paid to their UAW employees? Would they make their retirees use a non-union medical facility because it costs less? Would they call for a strike at a hospital where it could put their beneficiaries at risk of sub-standard care when the nurses and technicians walk out?

If the UAW balks at a health care VEBA, the automakers may file for Chapter 11. If the union agrees to a union-controlled VEBA and an automaker goes belly-up before the deal goes down, the union's stiffed. Even if everyone stays in business, a UAW health care VEBA will encounter the exact same inflationary pressures formerly experienced by the union's previous employers AND it will generate tremendous conflicts of interest. Regardless of what happens, someone is going to be unhappy with the outcome.

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  • Luther Luther on Jul 21, 2007

    "Not to get political or anything but do other people see some of the same issues facing the auto makers and the UAW are the same issues that are facing the Federal Government and Social Security, Medicare, and Medicade?" It is exactly the same problem. The only differences: 1. 2.801 does not have the "authority" to steal our money at gun-point. 2. What the Gov't can't steal from us in taxes, they just print new money to pay for things (causing price inflation)...And put the interest payment for the newly printed money on our backs as well. All of Europe is in even worse shape.

  • Mike frederick Mike frederick on Jul 21, 2007

    I find it funny that several posts have pointed out that UAW members do not pay anything toward medical but this is a misconception.

    The current VEBA ( as far as G.M. employees )has 240 dollars a month per employee thats not retired, forwarded to the above mentioned.

    My hunch,this will increase per active employee with health care eventually belonging to the unions after 2009.

    Another thing to remember is that Goodyears contract with the Steelworkers union was not all that groundbreaking.If anything it was a carbon copy of many smaller unions ( labors locals,carpenters & ironworkers/millwrights ect. )

    Most if not all of these examples have operated for years/decades without interruption toward members medical coverage.

    It can be done by the UAW as well.

    P.S. universal health care could be labeled socialist I suppose.But it makes one want to consider inside this country with the way things are at present.

  • IH_Fever I can't wait to see an Escalade on 24"s blow the brakes off of the competition!
  • Redapple2 Why does anyone have to get permission to join? Shouldnt the rules to race in a league be straight forward like. Build the car to the specs. Pay the race entry fee. Set the starting grid base on time trials.?Why all the BS?I cant watch F1 any more. No refuel. Must use 2 different types of tires. Rare passing. Same team wins every week. DRS only is you are this close and on and on with more BS. Add in the skysports announcer that sounds he is yelling for the whole 90 minutes at super fast speed. I m done. IMSA only for me.
  • Redapple2 Barra at evil GM is not worth 20 mill/ yr but dozens (hundreds) of sports players are. Got it. OK.
  • Dusterdude @SCE to AUX , agree CEO pay would equate to a nominal amount if split amongst all UAW members . My point was optics are bad , both total compensation and % increases . IE for example if Mary Barra was paid $10 million including merit bonuses , is that really underpaid ?
  • ToolGuy "At risk of oversimplification, a heat pump takes ambient air, compresses it, and then uses the condenser’s heat to warm up the air it just grabbed from outside."• This description seems fairly dramatically wrong to me.