UAW Unifies VEBA

Edward Niedermeyer
by Edward Niedermeyer

The UAW’s Voluntary Employee Beneficiary Association funds were originally negotiated with each of the Detroit automakers, creating three separate funds to handle obligations for each of the OEM’s unionized workforces. But the turmoil of the bailout has left the VEBA funds gasping for cash. With the manufacturers unable to meet their VEBA obligations in cash, the union was forced to take significant stakes in GM and Chrysler instead. Now, the WSJ reports that the three VEBA funds will be unified into a single administrative body. Each automaker will have a separate account within the overall VEBA structure, but the unification should help keep down administrative costs. Still, the fact that significant amounts of Chrysler and GM equity will be held by the same body raises some important concerns.

In fact, the Employee Benefits Security Administration has already had to propose an exemption to its rules just for VEBA. GM and Chrysler’s equity handovers would typically have been too large a transfer of employer securities to meet current EBSA guidelines. Oh, and those assets aren’t “qualified investments” either, under the current rules. Wait, why wouldn’t “common stock representing 17.5% of GM’s equity, $6.5 billion in preferred stock, a $2.5 billion promissory note and stock warrants to purchase up to 2.5% of the new GM’s equity” be considered “qualified investments”? Probably because VEBA is going to have a challenge on its hand when it has to convert those “assets” into cash.

Though the proposed exemption removes any legal issues with the transfer and it clearly has the administration’s backing, the decision exposes VEBA to considerable risk. After all, those rules probably existed for good reasons. And even if those assets do prove to be worth something, the unification still means VEBA and its contributing automakers have to worry about conflict of interest.

“It is conceivable there could be, down the road, conflicts between the accounts of the different car companies in the VEBA,” explains Labor Department spokesman Alan Lebowitz. “But, the [exemption] proposal requires that the committee adopt mechanisms for dealing with any such springing conflicts.” That shouldn’t be too hard . . . right?

Edward Niedermeyer
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  • Rnc Rnc on Sep 21, 2009

    The hope (and that's not a good word in this case, but it is what it is) and a main part of GM's survival plan (b4 and after BK) is that within the next ten years a large majority of the retirees from the 70's (when GM had 50% market share) will die and benefits (health and pension) would come more in line with current workforce. Additionally these retirees would be from the 80's forward when they were no longer treated like pieces of machinery and health cost will fall (for the VEBA). I do not think that the VEBA will last for GM and CryCo, I wonder if the UAW will try and get Ford's employees to allow use of thier funds until equity can be cashed out (I bet solidarity doesn't go that far). And this may be a good thing for the D3, a) the union will have to make concessions for additional funding for the VEBA and b) they will find how hard it is to run a business based on taking a hamburger today and hoping to be able to pay for it on tuesday and the costs/sacrifices that have to be made in the process (could actually be what finally breaks the UAW from within itself).

  • Logans_Run Logans_Run on Sep 21, 2009

    No actually if you have been following the story there is $10 billion buried in the healthcare bill that would be made available to the VEBAs. They will still be short since the UAW actuaries have used rosey actuarial assumptions regarding the future liabilities of the VEBAs. lw makes a good point about the sale of the equity stakes in GM and Chryco. The government will figure out a way to inflate the value and get cash to the VEBAs. My guess is that they will declare the UAW a bank (after all GMAC/Ally is now a bank)and allow them to pledge the equity at the open window with the FED. The banks have been able to do it with worthless MBOs why not let the UAW do it with worthless car company stock. All I know for certain is that we will be paying for this for a long, long, long time with either government debt or the ill-effects of the Bernanke printing press and resulting ultimate tax of inflation and currency devaluation. Ron Paul for President!

  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
  • GregLocock Car companies can only really sell cars that people who are new car buyers will pay a profitable price for. As it turns out fewer and fewer new car buyers want sedans. Large sedans can be nice to drive, certainly, but the number of new car buyers (the only ones that matter in this discussion) are prepared to sacrifice steering and handling for more obvious things like passenger and cargo space, or even some attempt at off roading. We know US new car buyers don't really care about handling because they fell for FWD in large cars.
  • Slavuta Why is everybody sweating? Like sedans? - go buy one. Better - 2. Let CRV/RAV rust on the dealer lot. I have 3 sedans on the driveway. My neighbor - 2. Neighbors on each of our other side - 8 SUVs.
  • Theflyersfan With sedans, especially, I wonder how many of those sales are to rental fleets. With the exception of the Civic and Accord, there are still rows of sedans mixed in with the RAV4s at every airport rental lot. I doubt the breakdown in sales is publicly published, so who knows... GM isn't out of the sedan business - Cadillac exists and I can't believe I'm typing this but they are actually decent - and I think they are making a huge mistake, especially if there's an extended oil price hike (cough...Iran...cough) and people want smaller and hybrids. But if one is only tied to the quarterly shareholder reports and not trends and the big picture, bad decisions like this get made.