Big Three retiree benefits at risk
Health care coverage for retired autoworkers will be in the crosshairs
this summer as Detroit's Big Three seek to close a labor cost gap with
foreign-owned auto plants in the United States.
General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler
Group plan to push the United Auto Workers for cost savings on retiree
health care during national contract talks that begin next month,
according to several people close to the situation.
The Detroit automakers see reducing the $6.4 billion a year they spend
on retiree health care as a crucial step toward eliminating the $20- to
$25-an-hour gap with foreign automakers' U.S. factories.
While the UAW has historically fought to preserve top-tier health
benefits for retirees, the union has shown some flexibility in light of
the severe financial issues facing Detroit's automakers.
On Monday, UAW President Ron Gettelfinger indicated he may offer
Chrysler a health care concession similar to those granted in 2005 to GM
The deal required GM and Ford retirees to accept modest co-pays and
deductibles, while active UAW employees gave up $1 an hour in raises.
"We've been talking to Chrysler quite frequently -- we do need to find a
way to fix the problem there now that Chrysler is in a downward mode,"
Gettelfinger told Paul W. Smith on WJR-760.
But while the 2005 agreements will save GM and Ford billions of dollars
over time, all three companies are seeking deeper savings.
"The 500-pound elephant in the room is the retiree health care," said
David Cole, director for the Center for Automotive Research in Ann Arbor.
Health care for active workers also is likely to be addressed during the
talks. But Detroit's automakers now provide health coverage for some
600,000 UAW retirees, their spouses and other dependents. That's roughly
three times the number of active union workers they employ.
Reducing retiree benefits is a sensitive issue. While active workers --
not retirees -- will ratify or reject the new contract in the fall, the
UAW has made protecting benefits for its retirees a priority.
With contract talks approaching, auto executives won't publicly discuss
the issue. Earlier this year, Troy Clarke, GM's North America's chief,
told The News: "If there is a cost that keeps me up at night, it's
health care. We have the retiree health care issues and it's very
stressful. We've got to come at that some way."
Executives at all three Detroit automakers have privately expressed
similar sentiments, pointing out that they have already significantly
reduced health care benefits for white-collar retirees.
Automakers estimate that about $13 of the $25-an-hour labor cost gap
with foreign automakers is retiree-related.
Collectively, the Big Three's higher labor costs versus Toyota Motor
Co., Honda Motor Co. and Nissan Motor Co. add up to an $8.6
One way the Detroit auto companies could tackle soaring health care
costs could be to create an independent health care fund managed by the
UAW. The three automakers would pump billions into the fund at the
start. Union workers would likely have to pay more toward their health
care but would be protected if the companies went bankrupt. The
companies have been studying a similar deal struck between the United
Steelworkers and Goodyear Tire & Rubber.
UAW spokesman Roger Kerson declined to comment. Some plant-level union
officials and retirees are bracing for cutbacks.
"There are going to be changes in their health care compared to what
there is today," said Chris Sherwood, president of UAW Local 652, which
represents GM workers in Lansing.
Ron Turner, recently retired from Ford, is concerned about his health
coverage. "Now that I have retired, I can't afford for them to take
The 54-year-old who has a son, 13, and daughter, 11, is skeptical about
whether the union will be able to protect retirees. "The industry is
telling them that we have to get competitive with overseas
manufacturers," he said.
Other union officials say it's too early to say what will happen.
Detroit's automakers are "in worse shape than they might have ever
been," said one high-ranking union official. "But it's pure speculation
to start guessing about what extent or where any cuts will be made. But
one thing is for sure, Ford Motor, General Motors or Daimler, none of
them can survive a strike. I doubt that they're going to want to take us
to the wall on anything."
Health care has always been a sticking point for Detroit's automakers
and the union, said Robert Denison, a former UAW International
representative for Chrysler workers before retiring in 2000.
"We know that they're going to hammer this out during negotiations,"
Denison said. "But we're not going to solve this problem at the
bargaining table. This problem is a national problem."
Denison isn't sure where else the manufacturers could make significant
cuts but said he doesn't see the union capitulating.
"I don't believe that the UAW is ready to turn tail and go backwards.
When you talk about people who have worked 35, 40 years -- these men and
women have paid their dues," he said.
Rick Smith, a worker at GM's Lordstown plant, said retirees like his
father, who recently retired after 40 years at the plant, have earned
"They did their time. Back then it was a lot harder than it is now.
You've got to support your retirees."