For GM and Chrysler Retirees, An Anxious Future of UAW Healthcare
The health care of thousands of retired auto workers is about to change:
On Friday the membership of the United Auto Workers overwhelmingly
approved a restructuring plan with GM, according to UAW president Ron
Gettelfinger. The plan gives the union's health care vehicle some
promissory notes plus a 17.5% stake in GM and warrants to purchase
another 2.5%. (See TIME's photos of General Motors factory-scapes)
Assuming the deals survive bankruptcy court, and experts expect it will,
the change marks a new direction in health care for GM retirees, and now
puts them in much the same camp as Chrysler retirees. Both groups will
now receive health care benefits from two under funded vehicles known as
Voluntary Employees Benefit Associations (VEBA), which will have
ownership stakes in the auto companies and representation on the
corporate boards. Though the VEBA for each company was set up prior to
bankruptcy, health care administration largely remained with the
automakers. Now it's all VEBA all the time. (General Motors: 10
Milestones on the Road to Bankruptcy)
"We're taking a risk here," says UAW President Ron Gettelfinger. "We're
going into this with an equity value of zero," he added, referring to
the virtually worthless stock that both VEBAs are getting in lieu of
cash that was owed them by the automakers. Then, pointing to his next
battle, he said, "We've got to keep pushing for national health care."
To be sure, the VEBA financial responsibilities are daunting. As the
automakers wind down their involvement with retiree health care, both GM
and Chrysler have stopped revealing details of their related costs.
However, GM vice chairman Robert Lutz recently noted that GM has spent
more than $103 billion on health care in the last 15 years — one big
reason the company is in its current predicament. (See TIME's photos of
Detroit's beautiful, horrible decline)
Future cost projections are even more chilling, since money to meet
those projections is dwindling fast. In 2007 GM and the union estimated
that it would require an investment of $57 billion to provide future
health care for GM's blue collar retirees, even after trimming some
benefits. GM's VEBA is more than a little shy of that number. It had
$14.4 billion at the middle of 2008 and now has only $9.4 billion in
assets, which is beyond the reach of creditors but would barely last
three years in the face of escalating health-care costs. Gettelfinger
describes the rest of the GM and Chrysler VEBA assets as "paper money,"
referring to the stock, warrants and notes from two virtually bankrupt
companies. Not a lot of optimism there.
Chrysler has only 78,000 retirees compared to GM's army of 377,000 but
the financials don't line up any better for its VEBA, which has only
$1.6 billion in cash — a fact that is already raising anxiety inside the
union. Chrysler is expected to get $6 billion in new federal aid as it
steps out of bankruptcy court but Chrysler/Fiat is obligated to steer
just $381 million into the VEBA next year. One possible save: in a
little noted facet of the new labor contract with Fiat, the VEBA can
sell its shares to the Italian automaker via a private sale in the not
to distant future. The price hasn't been negotiated yet, but the
planning is already underway. "We'll have to sell the stock to fund the
VEBA," says Gettelfinger, who notes that the trust is effectively free
to sell shares as soon as they are registered.
Gettelfinger insists the union has already made substantial cuts to
health care costs. In less than four years, blue-collar retirees have
gone from modest co-pay and deductibles to footing 25 percent of the
their bill for health. The new UAW contracts also include reductions in
benefits: dental and vision coverage will be dropped, effective July 1.
"The UAW has always been willing to sacrifice to help these companies,"
Gettelfinger says. "When this started, we were on third base before the
other stakeholders were even in the ballpark."
Even within the UAW, that note of selfless sacrifice rings a little less
than true: "The government made us do it," says one union official.
Meanwhile, many union members fear this is only the beginning of the
cuts that will be imposed on retirees, who were once promised
health-care benefits for life. "This is very, very painful for the
union," says Harley Shaiken, a labor expert from the University of
California-Berkeley. "It's a huge risk because the VEBA could run out of
money if these companies don't do well," he said.
"This wouldn't even be an issue at a non-union company because retirees
wouldn't have health care," says Van Conway, a Detroit-based corporate
For the union, the hope is that nothing is really ever locked in stone
since agreements can always be renegotiated. Says Conway: "The important
thing for the union is they live to fight another day.