GM Proposes Cap on Worker Health Costs, Pay Freeze, People Say
By John Lippert and Jeff Green
Sept. 16 (Bloomberg) -- General Motors Corp. offered to cap
out-of-pocket health costs for United Auto Workers members to help gain
approval for a union-run fund that would let GM shed $50 billion in
retiree medical-care obligations, three people with knowledge of the
GM, the biggest U.S. automaker, also proposed a freeze in cost-of-living
raises and base wages in negotiations on a new four-year UAW contract,
said the people, who asked not to be identified because they haven't
been authorized to speak publicly. The union hasn't ruled out the
cost-of-living freeze, a GM demand that spurred a 67-day strike in 1970,
two of the people said.
The proposals, which may change because talks are still in progress, are
at the heart of GM's bid for union approval to get rid of retiree
medical-care liabilities that cost the automaker as much as $3.3 billion
in cash last year. GM, Ford Motor Co. and Chrysler LLC lost a combined
$15 billion last year and are banking on the talks for cost cuts that
would help them survive.
``An agreement like this would give the UAW four years in which the
nuclear options are off the table,'' said Dan Luria, an analyst at
Michigan Manufacturing Technology Institute, referring to workers'
concerns that they might have to pay more for health-care coverage or
lose it altogether.
A new contract must be ratified by a majority of the more than 73,000
UAW members at GM.
The UAW chose GM as the focus of negotiations, naming the company as its
``strike target'' Sept. 13. The union wants to reach an agreement with
GM, then try to adapt the terms at Ford and Chrysler, which agreed to
operate under indefinite contract extensions while the GM bargaining
The contracts cover 180,681 active workers and 419,621 retirees and
surviving spouses at GM, Ford and Chrysler.
GM and the UAW have agreed on the need for a so-called Voluntary
Employee Beneficiary Association, or VEBA, to take retiree health-care
obligations off company books, the people said. GM would contribute 55
percent to 60 percent of the value of its current liability to start the
program, two of the people said. The talks may still unravel if the two
sides can't agree on these and other terms, they said.
Katie McBride, a GM spokeswoman, declined to comment on the talks, which
resumed today at the UAW-GM training center in Detroit. Negotiators
adjourned late yesterday after meeting almost non-stop for two days. UAW
spokesman Roger Kerson didn't return telephone messages left for comment.
The old contract, which was set to expire at 11:59 p.m. Sept. 14,
continues to be extended hour by hour, McBride said. Bargaining began
The U.S. automakers estimate they pay $25 to $30 more an hour to
American factory workers than Toyota Motor Corp. and Honda Motor Co. do
at their U.S. plants.
GM reported $64 billion in future retiree health-care obligations for
union and non-union employees at the end of last year. The automaker
doesn't break out the union portion. The UAW share is about $50 billion,
people familiar with the breakdown said.
The VEBA proposed by GM would include a ``rainy-day'' fund for
additional GM contributions if medical costs rise more quickly than
expected, the people said. The VEBA would also include a ``windfall''
provision in which the UAW would return some of GM's initial
contribution if health-cost inflation is less than projected, or if the
U.S. government enacts a national health plan that lowers the fund's
medical costs, the people said.
GM's offer of a cap on workers' health-care costs would cover active UAW
members as well as retirees, the people said.
GM proposed providing lump-sum bonuses for workers in return for the
union's acceptance of a freeze in base wages, the people said.
Such provisions increase the chances of rank-and-file UAW approval
because they restrict cash workers would receive in future rather than
now, said Luria, who is based in Plymouth, Michigan.
Luria said the UAW may agree to a wage freeze in part because of concern
that its GM contract may be too expensive for Ford, which lost $12.6
billion last year.