The wave of the future for the upcoming auto contract
UAW to run Dana retiree benefits
The deal could be a harbinger for the labor talks beginning this month between the UAW and Detroit automakers. The Dana deal is similar to one negotiated last year between the United Steelworkers and the Goodyear Tire and Rubber Co. that the automakers consider a possible model for managing their own retiree health care liabilities. The Steelworkers are also a party to the Dana accord.
The settlements with the UAW and the USW include four-year extensions of Dana's current contracts at union plants in the United States, as well as new agreements with several recently organized facilities. They also establish two-tier wage structures at some Dana facilities and modify existing disability benefits, the company said.
Detroit's automakers also are expected to push for a two-tier wage structure, which would allow them to pay new hires significantly less than existing employees.
Under the terms of the Dana agreement, the Toledo-based supplier will contribute $700 million in cash and approximately $80 million in common stock to fund two voluntary employee beneficiary associations, or VEBAs.
Each union will manage one of these trusts, which will be responsible for providing health coverage for retirees, as well as long-term disability insurance for active workers. In exchange, Dana will be freed of all future obligations for such coverage. The company expects to save more than $100 million a year as a result.
Part of the funding will come from private equity firm Centerbridge Capital Partners LP, which has agreed to invest up to $500 million in cash for convertible preferred shares in the reorganized Dana. Centerbridge has also agreed to help set up another $250 million from other investors.
Centerbridge is winner
The deal is a win for upstart Centerbridge, which hired former General Motors Corp. executive and star auto analyst Steve Girsky to spearhead auto sector deals. Centerbridge was part of an unsuccessful bid for Chrysler earlier this year.
"This settlement would not have been possible without the involvement of Centerbridge Partners," UAW President Ron Gettelfinger said in a statement. "They're going to play a key role in the future of Dana, and we look forward to working with them to help this company succeed in the marketplace."
Centerbridge Partners could own roughly a quarter of Dana post- bankruptcy. Centerbridge began as an adviser to the UAW and USW and moved into an investor role.
Dana said the unfunded portion of its retiree health care and long- term disability obligations currently total $1.1 billion. If the deal is ratified by the members of both unions and approved by the federal bankruptcy court, Dana will have eliminated that liability from its balance sheet for 71 cents on the dollar.
That contribution is lower than the 83 cents on the dollar Goodyear agreed to pay to end its retiree health care obligations. The tire maker is awaiting final court approval of its agreement with the Steelworkers.
GM, Ford deal may be tough
As The Detroit News first reported Friday, General Motors Corp. and Ford Motor Co. would like to negotiate a figure closer to 50 cents on the dollar. But that might not be easy.
The supplier's negotiations with the UAW were "very challenging," one person familiar with the talks told The News Friday.
Some observers think the UAW was wary about setting the bar too low in advance of negotiations with Detroit automakers.
While deals like the one inked with Dana require the union to assume responsibility for retiree health benefits, they also protect those benefits in the event of a bankruptcy. Dana had filed a motion with the bankruptcy court to cancel its labor contracts.
The Dana deal is further proof that the union is willing to negotiate on retiree health care. "There does seem to be a pattern developing," said Jim Gillette, an analyst with CSM Worldwide. "I do think they understand the realities of the situation."
Those realities include the fact that health care costs have become a major competitive disadvantage for U.S. automakers -- one that adds as much as $1,400 to the price of their cars and trucks compared to those produced by Asian manufacturers. Of the $10 billion Detroit's Big Three will spend on health care this year, $6.4 billion will go to retirees and their dependents.
"If they were ever able to get these retirement health care liabilities off the books, it would go a long way toward making them more competitive," said Bradley Rubin, who follows the auto industry for BNP Paribas. "This is encouraging."