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GM, UAW Reach Tentative Settlement

September 26, 2007
Related Topics: Future Workplace, Benefit Design and Communication, Labor Relations, Latest News
A deal to end the strike between the United Auto Workers and General Motors could mean the end of defined benefits in health care for the auto manufacturer’s retired workers.

The first nationwide strike against GM in 37 years ended early Wednesday, September 26, less than 48 hours after it started, when officials came to a tentative contract agreement that includes the creation of a health care trust that officials say will remain solvent for 80 years, according to Automotive News, a sister publication of Workforce Management.

The deal also includes resolution of another key issue for union members—that of job security. Union officials provided few details on the deal, which must be ratified by the union rank and file, but the health care trust could be funded in a way that would end GM’s financial obligation toward paying for retiree health care costs.

With 64 percent of GM’s workforce eligible for retirement by the end of the next contract, the new deal could, in many ways, determine how many opt to retire. By resolving the issue of retiree health care costs, the focus of future contracts will be on current workers, says Kristin Dziczek, senior project manager for the Center for Automotive Research in Detroit.

“We are ushering out the baby boom and striking a new deal for the rest” of the workers, Dziczek says.

UAW President Ron Gettelfinger told reporters during a 4 a.m. press conference, “I believe the strike was beneficial in bringing a quick end to the negotiations,” according to Automotive News.

No details were provided about the size of the independent health care trust to be established, but it includes billions of dollars in liabilities that would come off the books for GM. Such an accounting feat requires review by the Securities and Exchange Commission and the courts.

GM chief executive Rick Wagoner described the negotiations as among the most complex and difficult in the history of the company’s contract talks with the union. The proposed contract agreement, he said in a statement, would allow the company to remain competitive and retain a “strong manufacturing presence in the United States along with significant future investments.”

“This agreement helps us close the fundamental competitive gaps that exist in our business,” Wagoner said in a statement. 

The trust would likely take the form of a voluntary employees beneficiary association plan, which would afford GM a huge tax deduction and could only be used for health and welfare benefits. The VEBA plan would benefit the union because it would be funded by a combination of cash and stock to pay for health care costs rather than by a promise from GM that the company would cover future expenses.

The creation of the trust, which would be managed by an independent third party and could be grown by investing its assets, could ultimately shift the responsibility for managing retiree health care costs to the union from the automaker.

Details of the deal will make clear whether GM will provide any additional money to pay for health care costs should they rise beyond expectations.

“It may mean the end of defined benefits,” Dziczek says, depending on the details of the deal.

Though GM has created VEBAs for certain segments of its union population this would likely be the largest in history.

The UAW has not yet said how it would resolve its contract negotiations with Ford Motor Co. or Chrysler. The union’s contracts with all of Detroit’s Big Three automakers expired September 14.

—Jeremy Smerd

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