When it comes to the United Auto Workers (UAW) contract negotiations with The Big 2.8, employee and retiree health care is the 1000lbs. monkey on the automakers' backs. General Motors' health care obligations total $46b, Ford clocks in at $23b and Chrysler's looking at an $18b tab. And consider this: GM's 432k retirees pay roughly $750 per year out of their own pockets for medical care, while their former employer shells out $3.3b on their medical benefits. That's a Hell of a lot of bananas.
The Big 2.8's beancounters estimate that retiree medical coverage adds $1k to $1.5k to the price of every new car and truck they sell. In response, the UAW has been calling for a national health care policy. But even if Michael Moore's mantra passed into law tomorrow, it would take years for the new policy to have any effect on the automakers' bottom line. And right now is when the automakers need relief.
The Big 2.8 has to do something at the bargaining table; at the least, they must show both Wall Street and their stockholders they're not down for the count. So they've decided to go cold turkey and foist all their retiree health care obligations onto the UAW.
There is precedent. In last year's contract with the United Steelworkers (USW) union, Goodyear agreed to transfer all their USW retiree medical obligations to a Voluntary Employees' Beneficiary Association (VEBA).
A VEBA is a trust fund set up specifically to pay eligible medical expenses. It's funded by employer contributions, payroll deductions and other sources (e.g. cashing-out unused leave upon retirement). The assets in the account are tax exempt, and they can be used to pay medical expenses directly or reimburse participants.
At the time the contract was signed, Goodyear's total health care obligation to their retirees stood at $1.2b. Goodyear will make a one-time $1b payment in cash and stock into the VEBA. After that, the company will have no further obligation to their retirees, current or future. They get to move a $1.2b liability off their balance sheet. In return, Goodyear's retirees get medical benefits that can't be touched should Goodyear file for bankruptcy.
If The Big 2.8 succeed in setting up a similar arrangement with the UAW, the initial payments would be high, but the long term savings would be impressive. If GM got the same deal as Goodyear– paying 83 cents on the dollar– they'd end up forking out a bit over $38b to rid themselves of a $46b debt. Ford would pay just over $19b, and Chrysler could shell out just under $15b. A lower rate would save even more money.
It's likely the UAW would agree to such a plan. Again, there's precedent. When the UAW signed its "historic health care giveback" with GM (upping members' contributions), the General set up a $3b company-controlled VEBA [partly] to cover members who couldn't afford the additional payments.
The UAW knows they've got to do something. At a union seminar earlier this month, UAW vice president Bob King acknowledged that Ford could easily be forced into bankruptcy. Assuming the UAW wants to help Ford avoid Chapter 11 (and believes it can), and assuming Ford could find the money to fund the plan, a union-controlled VEBA would certainly be viewed as "helpful."
And of course, if Ford gets a health care VEBA, GM and Chrysler will want one too. And that means the UAW could end up running one massive medical fund for all their automotive industry retirees. And, as the UAW has been recruiting members from other industries, it's logical to assume other employers would want to join the VEBA club.
The U.S. health care industry is one of the UAW's growing "partners." That's right: the UAW's organizing an industry they could soon be paying to support. In fact, under the VEBA scheme, the UAW would become their own customer. The prospect of the UAW entering into the health care management business creates some interesting "what ifs?"
If the union went looking for the lowest health care services rates possible (as most medical plans do), would they refuse to pay for care at a hospital where the charges are higher to cover the increased benefits paid to their UAW employees? Would they make their retirees use a non-union medical facility because it costs less? Would they call for a strike at a hospital where it could put their beneficiaries at risk of sub-standard care when the nurses and technicians walk out?
If the UAW balks at a health care VEBA, the automakers may file for Chapter 11. If the union agrees to a union-controlled VEBA and an automaker goes belly-up before the deal goes down, the union's stiffed. Even if everyone stays in business, a UAW health care VEBA will encounter the exact same inflationary pressures formerly experienced by the union's previous employers AND it will generate tremendous conflicts of interest. Regardless of what happens, someone is going to be unhappy with the outcome.
UAW HMO?
At least you know the Viagra ($8/pill) won’t going to be covered anymore…
Like the quote goes….
“Billions and billions and billions of stars..”
Yes, the UAW throws in with Michael Moore’s belief that government healthcare is free as long as rich people and corporations are taxed to pay for it. They also know that their membership is expecting them to come up with a 5 year deal that preserves everything they have now, although new members won’t get as much, even though attrition will reduce the number of people with Golden Deals.
I don’t think time is on their side because any deal with the UAW still does not address the questionable product line and shaky reliability record the big 2.8 have, culminating with lower resale prices.
another famous quote: ” and the band played on.”
I think those checks might bounce. Other than that, it is a pretty good idea. Of course me owning a 550 Maranello is a pretty good idea too, but that check is about as good as Ford’s check for $15 billion would be. Can they fund it on time? Oh, that is what they are doing now, and we can see how well that is going. What is it? You can only get out if you are insane, and if you want out that proves you aren’t insane.
I hope to see comments from current UAW members here shortly. I’d like to know if they get a warm and fuzzy feeling knowing that the UAW would be managing their healthcare for their thirty to forty years of retirement.
I guess if I had to wager on a horse in this race, I would take the UAW (with money in the bank) before I’d take any one of the Big 2.8 (staying in business for the next forty years to fund my healthcare, assuming I retire today).
Here’s what i don’t understand. Autoworkers wages are towards the top of the blue-collar pay scale. Why can’t they pay at least part of their healthcare costs. i don’t make anywhere near as much as the typical auto worker and I have to pay for part of my healthcare benefits. I know it sounds harsh but in today’s domestic automotive enviroment it is time to wake up and realize that the automakers can’t foot the entire bill for every worker’s healthcare. The burden should be on the workers as well.
Would they make their retirees use a non-union medical facility because it costs less?
Brilliant!!
Well if Ford gets rid of Jaguar and Land Rover, it just may give them the extra cash they need to pay for such a plan.
The UAW will actually be running a business? It will make Monty Python look like a serious docu-drama.
UAWCare HilaryCare…Has the world gone mad?! Bring back King George!
If Ford wants to fund their VEBA, they can just sell Volvo.
GM could have partially done that with GMAC and/or Allison, but that ship sailed long ago.
Chrysler could sell Jeep perhaps?
To paraphrase Elvis, “whole lotta risk-shifting goin’ on.” Historically, companies assumed the risks of figuring out how–even in bad times–to pay rising health care costs and invest shrewdly enough to fund traditional (i.e., non-401K) pensions. Now the UAW must consider taking on the risks of inflation and disappointing investments.
The UAW would be smart to go for a VEBA. At least it would start out adequately funded, in contrast to mere promises by companies with negative net worth. But it would put the union in the position of having to be responsible for prudent benefits management and for re-educating members who think paying 10% of their health care is burdensome.
It’d be interesting to have some real-life examples of retirees’ pension amounts and out-of-pocket health care expenses.
Why? Why would GM pay $38 billion to rid themselves of their health care liabilities? Bankruptcy is much cheaper, is it not?
The 2.8, the UAW and the employees have all had their hand in this catastrophic meltdown. Let them take it in the backside. I pay my taxes, pay for medical coverage and provide my clients with good service. If the 2.8, UAW and employees had been doing that, they wouldn’t be in this mess. I don’t want to support these overpaid dolts that created this clusterf**k through increased taxes and a government bailout.
Greed on the part of the 2.8employeesUAW got them here. As they say on Wall Street: Bulls make money, bears make money and pigs get slaughtered.
Why? Why would GM pay $38 billion to rid themselves of their health care liabilities? Bankruptcy is much cheaper, is it not?
Cheaper yes, but they still need to sell cars (even if selling cars doesn’t make them any money, I guess thats a discussion for the death watch series). Would you buy a car from a manufacturer in bankruptcy? I know i wouldn’t, but then again, I favor Japanese sports cars :)
I don’t see the big 3 having the ability to write those checks. Ford’s in hock up to its eyeballs. Selling Volvo probably wouldn’t cover their VEBA contribution. It would however be interesting to see what Ford’s priority would be with Volvo-sale assets. I think a lot of other uses would be more attractive than buying down future healthcare claims.
The payout for the VEBA can be in one lump sum or an agreed-to amount of cash over a period of time. Part of the payment can also be in the form of stock.
I’m sure that if the opportunity presents itself, the auto companies will find the money and assets to do it somehow.
If the UAW paid what us regular employees pay for health care deductibles, the situation would be a whole lot better for GM and the big 2.8123, but i’m sure they will fight it tooth and nail, why should we all be on the same playing field, why should we be a team?!
Do existing employees that have 20 years until retirement actually think they will be receiving any pension benefits? If the company is liquidated during a banckrupcy, will non-retired employees receive anything for their future retirement?
Pull up a chair, watching Detroit fight off all these advances is going to be better than watching Paris Hilton defend herself at a frat kegger. In this corner-GMFC (Give Me a Freaking Chance)down but not out, shrinking market share, poor management, lackluster models vs confrontational unions, high oil,relentless competitors, unfair currency manipulation, CAFE threats and yes better interiors. When this is over they can call Michael Vick to put the losers out of their misery. The UAW negotations are going to be round one of what I think is a death match. Call me naive but I am still rooting for the home team.
BostonTeaParty isn’t the real problem not the cost of the healthcare benefits of the current uaw workers but the cost of the healthcare benefits for the retired uaw workers.
It’s now or never.
There will probably not be a better chance to bankrupt the UAW in the foreseeable future.
From I,ve read I don’t think the VEBA is a slam dunk.The two biggest issues are initial cost,and who runs it?
Will the big 2.8 cough up the mega bucks?Where are they gonna get it?Does the UAW want to take on the headaches that F.W.pointed out?
I don’t 100% understand the American health care system.
Could the UAW/GM not come up with a user pay/employer pay private insurance.
Here in Canada we have national health care [its a long ways from perfect]G.M pays on my behalf and I pay a small fortune in taxes [IT AIN’T FREE]
Private insurance [GM pays the premium] looks after my dental,drugs/eye glasses etc.
I don’t see the UAW rank and file giving up too much.But I do see them contributing a little more to thier health care.
What ever happens in the U.S. will have imediate impact on us in Canada.
So I for one, am watching real close
Hippo
You state that this is the chance for the 2.8 to kill the UAW.
OK so the 2.8 take a united stand and say, screw ya take what we offer,or go on strike till hell freezes over.
After all there is a big, and getting bigger inventory of unsold cars, hmmm?
Sort of like see who can outlast who?
Highly unlikely,but I wouldn’t rule it out
Mikey,
Not sure what unions are like in Canada.
I do know that there is a enormous difference between unions in some European countries and unions in the US.
Over there it seems to work.
My guess would be that Canada is somewhere in between and possibly closer to the European model.
IMO GM would have a problem continuing the strike if there is demand and no cars, as long as there are large numbers of unsold cars as you say they are no worse off then without a strike.
I don’t have a problem with individual union members, but I have a big problem with extortion.
I realize that my preferred form of conflict resolution, the preemptive strike, is not very PC. Way it goes. eh?
Mikey, hardly anyone here in the US 100% understands the American health care system. But folks agree on one point: they’d like someone else to pay for their health care expenses.
When GM was riding high, the cost of lavish fringe benefits was easy to absorb or pass on to customers. Now, however, there are no profits and market share is declining. To pay more for health care GM will have to either sell assets or borrow the money. That, of course, is not a long-term solution.
GM’s US retirees have enjoyed a wonderful deal on health insurance. If they had to purchase similar coverage from Blue Cross or whoever, it’d cost roughly ten times as much as they now pay. And that’s what will happen if GM goes under before funding a VEBA.
Throwing the big numbers around and blaming retirees that could pay more sounds appealing I guess. In GM’s case we are talking around $800 per month for retiree health care. That doesn’t sound that high or unreasonable to me considering what health insurance for a group of older people would cost. It only seems huge in total because it runs into billions, but a big company like GM has that in every facet of their business.
As for the retirees, they shouldn’t be paying any more than they do. It was all negotiated over the years, and part of the benefit was insured health coverage after you retire. You worked there 20 or 30 years with part of the promise from GM being that we will take care of you when your working days are over. To tell an employee that put in their 30 years or more, “hey bud, guess what, we decided we cannot afford to cover you after all, have a good life sucker (what’s left of it)….” is hardly a decent or humane way to treat people. And retirees that no longer directly build a company’s product are hardly the place to look for improving company output or quality now is it?
You guys screaming for retirees to pay more etc. are nothing more than jealous. GM could have at anytime said they couldn’t afford it or offered insurance with lower pay along the way or anything else. Truth is if they were making money it wouldn’t be that big a problem. It was many more of their decisions that put them in this place.
Unions exist precisely because greed oriented only execs in companies would cut off retirees they promised benefits to anytime the going got rough. Like any deal, it takes two to agree to contracts. GM is to blame here if anyone, not retirees. Retirees do not ‘owe’ GM a break at all.
IF the UAW can work out a deal with a big payment from the auto companies to cover retiree health benefits it will be for their own good, as bankrupt companies pay nothing. And the companies will do it if the UAW can manage it more efficiently thereby somehow saving the company money. I rather doubt negotiating this will be at all easy or even likely to come to pass myself.
esldude:
I think you’re missing the point. I agree that it is unfair that retirees lose benefits that had previously been promised them. But to say anyone is blaming retirees is foolish. If you have been reading the death watch series, you will have noticed how often GM management is maligned in this space. The UAW does also share some of the blame, in that its strong-arm tactics have forced cowardly executives to agree to contracts that are far above market value for manual labor (as evidenced of course by how much cheaper building a higher quality car with non-UAW labor is).
Assigning blame is futile at this point. The Big whatever are now hemorrhaging cash and are in mortal danger of going into chapter 7 and of course never paying a dime to retirees. That would truly be a tragedy.
Foresight was lacking on both the part of the executives (making promises years ago that clearly mortgaged their futures) and the UAW (jeopardizing the Big whatever’s ability to stay in business, and of course employ its members). Now, sacrifices must be made. Executive compensation needs to be slashed, management needs to be pared down to save cost and increase efficiency, and the UAW must realize that it must give back some of its benefits so as to survive. Executives running failing businesses are certainly should not be earning millions, but neither should assembly line workers be receiving better than 70/hour in total compensation. For the sake of the employees of the big something or other, I hope both sides will be willing to suffer for the future good.
When GM was riding high, the cost of lavish fringe benefits was easy to absorb or pass on to customers.
Not exactly. The costs were passed on to FUTURE executives to figure out how to pay.
The union is not blameless in this. They also bet on the future growth of the companies. If they had doubts in the past that the 2.8 would not be able to pay future obligations from future revenue, then they should have demanded immediate cash instead of IOU’s.
Sorry Mr & Mrs UAW member. There are no guarantees. You bet on the 2.8 and lost. Simple as that. You are no different that the millions of other American retirees who are not getting 100 percent of what they were promised in retirement benefits.
If the UAW was smart, they would take cash instead of promises. Better to have 60 cents on the dollar than nothing at all from someone who has already burned you.
I think GM should get out of the automobile industry and transform itself into “General Medical”, like Kaiser Steel did. If they have to pay all the medical bills anyhow, then they might as well control costs by becoming the vendor. If they do it right, they could sell their services to Ford & Crystler too.
I don’t understand how the big 2.8 are going to be able to write the checks. If Ford and GM had access to this kind of cash why did they recently borrow tens of billions? In Ford’s case, they borrowed about what they owe in health care liabilities. If they then scrounge the cash together to pay this lump sum, isn’t it almost as though they are applying the borrowed money to do this? Assuming the payout period of the loan is somewhat shorter than the overall payout period of their health care liability and they are paying a moderate interest rate, it seems a very backwards plan.
The biggest issue with health care is the ever rising insurance rates. Insurance companies do not want to pay out – they want to sit on the money as long as possible. When they pay out, they lose money they could have been earning interest on.
We don’t need a government funded health care system. We need laws that reign in the insurance companies to prevent costs from rising at the rate they have been to start with.
That said, Verizon’s union fought tooth and nail to keep their employees from having to pay any costs out of their paychecks for health care. They got it, but now their employees pay $25 at the time of a visit, have less options, and pay more for prescriptions and other things. I know the person that was all for this is now wishing he paid a marginal fee out of pocket instead of what he gets socked for himself and his two children each visit + deductibles and prescriptions.
Actually it was 2.801’s NA customers that burned 2.801 and the UAW by moseying on over to the ToyHonNis lots. The customer is king in a free market…A tyrannt…A fickle tyrannt…A royal pain in the butt.
The only way 2.801 has a chance to become solvent is to move their operations offshore away from NA labor laws. I don’t really think they will be safe in Mexico (because of NAFTA) which is why I think 2.801 will be looking to move production to Asia and later perhaps incorporate in Bermuda or Dubai. The Boards responsibility is to shareholders so I can’t see them dicking around in NA much longer especially with such hostile governments. 2.801 are very competitive in overseas markets.
Sherman, it is but when current UAW employees pay nothing towards it and the bill for current employees and retirees health is in the billions, then something towards helping the company become more profitable is a good thing isnt it? imagine if you removed the billions (was it around $5-6+ billion) from the GM bottom line for healthcare payouts, where would the company be, if we made a small profit last year imagine how much we would have made even though our cost cutting was working. Would we be worrying as much about bankruptcy (and death watches) if GM made an additonal billion or 2 profit because health care costs had been reduced? Imagine if that money could be plowed back into product, its getting better, look at the jump in quality not only of design but the actual quality of our vehicles now, isnt that a good thing too, imagine what could be achieved with extra dollars, or if the additonal money could help reduce the sticker price on vehicles to get more out of the lots?
mikey,
I lived in Canada for 36 years before moving to the US. When I moved everyone told me how much better off I would be. Yeah, right. What I don’t pay in taxes, I now pay in Medical bills and then some, and that does not even include the hassle of having to actually pay the bill. So paying Canadian taxes may be worth it
Fot years the UAW has told the Big 2.8 how to run their business and are really good at “I told you so”. With a VEBA they would get a chance to show how good their management style really is. The UAW should be scared stiff to take on a VEBA that in 10 years could be bankrupt. Time will tell.
Orian:
Insurance companies typically invest their unpaid premiums (called “float”) in the stock market. It’s the only way for them to turn a profit (and for obvious reasons, they don’t always succeed).
And the main thing keeping medical insurance so expensive is the fact that people get it through their employer. If American businesses collectively decided to stop offering health care as a perquisite, the prices would have come down, lest the insurance companies go out of business.
Not to get political or anything but do other people see some of the same issues facing the auto makers and the UAW are the same issues that are facing the Federal Government and Social Security, Medicare, and Medicade?
Maybe us non UAW/Automaker people should be watching what goes on here because it could be a a preview of what some of us might face who have been counting on Social Security and other Federal Programs.
Getting off the soapbox I predict that we will see a work stoppage of some sort. The issues that need to be addressed in these contract negociations are very personal issues with the rank and file and that the leadership will have a hard time selling any consession to them.
I always chuckle when I see the UAW leadership saying that “govt health care will fix everything”. When those folks compare what govt health care would be like compared to their gold-plated current deals, they would have a heart attack.
“Not to get political or anything but do other people see some of the same issues facing the auto makers and the UAW are the same issues that are facing the Federal Government and Social Security, Medicare, and Medicade?”
It is exactly the same problem. The only differences:
1. 2.801 does not have the “authority” to steal our money at gun-point.
2. What the Gov’t can’t steal from us in taxes, they just print new money to pay for things (causing price inflation)…And put the interest payment for the newly printed money on our backs as well.
All of Europe is in even worse shape.
I find it funny that several posts have pointed out that UAW members do not pay anything toward medical but this is a misconception. The current VEBA ( as far as G.M. employees )has 240 dollars a month per employee thats not retired, forwarded to the above mentioned. My hunch,this will increase per active employee with health care eventually belonging to the unions after 2009. Another thing to remember is that Goodyears contract with the Steelworkers union was not all that groundbreaking.If anything it was a carbon copy of many smaller unions ( labors locals,carpenters & ironworkers/millwrights ect. ) Most if not all of these examples have operated for years/decades without interruption toward members medical coverage. It can be done by the UAW as well. P.S. universal health care could be labeled socialist I suppose.But it makes one want to consider inside this country with the way things are at present.