UAW reportedly in talks to assume health costs

NEW YORK (CNNMoney.com) -- The United Autoworkers union is in discussions with General Motors, Ford Motor and Chrysler Group about possibly assuming responsibility for billions in retiree health care costs in the future, according to a published report.

The Wall Street Journal said talks are very early. The union's contracts with the traditional Big Three automakers expire in September. The paper reports that the union itself proposed discussing the change as a way of assuring that retirees' health care coverage not be lost in the case of a bankruptcy filing at one of the automakers, and also as a way of helping the automakers compete.

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Steady loss of market share by the Detroit automakers has led GM and Ford to announce plans to close more than a dozen plants each and have more than 30,000 UAW leave each company through buyouts and retirement incentives.

The paper said that estimates by some analysts suggest even if the automakers give the unions billions to create a trust funds to cover the future health care costs of retirees and their families, it could end much of the competitive disadvantage that GM (Charts), Ford (Charts) and Chrysler parent DaimlerChrysler (Charts) have in their cost structure compared with non-union automakers such as Toyota Motor (Charts) and Honda Motor (Charts).

The company and the union officials would not comment to the paper on the early discussions.

The paper said the Detroit auto makers and the UAW are looking at an agreement this month between Goodyear Tire & Rubber (Charts) and the United Steelworkers. Under the deal that ended a strike, Goodyear agreed to put $1 billion in cash and equity into a fund that will be managed by the union, which will then assume responsibility for an estimated $1.2 billion in health-care liability.

GM (Charts) Chief Financial Officer Fritz Henderson told analysts during a conference call earlier this month that "it would be fair to say that we have more than a passing interest in the Goodyear agreement." The Journal reports that GM has hired advisers that worked with Goodyear on their contract talks.

But during the same conference call, Troy Clarke, the president of GM's North American operations, reminded analysts that GM has already won billions in cost savings through relatively modest changes in its retiree health plans in a deal reached with the union in 2005, and that agreement runs through 2011, not this September. "That's an agreement we intend to respect," he told analysts.

The size of the trust funds for the Big Three retirees would need to be much bigger than the one at Goodyear. J.P. Morgan analyst Himanshu Patel told the paper he estimates that GM would have to pay $33 billion to $38 billion to shed an estimated $55 billion in UAW retiree health-care liabilities, while Ford would have to pay $13 billion to $15 billion to cover $22 billion in estimated costs.

Chrysler Group would be looking at $9.4 billion in prefunding to cover its estimated $15.6 billion retiree liability, Patel told the paper.

But the actual payments would depend upon what are expected to be difficult negotiations between the union and the companies.

"The UAW will want $1.10 on the dollar, with lots of cash. The companies will want 50 cents on the dollar, with little cash. But that can be easier to negotiate than the complexities of health-care benefits sometimes," one person familiar with the talks told the paper.

The union has already negotiated changes in the retiree health care plans at GM and Ford that are expected to save billions in costs at the automakers. But both continue to lose money on their core North American auto operations. Chrysler is hoping to win those same kind of cost savings ahead of the start of the broader contract negotiations.

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