Report: GM, Ford seek health care deal

Troubled automakers would like to use stock to set up union-controlled funds to pay future retiree health care costs.


NEW YORK (CNNMoney.com) -- General Motors and Ford Motor are seeking to use their stock as at least part of the way to fund a multi-billion dollar union-controlled fund to pay retirees' future health care costs, according to a published report.

The Detroit News reports that the traditional Big Three automakers, which are in talks with the United Auto Workers union on a new contract, are seeking to shift tens of billions of future health care liabilities to union controlled funds. Such a fund, known as a voluntary employee beneficiary association, or VEBA, was part of a labor deal between Goodyear Tire & Rubber (Charts, Fortune 500) and the United Steelworkers union which ended a strike there.

The VEBA account at the automakers is likely to be much larger than the $1 billion fund at Goodyear. The paper says that credit rating agency Fitch estimates it would cost GM (Charts, Fortune 500) between $30 billion and $35 billion to fund its VEBA as part of a labor deal, while Ford (Charts, Fortune 500) might have to come up with $14 billion and $17 billion. Even Chrysler, which has far fewer retirees than its rivals, could have to fund its VEBA with between $6 billion and $9 billion, according to the paper.

The union could be open to such a change because the VEBA could help the automakers become more competitive with their nonunion rivals, such as Toyota Motor (Charts) and Honda Motor (Charts), without deep cuts in wages or benefits or further plant closings or job cuts. It also could give the union a way to protect the promised retiree health care coverage if one of the automakers filed for bankruptcy in the future.

But where the Goodyear VEBA was funded with $1 billion cash, the News reports that GM and Ford are pushing to fund at least part of their VEBA's with company stock. Chrysler Group, which was recently purchased by private equity group Cerberus Capital Management, does not have any publicly traded stock it can use in its fund, although DaimlerChrysler (Charts) still holds a 19 percent stake in Chrysler.

The paper reports that Goodyear stock increased 25 percent after the USW agreed to shift retiree health care costs to a VEBA, and that if the union had taken Goodyear stock, it could have left the company with more cash and given the union more assets going forward. If a new labor pact lifted GM or Ford shares, the UAW would also see that kind of benefit from accepting their shares as part of an agreement.

But getting the union to agree to take the automakers' shares might be difficult, given the ongoing losses and market share declines that the automakers have seen in recent years.

Auto executives and union officials will not talk on the record about the state of negotiations. The current labor pacts expire Sept. 14. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.