GM hits bump on key goal of UAW talks

Reports say GM and Auto Workers union have tabled talks on setting up a trust fund for retiree health care, the automakers' primary goal in new contract.


NEW YORK (CNNMoney.com) -- The United Auto Workers union and General Motors have at least temporarily tabled talks about creating a multibillion-dollar union-controlled trust fund to assume responsibility for retiree health care obligations, according to published reports.

The Wall Street Journal and Detroit News both reported the shift in talks in their Thursday editions. Both papers said that talks on the subject of a trust fund could still be revived as talks continue. But if the union does not agree to the funds, it would be a huge setback to the bargaining goals of GM (Charts, Fortune 500) as well as rivals Ford Motor (Charts, Fortune 500) and Chrysler Group, whose deals with the union are expected to follow the pattern set in whatever deal is reached at GM.

A file shot of a GM assembly line in Texas. Talks between GM and the United Auto Workers union have hit a stalled on a key company negotiation goal to set up a union-controlled trust fund to pay for retiree health care costs.
A file shot of a GM assembly line in Texas. Talks between GM and the United Auto Workers union have hit a stalled on a key company negotiation goal to set up a union-controlled trust fund to pay for retiree health care costs.

Shares of both GM and Ford were down more than 1 percent in early Frankfurt trading following the Thursday reports. Shares of GM rose 13 percent in trading Thursday and Friday last week after reports that it was making progress in winning union agreement to the trust fund idea.

The three automakers face nearly $100 million in expected health care costs for retirees and the family members going forward, with GM on the hook for about half of that cost, according to estimates from rating agency Standard & Poor's.

It's been clear throughout the talks that the automakers would push the union to agree to have funds take over that responsibility going forward, with the automakers offering to contribute billions in cash, stock and debt into the funds to cover the costs.

The union might be willing to accept that proposal because it is seen as a way to allow the automakers to become more competitive with nonunion rivals such as Toyota Motor (Charts) and Honda Motor (Charts), who do not face those costs, without the need for deep wage cuts or additional plant closings and staff reductions. It also would be a way to protect the retiree health care benefits in the future even if one of the Detroit automakers were to file for bankruptcy court protection.

The union's contracts with the U.S. automakers had all been set to expire on Sept. 14 at 11:59 p.m. ET, but the union agreed to formal extensions with Ford and Chrysler, and agreed to keep its nearly 73,000 members at GM on the job as they continued talks on an informal hour-to-hour extension. After a weekend of marathon bargaining sessions, talks this week have continued on a less intense schedule.

The Journal reported that UAW President Ron Gettelfinger told GM he wanted to begin discussions on a new four-year contract that didn't involve the retiree health care trust fund. The two sides were reported to be several billion dollars apart in talks on the creation of the fund, the paper reported.

The News reported the two sides agreed to focus for now on other key issues of a contract, including job security, plant competitiveness, wages and pensions.

The News also reports that GM is willing to contribute at least 65 cents on every dollar owed for future health care costs, while the union wants more. The difference of percentage points translates into billions of dollars. The difference of a percentage point in that discount rate equals to just over $500 million.

UAW reportedly wants guarantees from GM to contribute more in the future if medical bills rise faster than projected, while GM wants the opportunity to reduce what it would have to pay into the trust funds if changes in law, such as passage of national health care legislation, reduces what the funds have to pay out to retirees.

The Detroit Free Press reported Thursday that GM made a significant proposal to the UAW on Monday on the trust fund issue before bargaining recessed for the night, which prompted the union to turn to outside financial experts Tuesday who were asked to evaluate the assumptions and financial expectations. The Free Press did not report that the issue of a trust fund had been tabled.

The union chose GM to take the lead in the negotiations of a pattern-setting deal a week ago, after talks that have continued since July on a new deal. Part of the reason for the union choosing GM is that it is in the best financial position of the U.S. automakers, reporting its first profit on its North American auto operations since 2005 during the second quarter. It is still expected to post a full year loss on that core operation, however. 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: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. 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 2018 and/or its affiliates.