UAW: GM says it won't shutter plants
Local union officials OK contract that UAW chief says guarantees jobs and funds retiree healthcare for 80 years.
NEW YORK (CNNMoney.com) -- General Motors' tentative labor deal with the United Auto Workers union includes guarantees that the automaker will continue to build cars and trucks at its remaining UAW-represented assembly lines, according to highlights of the agreement given to the union's local leadership Friday.
In addition, the deal provides for General Motors (Charts, Fortune 500) to pay 70 cents of every dollar of estimated future cost of healthcare coverage for its union-represented retirees and their families.
The local and regional union officials who make up the union's GM Council unanimously endorsed the tentative agreement, which was reached early Wednesday morning, UAW President Ron Gettelfinger told a news conference Friday afternoon. The deal, which followed an all-night bargaining session, ended a two-day strike by 73,000 UAW members working at GM.
"It looks like both sides worked real hard hammering out the agreement once we struck," said Chris "Tiny Sherwood, president of Local 652 in Lansing, Mich., after the vote Friday. "They did a good job maintaining benefits. I think it's a very solid agreement and I think the membership will vote for it."
A GM spokesman would not comment on the details of the deal while it is before UAW for a ratification vote.
While Gettelfinger would not give all the details of the pact presented to local officials, a 23-page summary of the agreement was given to some news outlets, including the Associated Press.
That summary shows GM will pay about $35.3 billion into a union trust fund, known by the accounting acronym as a VEBA, that will provide healthcare coverage for GM's UAW retirees and their family members. It is estimated that the future costs of that coverage will be about $51 billion. But by GM pre-paying into the fund, it is hoped that the return on those assets will make up the difference.
Gettelfinger told reporters that the company's assets, and its promises to provide up to 20 additional payments in the future if the fund runs short, should provide UAW retirees with coverage comparable to what they have now for 80 years.
"You will see there has been considerable amount of cash put into the VEBA," he said. Gettelfinger said Wall Street firms working for the union and union leadership are comfortable that the trust fund will be solid, despite some critics of that portion of the deal within the union.
"There are a lot of assumptions in here.," he said. "You know you're going to be wrong in some [assumptions]. Sometimes it is going to go against you, sometimes it is going to go for you. Everybody is completely comfortable that this VEBA is funded out for 80 years based on the model."
The company will now start to explain the deal to the members still working at GM as the first step in getting the deal ratified by the rank and file. That process, which will start with membership meetings on Saturday, should be completed by Oct. 10. Retirees will not get to vote on the deal.
Just more than 100,000 UAW members at those two companies have been working under a contract extension while the union concentrated on reaching a deal with GM. Gettelfinger said the union has yet to decide which of the remaining automakers it would try to reach a deal with first.
"I'm hoping they'll both raise their hands and say 'Take me, take me,'" he said.
Gettelfinger did not give details of the guarantees given to the union to keep the plants open, other than to say that the deal includes a moratorium on all outsourcing of work and that "we've got pretty good language" on job security. The jobs bank, which pays laid-off UAW workers nearly full salaries during the life of the contract, will remain in place, although Gettelfinger said there will now be time limits on how long a member can receive that benefit.
The union represents workers at 17 of GM's 18 U.S. assembly lines, although one of those lines - a minivan plant in Doraville, Ga. - has already been slated for closure next year. The guarantees apply to the other 16 UAW-represented assembly lines, according to the summary.
Figuring out how much the company will save under the new deal is difficult since important details are difficult to come by.
"I've got some numbers, but they're not even back-of-the-envelope numbers," said Gregg Lemos Stein, a credit analyst with rating agency Standard & Poor's, which said after the deal Wednesday that it would look at possibly raising GM's rating for the first time since 2001. "It's more like the numbers on the box that holds the envelopes."
Gimme Credit, an independent research service on corporate bonds, said a preliminary estimate is that GM could save $3 billion simply by shifting retiree healthcare costs to the VEBA, although it also said total savings were hard to quantify at this stage.
GM has said that it spent $4.7 billion to cover healthcare to more than 350,000 UAW retirees and their family members in 2006 alone.
But even with continued increasing healthcare costs, the annual bill for that coverage is expected to fall in coming years because the obligation is reduced when retirees become eligible for Medicare at age 65.
Gettelfinger said that he believes that union members have now made enough sacrifices to allow GM to be competitive with nonunion automakers, such as Toyota Motor (Charts) and Honda Motor (Charts), and to perhaps use some of the savings to cut the prices of its vehicles to benefit customers and stabilize its market share.