Big Three Discuss Union-Run Health-Care Fund, Bloomberg Reports
June 11, 2007

General Motors, Ford and Chrysler may propose in this year’s labor talks that the United Auto Workers (UAW) manage a health-care fund financed by the automakers, Bloomberg reports sources as saying today.

The U.S. automakers have discussed such a fund as a possible alternative to eliminate most of a combined $114 billion in retiree health-care obligations, sources told Bloomberg. Under the joint fund proposal, the companies would contribute a percentage of their retiree liabilities to the fund, whose assets and investment proceeds would cover retiree medical benefits.

The idea was inspired by a Goodyear Tire & Rubber Co. plan that agreed last December to set up a health-care trust fund with a one-time $1 billion payment in cash and stock.  After the payment, negotiated after an 85-day strike, Goodyear has no further health-care obligation to current or future union retirees.

Detroit’s automakers are looking for a solution to avoid a costly strike. To that end, automakers and the UAW absolutely must come together with an innovative solution to their astronomical health-care costs, I said in an interview this morning with London’s Financial Times. Such a solution must be win-win -– cutting costs for the automakers and providing security to UAW employees and retirees.

Indeed, analysts interviewed by Bloomberg agreed. Such a move "would be an incredibly important development in capping the expenses and liabilities,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. "The UAW wins security for its people.''

The news service said the joint fund is one of several ideas for cutting labor costs being weighed by U.S. automakers as they prepare for next month's contract negotiations with the UAW. The union’s national contract with GM, Ford and Chrysler expires in September.

The car companies are trying to deal with health-care costs that GM Chief Executive Officer Rick Wagoner said last week cost them a combined $12 billion in 2006. Providing health care to 2 million employees, retirees and dependents contributed to losses at each of the U.S. automakers last year, while Japanese rivals posted record profits, Bloomberg noted.

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