February 23, 2009 - UAW and Ford Motor Company , Detroit MI

Ford and Union in Accord on Health Care

Ford Motor Company can substitute its stock for as much as half of its payments into a retiree health care trust under a deal announced Monday by the automaker and the United Automobile Workers union.

Ford and Union in Accord on Health Care

The Ford Motor Company can substitute its stock for as much as half of its payments into a retiree health care trust under a deal announced Monday by the automaker and the United Automobile Workers union.

The agreement could form the basis for similar deals with General Motors and Chrysler, which need to cut costs and demonstrate that they can survive under the terms of their loans from the federal government.

“The modifications will protect jobs for U.A.W. members by ensuring the long-term viability of the company,” the union’s president, Ron Gettelfinger, said in a statement.

Union leaders plan to vote on the proposal early this week, Mr. Gettelfinger said, before presenting the deal to U.A.W. members at Ford for ratification. The changes would also require court approval.

Ford shares rose 18 percent on the news, to $1.86 in morning trading. Shares of G.M. were up more than 5 percent.

“We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value,” Joseph R. Hinrichs, Ford’s group vice president for global manufacturing and labor affairs, said in a statement. “The agreements, if finalized, will allow Ford to become competitive with foreign automakers’ U.S. manufacturing operations, and are critical to our efforts to operate through the current deep economic downturn without accessing government loans and continue to fully invest in our One Ford product plan.”

The U.A.W., in its 2007 contract with the Detroit automakers, agreed to shift billions of dollars in retiree health care liabilities from the companies to a new independent trust known as a voluntary employee beneficiary association, or VEBA. But as G.M. and Chrysler teeter on the brink of bankruptcy, they are unable to pay as much into the trust as they had agreed to in the contract.

G.M.’s obligations for retiree health care alone are estimated at $47 billion, and by next year its contract required a contribution of more than $10 billion.

G.M., which has received $13.4 billion in government loans since December, was pressing the U.A.W. to accept stock for as much as 50 percent of its next contribution to the trust, according to two people with knowledge of the discussions.

Mr. Gettelfinger has been in talks with the companies about ways to make the contributions more palatable while preserving a cornerstone of the U.A.W. contract, which is essentially health care for life for anyone who worked on the assembly line and that worker’s surviving spouse. G.M. has already canceled health care for more than 100,000 of its nonunion, salaried retirees.

Even though Ford is not borrowing money from the government, it had been expected to seek and receive whatever concessions that the U.A.W. granted G.M. and Chrysler, which are now asking to borrow a total of $39 billion. As it has turned out, the union has had better luck negotiating with Ford first and then asking G.M. and Chrysler to accept similar turns.

Earlier this month, after talks broke down between the union and G.M., Mr. Gettelfinger reached a deal with Ford on issues other than retiree health care and used it to broker terms with G.M. and Chrysler several days later.

G.M. and Chrysler have until March 31 to show the government that they are making progress in the restructuring plans that they submitted last week. A special task force created by President Obama will review those plans and next month’s filings to determine whether the companies can keep their loans and receive more money.

Original Story - New York Times