US: GM, Ford want stock included in healthcare fund deal
GM and Ford 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 and the United Steelworkers union which ended a strike there.
A VEBA account at the automakers is likely to be much larger than the USD1bn fund at Goodyear.
The Detroit News says that credit rating agency Fitch estimates it would cost GM between USD30bn and USD35bn to fund its VEBA as part of a labour deal.
But where the Goodyear VEBA was funded with USD1bn cash, the Detroit News reports that GM and Ford are pushing to fund at least part of their VEBA's with company stock.
The report adds that Goodyear stock increased 25% 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.
But there is still the issue of getting the UAW to agree to take shares. Rank and file members may take some persuading according to some sources. At the very least, they will be wary.
The clock is ticking. UAW contracts with Ford, GM and Chrysler expire on September 14. The UAW could strike at any time once the contracts expire.