A report from Detroit suggest that negotiations between General Motors and the United Auto Workers (UAW) union will take several more days yet and that the complex issue of retiree healthcare is taking up much of the discussions.
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The Associated Press (AP) said the UAW would become one of the nation’s largest consumers of health care if it takes over retiree obligations from Detroit car makers, and that huge responsibility would test the union’s ability to control rising health care costs.
AP said health care was at the heart of the bargaining between the UAW and GM. The union’s contract with GM has been extended hour by hour since Friday while the pacts with Ford and Chrysler have been extended indefinitely.
The news agency said negotiations are dragging on because of a complex plan to transfer GM’s roughly $US51bn in unfunded retiree health costs to a trust administered by the union and the UAW wanting, in exchange, guarantees that GM will continue building cars at union-represented plants.
A person “who had been briefed on the bargaining” told the Associated Press on Wednesday that the two sides have yet to agree on how much GM will put into the trust and added that the talks probably would take several more days to complete. Ford and Chrysler are likely to ask for a similar arrangement for their retiree health costs, AP suggested.
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By GlobalDataSuch trusts, called Voluntary Employees Beneficiary Associations, or VEBAs, would let the companies remove the liabilities from their books and possibly raise their stock prices and credit ratings, the news agency noted. It added that, in a recent note to investors, Morgan Stanley analyst Jonathan Steinmetz predicted that VEBAs would save the Detroit automakers $200 per vehicle.
Analysts also reportedly say companies across the country may copy the model if it works for the automakers.
“A VEBA may not be the right solution for all companies, but it might be one vehicle to help level the playing field in today’s global marketplace,” PricewaterhouseCoopers told investors in a Wednesday note cited by the Associated Press.
The news agency noted, however, that the rapidly rising cost of health care in the United States may be giving the union pause – it quoted Glenn Melnick, a health care finance professor at the University of Southern California and an economist for Rand Corp, as saying that most economists think those costs will rise 6% to 8% annually “for as far as the eye can see.”
On the other hand, Kevin Tynan, senior automotive analyst for Argus Research, told the Associated Press that the stock market had risen around 10% to 12% per year since 1934 so the union’s investments should be able to meet or exceed health care costs.
Tynan reportedly added that market volatility, plus GM’s desire to pay far less than its entire health care obligation – 65% to 70%, by most accounts – would make it difficult for the union.
Ap noted that union-managed health care trusts have worked in other industries. It said the United Steel Workers union has had about 40 such trusts work for several years, and they were funded at far lower rates than GM is willing to contribute.
