Ford’s tentative agreement with the United Auto Workers (UAW) union to reduce the car maker’s health care costs has been ratified by the Ford-UAW membership.

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The agreement, which is subject to court approval, calls primarily for modifications to the company’s hourly retiree health care plan, while continuing to allow Ford to provide a competitive benefits package for hourly employees and retirees.


Much like the recent General Motors health care agreement with the UAW, Ford’s agreement includes contributions to an independent Defined Contribution Voluntary Employee Benefit Association (VEBA) that will be used to subsidize the cost of retiree benefits.


This will be funded through specified company contributions over the course of the next several years – US$30 million in 2006, $35 million in 2009 and $43 million in 2011 – as well as through active hourly employee contributions through deferrals of portions of future wage and Cost-of-Living Adjustment (COLA) increases.


Also as part of the agreement, Ford has committed to invest $900 million over the course of the next five years for projects related to innovation and new technology.  Ford said this commitment would not have been possible without the savings it expects to make through the UAW health care-related agreement.

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Overall, the agreement is expected to provide average annual net corporate savings of about $650 million on a pre-tax basis, including reduced health care expenses and the impact of the VEBA contributions.


Cash savings are projected to be about $200 million per year. Ford estimates the agreement will result in an overall reduction in its retiree health care (OPEB) liability of about $5 billion.