Auto talks may solve potential health care crisis

The auto companies, all of which are restructuring due to billions in losses, want the UAW to do the same thing. They’ve discussed the idea with the union in advance of the talks, which formally open on Friday with Chrysler and Monday with Ford and GM.

At Goodyear, the deal was a good one because union members were worried that retiree health care could be canceled if the company went into bankruptcy, said Howard Kropff, financial secretary for a local in Akron who was one of the union’s bargainers.

“They had no funding set aside for our retiree medical,” Kropff said. “They pay-as-you-go on it. So if the company ever walked away ...”

Goodyear funded about 83 percent of the total obligation, and analysts have said the auto companies will try to get the UAW to settle for 50 to 60 percent of the total.

But a recent agreement between auto parts supplier Dana Corp. and the UAW shows that may be low.

Although the UAW won’t comment on the prospect of a trust, earlier this month it agreed to a Goodyear-style deal with Dana, which is in Chapter 11 bankruptcy protection. In exchange for taking on a $1 billion retiree health care liability, the UAW received $780 million in cash and stock, or about 78 cents on the dollar.

“Our expectation for an equivalent GM/Ford health care deal at around 60 cents/dollar now seems increasingly optimistic,” JPMorgan analyst Himanshu Patel wrote in a recent note to investors.

What's on the table When Ford Motor Co., Chrysler Group and General Motors Corp. formally begin contract talks with the United Auto Workers over the next few days, their wish list will not be a secret. They want to reduce their total labor costs to match those of the companies that are killing them: Toyota Motor Corp. and Honda Motor Co.: — What the companies want: The Detroit Three pay about the same hourly wage as their rivals with U.S. factories. But when you add in absenteeism and pension and health care costs for active and retired workers, the companies say their costs are $25 to $30 higher than Toyota, Honda or Nissan Motor Co. The Detroit Three lost a combined $15 billion last year. — The costs: According to annual reports, Ford’s hourly labor cost averaged $70.51 last year. GM’s was $73.26 and Chrysler’s was $75.86. Toyota, Honda and Nissan have costs that average $48 per hour. — What the union wants: UAW President Ron Gettelfinger recently has said the UAW is not in a concessionary mode. The union gave health care concessions to GM and Ford in 2005, and Gettelfinger has hinted that Chrysler would get a similar deal. It also has approved competitive work rules in many factories. Some rank-and-file members say they expect more concessions in the contract talks, while others are opposed because auto executives are making millions. — Other issues: The companies also want to deal with absenteeism and the jobs bank, in which employees get most of their pay while not working. Both contribute to the higher costs, the companies say. But the biggest issue is the unfunded liability for retiree health care, estimated to total $90.5 billion for the Detroit automakers. The companies have floated the idea of paying part of the obligation into a union-run trust, relieving the companies of the obligation. Honda and Toyota, with far fewer retirees, don’t have the same expenses. The union has declined to comment on such a move. Source: Associated Press

Similar trusts already have been set up in the public sector. In New York state, teachers unions in the Poughkeepsie and Kingston school districts run trusts that pay health care costs for active and retired employees.

The trust fund model
In both cases, the districts pay the unions less than they would have paid an insurer. The unions then hire a company that negotiates lower rates with doctors and hospitals in exchange for quick bill payments, said Debra Kardas, president of Poughkeepsie’s teachers union.

The trusts, which are self insured with a policy to cover catastrophes, also save money because they don’t have to make a profit like insurance companies, Kardas said.

Other school districts and unions now are asking for information about the trusts, which started in Kingston in 1997.

But some warn that the trusts may not work for a majority of state and local governments, even if they’re unionized — and some are not.

“There’s no state that has one union. They all have many unions, and more than people would think,” said Dick Cauchi, health program director with the National Conference of State Legislatures. “I have not seen anything that suggests states themselves can go that direction” of handing off health costs to trusts run by unions.

The Goodyear and Dana trusts still must gain court approval, and some Goodyear workers fear that the union got hoodwinked.

“That money ain’t going to last forever,” said Ed Huth, 61, a 42-year employee in Akron who voted against the contract. “That’s not much money when it comes to health care.”

Heading into the contract talks, auto workers have the same fears.

Hartman, who retired in 1990 from GM’s assembly plant in Lordstown, Ohio, doesn’t trust either the union or the company to control the trust.

“I would want someone watching over each others’ shoulders,” he said.

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