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10-05-2005, 11:09 AM
http://www.detnews.com/2005/autosinsider/0510/05/A01-338212.htm
UAW, GM near deal on health
Agreement could save ailing automaker $1 billion, boost costs for retirees and union workers.
By Daniel Howes / The Detroit News
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General Motors Corp. and the United Auto Workers appear to be nearing a deal to cut the automaker's ballooning annual health care costs, expected to approach $6 billion this year.
Talks between both sides intensified last weekend in advance of GM's board meeting Tuesday, in part because GM officials signaled they wanted a framework to present to GM's directors. Individuals familiar with the discussions cautioned that a deal is not certain.
"They worked all weekend," a senior industry executive familiar with the talks said, adding that the financial impact to GM could have the word "billion" attached to it. "They've been hammering at it hard, and they're still hammering at it."
The deal under discussion likely would shave at least $1 billion from GM's annual health care bill, meaning the changes almost certainly would impact active UAW members as well as the hundreds of thousands of retirees nationwide by increasing co-pays for prescription drugs and perhaps instituting cost-sharing of monthly premiums.
If reached amid comparatively good times for auto sales and the economy, the agreement would be historic for Detroit's tough labor-management relations.
It would signal that the UAW, traditionally suspicious of the poor-mouthing from Detroit auto executives, recognizes that the troubles weighing on GM and other Detroit automakers won't be eased solely by "hot products," asset sales and cost-cutting within the diminishing ranks of nonunion salaried employees.
None of that is proving sufficient to ease the deepening financial troubles of GM, which has lost $2.5 billion in North America this year and is expected to post a lackluster third quarter when it announces earnings Oct. 17.
On Tuesday, as GM's directors met in Detroit, a key rating agency, Standard & Poor's, said it was placing the automaker on CreditWatch "with negative implications" because of concerns that rising gas prices, falling SUV sales and declining vehicle prices would stall GM's turnaround in North America. GM's debt already is rated below investment grade, or "junk," by Wall Street rating agencies.
Huge health care tab
There are many reasons for Wall Street's pessimism on GM -- its reliance on big SUVs and pickups at a time when fuel prices are rising and likely to stay that way; its massive fixed costs; its laggard position in the alternative-fuel vehicle race; and its rich contract with the UAW.
GM funds some of American industry's most generous pensions; it pays laid-off workers 95 percent of their pay to sit at home; and it requires active workers to pay just 7 percent of their health care bill, the company says, compared to 27 percent for GM salaried workers and the 32 percent average of corporate America.
All told, GM provides health insurance to 1.1 million Americans. Chairman Rick Wagoner, under increasing pressure to trim that health care tab, wants UAW members and retirees to pay more of that bill and wants to achieve that "with or without" the cooperation of the union.
The GM-UAW talks "are not something we will be talking about until we're ready," Tom Kowaleski, GM's chief spokesman, said Tuesday. "We're not going to talk about time periods; we're not going to talk about guidance -- close or not close."
The UAW declined to comment. But UAW President Ron Gettelfinger has repeatedly said the union would help GM reduce its massive health care costs so long as it can be done without "reopening" the four-year deal that expires in September 2007.
Back channel buzz
How the bargainers might be doing that remains unclear. And how they can structure a deal that looks like a win for both sides -- instead of a stinging defeat for Gettelfinger and the UAW -- will be crucial to getting something done.
More certain, however, is that noise is building inside industry back channels that GM and the UAW are closing in on a deal. That arguably would impact the health care tabs of Ford Motor Co., DaimlerChrysler AG's Chrysler Group, Visteon Corp. and the ailing Delphi Corp., which could seek Chapter 11 bankruptcy protection as early as this week if it doesn't get relief from GM and the UAW.
The ongoing GM-UAW health care talks are separate from any discussions about a possible Delphi bailout. But any agreement between GM and the UAW likely would impact Delphi, which would demand the same concessions as part of a larger bailout that GM appears less interested in financing.
Ranking executives at GM rivals are plumbing their UAW contacts for details, and at least one other Detroit automaker -- DaimlerChrysler -- is preparing its list of "demands" for its own deal should GM and the UAW reach agreement.
Wall Street analysts whose year-end bonuses depend, in part, on how well they divine the doings in Detroit are working the phones and probing for details because any GM-UAW health care deal would likely impact the automaker's stock price and debt ratings.
And just about anyone near the closely-held talks is observing a "radio silence" that is impressive for what is not being revealed in any meaningful detail to interested outsiders -- employees and retirees, Wall Street analysts and institutional investors, politicians and the news media.
A big deal
There should be no doubt: If GM and the UAW pull this off, it would be huge for both sides and it would have far-reaching implications for both the Detroit-based industry and the UAW.
For the UAW -- armed with its long-awaited report from Lazard, a Wall Street advisory investment bank, showing GM's financial health is worse than feared -- it would signify that its leadership accepts that GM's financial predicament is worse than it has thus far acknowledged.
It also would signify that union leaders are prepared to take the political risk of agreeing to concessions on health care to keep GM viable.
And it would signify that the union's steady improvement of health care benefits over decades is being reversed, creating a potential source for litigation against the union and potentially damaging blow to its organizing efforts.
For GM, it would signify that the Detroit industry's largest player is serious about stanching the health care drain on its cash flow; that it is making progress where progress was thought un-makable because of industry politics and machismo; and that it intends to take a harder line in national contract talks two years from now.
For the Detroit-based industry, it could be a game changer.
Daniel Howes' column appears Sundays, Wednesdays and Fridays. He can be reached at (313) 222-2106 or at dchowes@detnews.com.
UAW, GM near deal on health
Agreement could save ailing automaker $1 billion, boost costs for retirees and union workers.
By Daniel Howes / The Detroit News
Comment on this story
Send this story to a friend
Get Home Delivery
General Motors Corp. and the United Auto Workers appear to be nearing a deal to cut the automaker's ballooning annual health care costs, expected to approach $6 billion this year.
Talks between both sides intensified last weekend in advance of GM's board meeting Tuesday, in part because GM officials signaled they wanted a framework to present to GM's directors. Individuals familiar with the discussions cautioned that a deal is not certain.
"They worked all weekend," a senior industry executive familiar with the talks said, adding that the financial impact to GM could have the word "billion" attached to it. "They've been hammering at it hard, and they're still hammering at it."
The deal under discussion likely would shave at least $1 billion from GM's annual health care bill, meaning the changes almost certainly would impact active UAW members as well as the hundreds of thousands of retirees nationwide by increasing co-pays for prescription drugs and perhaps instituting cost-sharing of monthly premiums.
If reached amid comparatively good times for auto sales and the economy, the agreement would be historic for Detroit's tough labor-management relations.
It would signal that the UAW, traditionally suspicious of the poor-mouthing from Detroit auto executives, recognizes that the troubles weighing on GM and other Detroit automakers won't be eased solely by "hot products," asset sales and cost-cutting within the diminishing ranks of nonunion salaried employees.
None of that is proving sufficient to ease the deepening financial troubles of GM, which has lost $2.5 billion in North America this year and is expected to post a lackluster third quarter when it announces earnings Oct. 17.
On Tuesday, as GM's directors met in Detroit, a key rating agency, Standard & Poor's, said it was placing the automaker on CreditWatch "with negative implications" because of concerns that rising gas prices, falling SUV sales and declining vehicle prices would stall GM's turnaround in North America. GM's debt already is rated below investment grade, or "junk," by Wall Street rating agencies.
Huge health care tab
There are many reasons for Wall Street's pessimism on GM -- its reliance on big SUVs and pickups at a time when fuel prices are rising and likely to stay that way; its massive fixed costs; its laggard position in the alternative-fuel vehicle race; and its rich contract with the UAW.
GM funds some of American industry's most generous pensions; it pays laid-off workers 95 percent of their pay to sit at home; and it requires active workers to pay just 7 percent of their health care bill, the company says, compared to 27 percent for GM salaried workers and the 32 percent average of corporate America.
All told, GM provides health insurance to 1.1 million Americans. Chairman Rick Wagoner, under increasing pressure to trim that health care tab, wants UAW members and retirees to pay more of that bill and wants to achieve that "with or without" the cooperation of the union.
The GM-UAW talks "are not something we will be talking about until we're ready," Tom Kowaleski, GM's chief spokesman, said Tuesday. "We're not going to talk about time periods; we're not going to talk about guidance -- close or not close."
The UAW declined to comment. But UAW President Ron Gettelfinger has repeatedly said the union would help GM reduce its massive health care costs so long as it can be done without "reopening" the four-year deal that expires in September 2007.
Back channel buzz
How the bargainers might be doing that remains unclear. And how they can structure a deal that looks like a win for both sides -- instead of a stinging defeat for Gettelfinger and the UAW -- will be crucial to getting something done.
More certain, however, is that noise is building inside industry back channels that GM and the UAW are closing in on a deal. That arguably would impact the health care tabs of Ford Motor Co., DaimlerChrysler AG's Chrysler Group, Visteon Corp. and the ailing Delphi Corp., which could seek Chapter 11 bankruptcy protection as early as this week if it doesn't get relief from GM and the UAW.
The ongoing GM-UAW health care talks are separate from any discussions about a possible Delphi bailout. But any agreement between GM and the UAW likely would impact Delphi, which would demand the same concessions as part of a larger bailout that GM appears less interested in financing.
Ranking executives at GM rivals are plumbing their UAW contacts for details, and at least one other Detroit automaker -- DaimlerChrysler -- is preparing its list of "demands" for its own deal should GM and the UAW reach agreement.
Wall Street analysts whose year-end bonuses depend, in part, on how well they divine the doings in Detroit are working the phones and probing for details because any GM-UAW health care deal would likely impact the automaker's stock price and debt ratings.
And just about anyone near the closely-held talks is observing a "radio silence" that is impressive for what is not being revealed in any meaningful detail to interested outsiders -- employees and retirees, Wall Street analysts and institutional investors, politicians and the news media.
A big deal
There should be no doubt: If GM and the UAW pull this off, it would be huge for both sides and it would have far-reaching implications for both the Detroit-based industry and the UAW.
For the UAW -- armed with its long-awaited report from Lazard, a Wall Street advisory investment bank, showing GM's financial health is worse than feared -- it would signify that its leadership accepts that GM's financial predicament is worse than it has thus far acknowledged.
It also would signify that union leaders are prepared to take the political risk of agreeing to concessions on health care to keep GM viable.
And it would signify that the union's steady improvement of health care benefits over decades is being reversed, creating a potential source for litigation against the union and potentially damaging blow to its organizing efforts.
For GM, it would signify that the Detroit industry's largest player is serious about stanching the health care drain on its cash flow; that it is making progress where progress was thought un-makable because of industry politics and machismo; and that it intends to take a harder line in national contract talks two years from now.
For the Detroit-based industry, it could be a game changer.
Daniel Howes' column appears Sundays, Wednesdays and Fridays. He can be reached at (313) 222-2106 or at dchowes@detnews.com.