Ford inks pact with union on retirement benefits; Chrysler, GM may follow suit

24 February 2009

The United Auto Workers and Ford Motor Co last week reached a new agreement on modifications to the payment requirements for a retiree health care trust fund, and the union is likely to use the agreement as a template for talks with General Motors Corp. and Chrysler.

Ford said the tentative agreement gives it the option to use stock for up to 50 per cent of its $13.2 billion obligation to fund the Voluntary Employee Beneficiary Association, or VEBA. The bargain essentially relieves the company of the cash requirement, but makes health care a far riskier proposition for retirees. The agreement must still be ratified by union members and win court approval.

"The modifications will protect jobs for UAW members by ensuring the long-term viability of the company," UAW President Ronald A Gettelfinger said in a statement.

While details of the agreement have not emerged, the proposal that half the retiree health funding could come in stock represents a significant concession from the union. The alternative, however, could have been worse, because if the companies go into bankruptcy, the retirees risk getting even less.

''We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value,'' Joe Hinrichs, Ford's group vice president, of global manufacturing and labor affairs said in a statement.

The agreement also requires Ford to pursue restructuring actions with other stakeholders. Ford has previously defined stakeholders to include bondholders, employees, suppliers and dealers.