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Ford, UAW reach healthcare trust fund deal

Some payments can be in stock

Associated Press / February 24, 2009
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DETROIT - The United Auto Workers and Ford Motor Co. said yesterday they agreed the automaker can change how it pays for a healthcare trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC.

Ford said the agreement allows it to make payments to the union-managed trust with up to 50 percent of company stock instead of cash. Having the UAW take equity frees up cash for operations.

"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," said Ford spokesman Mark Truby in a written statement.

Ford, like its Detroit and foreign competitors, is seeing a huge drop in sales as consumers shy away from purchasing new cars during a recession. However, the company has not asked for low-interest federal loans from the government.

Under terms of the government loans, Chrysler and GM must exchange half their cash payments to the trusts, called voluntary employee beneficiary associations, for equity in the companies. Money freed up by supporting the VEBA with equity would potentially pare the amount of money GM and Chrysler would borrow from the government.

For Ford, which isn't receiving government aid but is trying to cut costs, the agreement disclosed yesterday is another in a series of concessions from auto workers.

The UAW, meanwhile, said the healthcare trust deal helps save jobs, as a failure to help the auto companies cut cost could lead to a bankruptcy filing and massive layoffs across the industry.

Although Ford was not required to renegotiate terms of its VEBA with the UAW, the company entered talks with the union, and said it would not be disadvantaged as GM and Chrysler sought concessions.

The VEBAs were established as part of the landmark 2007 contract reached with the UAW. The trusts would pay healthcare bills for about 800,000 UAW retirees, spouses, and dependents and move billions in liabilities off the companies' books. GM expects to save about $3 billion a year, while Ford says it will save $1 billion annually.

Ford owes $6.3 billion to its VEBA at the end of this year. GM has to pay $20 billion into its healthcare trust, while Chrysler must pay around $9.9 billion.

The UAW's willingness to strike a deal with Ford first is significant, because it shows that the UAW is acknowledging the challenges Ford is facing, said Hal Stack, director of the Labor Studies Center at Wayne State University in Detroit.

The agreement between Ford and the UAW, along with other previously agreed to concessions must be ratified by union members. The UAW is expected to meet with heads of its local branches this week. The change also requires court approval.

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