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The UAW's surrender at GM?

September 21, 2007 | Page 11

LEE SUSTAR reports on contract negotiations that are putting retirees' health care at risk.

WILL THE United Auto Workers (UAW) take over a $50 billion health care fund made up of cash and General Motors stock?

That was the biggest outstanding question as a September 15 contract deadline between the UAW and Detroit automakers came and went. The union is negotiating first with GM--if a contract there is approved by members, it would become the model for pacts at Ford and Chrysler, which was recently bought out by the private equity firm Cerberus.

GM wants the UAW to agree to the creation of a Voluntary Employee Benefits Association (VEBA) that would fund retiree health care and enable GM to walk away from its obligations. The deal--if approved--would transform UAW officials into the managers of one of the biggest investment funds in the U.S., as well as a major stockholder in GM.

Yet as big as the GM VEBA may turn out to be, it would be far short of what's needed to pay for health care for more than 432,000 retirees.

"By establishing a VEBA, the UAW would likely allow GM to apply a discount to its entire obligation to hourly retirees--potentially in a range of 75 cents on the dollar," the Wall Street Journal noted in an article headlined "How GM Could Unload a Burden."

The story continued: "If the discount is especially generous, GM could find itself as an especially darling pick for Wall Street..."

If the UAW agrees to such a deal, "the VEBA would be underfunded to begin with," said Gregg Shotwell, a GM worker and founder of the Soldiers of Solidarity opposition network. "To make up what isn't covered, the UAW would have to go to retirees and make up the difference with co-pays and premiums.

"Investments would have to make a return of 10 to 15 percent a year just to keep pace. Even in the best of times, you're not going to get that."

The UAW already agreed to create a VEBA in 2005 to cover certain retiree health care costs, funded by a diversion from active workers' scheduled pay increases, which active workers voted to accept. As part of the deal, retirees were socked with higher out-of-pocket expenses, but under UAW rules, they had no vote on the matter.

Today, VEBAs, which in the past were fully funded as a mechanism to disburse benefits, are becoming a tool for employers to shed the "legacy" cost of retiree health care.

Most recently, the United Steelworkers settled a strike at Goodyear with an agreement to accept a VEBA worth $1 billion to fund retiree health care--even though liabilities are considerably larger, at $1.3 billion. Similar shortchanging of VEBA funds by Caterpillar and Detroit Diesel led to the funds running out of money, with retirees losing health care coverage as a result.

"Such a proposal, if ratified as part of a new collective agreement, would represent a radical shift in the traditions of our union," wrote three former members of the UAW International Executive Board, Jerry Tucker, Paul Schrade and Warren Davis, in an open letter to the union.

"Knowingly placing members at risk under such a plan, whether active or retired, is contrary to the mandate of the UAW Constitution...It would undo decades of hard-won health care benefit protections, paid for in large part by wage diversions, past concessions and increased worker productivity."

The enormous risk of a VEBA at the Big Three automakers has given pause even to former UAW President Doug Fraser, who initiated the era of concessions bargaining in 1979 at Chrysler. "God help us if we go into a depression or recession, the value of the fund plummets, and the UAW is sitting there with this huge liability," he told the Washington Post.

Since the Fraser era, the UAW has lost two-thirds of its membership. The union has not only failed to use job security provisions to stem job losses, but has negotiated early retirement and buyout deals that allowed the Big Three to eliminate 100,000 jobs in just the past two years, leaving 190,000 workers at the companies. To replace them, the company has hired thousands of temporary employees at lower pay and virtually no benefits.

To sell the deal, Shotwell expects GM to offer cash bonuses and an early retirement deal. As he put it, "The UAW wants to present something that is not so much a collective bargaining agreement, but something that will fracture the unity we have--so that people will look at this and say, 'What's in this for me,' rather than what's good for everybody, which is national health care."

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