UAW ponders health care givebacks

Deal it had rejected may be Chrysler's best contract offer

David Barkholz
Automotive News
May 21, 2007 - 1:00 amDETROIT -- Last year the UAW refused to grant the Chrysler group the same retiree health care concessions that it had given General Motors and Ford Motor Co.

Now those concessions are just a starting point. Negotiations are under way on a new health care deal, now that Cerberus Capital Management LP is becoming Chrysler's new owner.

A proposal similar to the Ford and GM deals is on the table, as are a "number of alternatives," said Chrysler spokesman David Elshoff. He declined to elaborate.

Probably the least painful deal the UAW can hope for is the one it didn't give Chrysler last year. That plan saves GM about $1 billion annually and Ford somewhat less.

The deal required GM and Ford retirees to accept higher co-pays and deductibles, while active UAW employees gave up $1 an hour in raises.

A similar deal would save Chrysler $340 million annually, says Citigroup Inc. auto analyst John Lawson, who is based in London. Lawson says Chrysler's $18 billion retiree health care liability would be reduced by $4 billion.

Cerberus is assuming that liability as part of the purchase of Chrysler. Cerberus CEO Stephen Feinberg stayed in Detroit last week after the Chrysler announcement to meet with UAW leadership and commit to honoring the current contract.

But that contract expires in just four months, along with the UAW's master agreements with GM and Ford.

Last week, UAW President Ron Gettelfinger said health care talks are ongoing. A UAW spokesman declined to elaborate.

Even if the UAW is willing to accept this deal, it's unclear whether Chrysler would be satisfied with it. A more radical proposal would require the UAW to accept Chrysler's health care liabilities in return for a large lump-sum payment.

The union would administer its members' health benefits through a Voluntary Employees' Benefits Association. Last year Goodyear Tire & Rubber Co. negotiated a similar deal with the United Steelworkers - an arrangement that transferred a $1 billion retiree health care liability from the tire company to the steelworkers.

But the UAW faces a dilemma: If it grants such a concession to Chrysler, then Ford and GM will want the same deal. It would be a huge risk for the UAW, but some analysts think that cautious cost cutting no longer is enough to save the Detroit 3.

"These can't be incremental changes," says Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "They have to be transformational."