GM-UAW Deal Works for Both Sides

The United Auto Workers pact with General Motors makes the best of a bad situation for everyone involved.

By Martha Lynn Craver, Associate Editor, The Kiplinger Letter

September 26, 2007

A landmark deal between the United Auto Workers union and General Motors is a win for both. Though many details have yet to be made public, it's clear that each side got what it most needed to have.

For GM, that was shedding its liability for retiree health care costs and holding the line on base pay, although some workers will receive lump-sum bonuses. GM needed to do both in order to have any hope of staying competitive with nonunion automakers such as Toyota and Honda.

The union, in turn, was able to negotiate a sizable contribution -- about $35 billion -- to set up a trust fund for retiree health care, which the UAW will manage. It also won some job guarantees for current workers. "Both sides recognized the competitive and financial situation facing GM and addressed it in a solid compromise," says Richard Block, professor of labor and industrial relations at Michigan State University.

The pact will serve as a model in negotiations with Ford and Chrysler, as well as other old-line manufacturers. Like GM, they are anxious to shed the burden of retiree health care.

GM will be able to invest in updating its plants, increasing its flexibility, now that it has this "monkey off its back," says Erich Merkle, forecasting director with IRN Inc., an automotive consultancy.

The UAW's standing could be enhanced among workers by taking on the responsibility of retiree health care. If the union can deliver good, comprehensive health care coverage, it could become a key selling point for the union in the future, says Block.

The agreement sets up a VEBA, a voluntary employee beneficiary association, which will be funded by the automaker and managed by the union. UAW President Ron Gettelfinger claims the VEBA will secure benefits for retirees for the next 80 years, although some analysts are skeptical. While the GM funding level is considered generous, whether or not it will be sufficient will depend on the investment performance of the fund and the health care cost inflation. There currently are about 340,000 GM retirees and their spouses.

UAW members are expected to ratify the contract, which could begin this weekend. The agreement ended a two-day strike by the UAW, the first nationwide strike against the automaker in 37 years. UAW talks with Ford and Chrysler could begin within days.

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