UAW and GM Restructure Pensions & Healthcare Plan - VEBA
UAW could hold top GM stake
By Bernard Simon in Toronto
Published: September 30 2007 23:02 | Last updated: September 30 2007 23:02
The United Auto Workers union could become General Motors’ biggest shareholder under a deal to transfer the carmaker’s healthcare obligations to a huge union-managed trust.
The two sides agreed last week to set up the Voluntary Employees’ Beneficiary Association as part of a four-year labour contract. GM’s $29.9bn contribution to the Veba will include a $4.4bn note convertible into GM shares. GM’s market value of almost $21bn plus that of the bond, if converted at par, would give UAW a stake of about 17 per cent.
The convertible bond will give the union a direct interest in GM’s turnround and the potential to influence the carmaker’s future direction. GM and the UAW declined further comment.
GM shares have almost doubled from their low of $18.40 in late 2005, when the carmaker was struggling to avoid bankruptcy protection. Its biggest shareholder is State Street, the Boston-based financial services group, with a 13.1 per cent interest.
The Veba is expected to be formally set up in 2010. GM has also agreed to contribute up to an extra $1.6bn if healthcare costs accelerate more than expected in the next two decades.
GM’s goal in the contract talks was to close the cost gap with Asian rivals. Besides transferring more than $50bn in healthcare liabilities to the Veba, GM secured union agreement to a two-tier wage system, under which thousands of non-production workers can be hired at wages of between $14 and $16.23 an hour, little more than half the current rate.
In exchange, GM has provided greater job security for union members by assigning projects to 16 US plants. A facility in suburban Detroit has been earmarked to build the forthcoming Chevrolet Volt electric car.
The contract also reveals plans for a small, rear-wheel-drive vehicle, code-named Global Alpha, to start production in 2011. According to Automotive News, the car will be a luxury model and open a new market segment for GM. A pick-up Hummer is also planned.
The UAW’s 73,000 GM members are expected to ratify the contract by October 10. The union’s national council unanimously approved the deal on Friday. A small but vocal dissident group warned that “Veba gambles healthcare on stock markets”.
The union has said that it will use the GM deal as a “pattern” to negotiate contracts with Ford Motor and Chrysler. But these two companies may opt for different Veba-funding formulas.
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