Bargaining Breaks Down

Posted by: David Welch on September 20, 2007

Talks between General Motors and the United Auto Workers hit a big stumbling block yesterday. The two sides came to an impasse over how many billions GM would give the union to take over healthcare benefits for its retirees. Since the start of talks, GM has wanted to give the union 50% to 60% of the $50 billion long-term healthcare liability, or $25 billion to $30 billion. The UAW wants at least 70 cents on the dollar, which is at least $35 billion. Bloomberg first reported the breakdown in talks over the so-called Voluntary Employee Benefits Association, or VEBA trust, yesterday. If they come to a deal, the union would hire investors and administrators to take over healthcare benefits, managing it the way companies and unions run a pension fund. The two sides made progress early in the week and narrowed the gap, says one source close to talks, but they can’t quite come to a deal.

There are two ways to interpret the breakdown at the bargaining table. First is that this is just the usual ebb and flow of labor talks. Both sides say they won’t budge so they can extract the best deal possible. It’s called bargaining. This could go on for days until someone decides to move. The other possibility is that each side really does need a better deal than the other can offer. UAW President Ronald Gettelfinger may simply not believe that he can keep a VEBA fund flush without having to cut his own members’ medical benefits someday soon without more than $35 billion. He also might need that sum just to get his members to ratify the contract. Conversely, GM has $15 billion set aside for VEBA and raised another $5 billion selling Allison Transmission. That means the company needs to get another $10 billion to $15 billion—depending on what funding level the two sides agreed upon—from its own cash hoard, taking on more debt or issuing stock. In other words, GM may really have hit a limit on how much horse trading it will do to make Gettelfinger comfortable. That’s a real impasse. And for both sides, it would be a giant missed opportunity.

My guess? There certainly are big disagreements over the size of a VEBA trust. But there’s also a bit of posturing and theater going on. The two sides have one shot to get this deal done and the stakes are high. If GM Chairman Rick Wagoner comes away from the table without a VEBA, Wall Street will drop the stock. It’s up about 12% this month just on the possibility of a VEBA. Wagoner also needs this to cut healthcare costs, which are his biggest cost bogey. If the union gets too tough about the size of the fund and doesn’t go through with it, Wagoner will start investing elsewhere. GM has 73,000 U.S. hourly workers, two-thirds of whom can retire in five years. As they retire, GM could start cutting production here and sending it to Mexico, China and points yon. In other words, they both have each other by the throat. And they know it.

Reader Comments

ted tchorzewski

September 20, 2007 7:31 PM

looking at all this; as you loose your american work force; you loose your american market. i see it everyday more foreign then american; i say why they say, we dont have a job that pays enough to buy american;we need to think what are we doing to america, what is big business doing to america. americans want to buy your product give them a job.................

Bob in TN

September 20, 2007 7:33 PM

GM and the United Auto Workers are at a critical point in their search for an agreement. Regrettably, one side has to blink; there is no gain for either side to be right if GM has to cut its size so both sides can declare a victory.

ted tchorzewski

September 20, 2007 7:34 PM

what we all we should have learned in these past years is: bargain what you can afford; and keep americans working they will pay for everyones ride.

arthur vadnais

September 21, 2007 3:41 PM

this subject (health care) has been coming at the uaw for years if gm goes belly up so does my great union the uaw has always stood up for there retires these are diffcult times for both everybody is waiting and watching

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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