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UAW and Ford reach deal on retiree health care trust
2009-02-23
DETROIT (Reuters) - Ford Motor Co has reached a tentative deal with the United Auto Workers union on changes to funding for retiree health care in an agreement that could save it almost $7 billion in cash and provide a model for concessions at GM and Chrysler. Ford's shares were up 10 percent in early afternoon trading on the New York Stock Exchange following the news while shares of larger rival General Motors Corp were up almost 6 percent. Ford, the No. 2 U.S.-based automaker, said the deal gives it the option to settle up to 50 percent of payments to the Voluntary Employees Beneficiary Association, or VEBA, in stock. Previously, all payments were due in cash. Ford, which burned through $21 billion in 2008, owes $13.2 billion to the VEBA trust excluding health care payments that it will make for retirees in 2009. "We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value," Ford said in a statement. All three Detroit automakers have been in negotiations with the UAW on changing the terms of their VEBA health care trusts, under concessions that are mandated by the terms of the $17.4-billion U.S. government bailout of GM and Chrysler LLC. The terms of the bailout require both companies to make half of planned contributions to VEBA in company stock in lieu of cash. GM said negotiations between the automaker and the UAW are continuing but it has nothing to announce relative to the VEBA. A Chrysler representative was not immediately available for comment. Ford, which has not accepted any government loans, has said it expected the union to offer parity with any concessions granted to its U.S.-based rivals, including the key requirement on VEBA funding. The Dearborn-based automaker, which posted a record $14.6 billion loss in 2008, has sought to distance itself from its U.S. rivals, which have requested an additional $22 billion to support their turnaround. CHANGES SUBJECT TO RATIFICATION GM, Ford and Chrysler collectively have pledged about $48 billion to the VEBA fund through transfers of current trusts and future payments to cover a share of their estimated $80 billion health care liability. Agreements to shift the responsibility for retiree health care from the automakers to the fund aligned with the UAW were reached during 2007 contract negotiations and hailed at the time as a breakthrough in shifting a c But with GM and Chrysler running short of cash and Ford also battling to survive a brutal downturn in car sales, the UAW has come under intense pressure to accept concessions that would rewrite provisions for funding the VEBA even before it takes effect in 2010. GM has been negotiating with the UAW to take up to $10.2 billion of the $20.2 billion it owes to its VEBA in stock rather than cash. Chrysler has pledged $8.8 billion to its VEBA trust and faces the same requirement to cut the cash contribution by half. UAW President Ron Gettelfinger said in 2007 the creation of the VEBA would safeguard retiree health care for 80 years. Ford said the VEBA agreement -- together with the deal reached on February 15 to modify the labor contract -- would be subject to ratification by active UAW-Ford members and other conditions, including concessions from other stakeholders. The proposed modifications were expected to be presented to the union's local Ford leadership at a council meeting early this week, according to the unions. "The modifications will protect jobs for UAW members by ensuring the long-term viability of the company," UAW President Ron Gettelfinger said in a statement. The union also said the changes to the VEBA will require court approval. The union's tentative agreement with the automaker on the labor contract includes changes to labor costs, benefits and operating practices. (Editing by Maureen Bavdek and Brian Moss)
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