As UAW enters negotiations with Detroit, retirees outnumber workers
DETROIT: For the first time in its 72-year history, the United Auto Workers union is entering national contract talks with more retirees than active workers in its ranks.
That shift has the greatest impact on medical costs. Detroit automakers cover the health care expenses of both current and former union members - more than 1.1 million of them combined, plus their dependents. That adds up to an annual bill of about $12 billion.
So even as the struggling U.S. car companies try to restructure, announcing plans in the last two years to shed more than 80,000 workers, their health care bill continues to rise as those people age.
The car companies' ability, or willingness, to continue paying those generous benefits, including negligible co-pays for drugs and doctor's visits, will be a key sticking point when pivotal negotiations begin Friday between the union and the auto companies.
The stakes are enormous for both sides in talks that General Motors calls "the most important in a generation."
The union is trying to protect a signature feature of the comfortable middle-class lifestyle that its blue-collar members have enjoyed. The retirees, roughly 600,000 of them, risk seeing benefits slip away, benefits that they assumed would be secure when their working days ended.
GM, Ford Motor and the Chrysler Group, claim these so-called legacy costs have hampered their fight against fierce foreign competition. Health care and pension benefits cost them $1,000 for each vehicle they sell, they say, compared to a few hundred dollars for companies like Toyota, Honda and Nissan.
Talks begin Friday at Chrysler, and move to Ford and GM on Monday.
The current contract expires Sept. 14.
The automakers and the union could create a health care trust, called a Voluntary Employee Beneficiary Association, that could take over the responsibility for worker and retiree benefits.
That would allow the three companies to get their combined long-term health care liability, about $100 billion, off of their books, and would give the union a more direct say in the benefits that its workers would receive.
But the solution carries an enormous price tag: the trust, known as a VEBA, must be funded with cash up front, with most of the liability accounted for.
The car companies would need to come up $60 billion to $65 billion, experts say. The more money that is put in the trust, the less risk exists for the union. The automakers have tens of billions of dollars in cash on hand, but they need that money to run their operations, since their debt ratings are in junk status, making it expensive for them to borrow money.
Given that, they might be better off leaving things as they are and trying to cut medical costs, some analysts say.
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