Union-run Fund May Remedy Big Threes Health Care

by : Mike Bartley



Akron's Goodyear Tire and Rubber Co. and the United Steelworkers signed in December a contract that vested responsibility for retiree health care from the company to the union. Goodyear paid $1 billion up front, but it is no longer burdened to put those costs on its balance sheet.

Detroit automakers, desperate to bridle in rising health care expenses that hampered its ability to compete with foreign rivals, see a Goodyear-style deal as a potential game changer. Meanwhile, the United Auto Workers is studying the possibility. Since the proposal, the turn out of events came rushing in like .

Analysts said such a deal would dramatically narrow the gap crippling domestic automakers and give the UAW enough starting capital to guarantee retiree health benefits well into the future, assuming the funds are managed astutely.

The top executives of GM and Ford Motor Co. have publicly announced their interest in such a deal, and sources familiar with the agreement said they, along with the Chrysler Group, see it as a way to bolster their besmirched credit ratings, enhance cash flow and in due course shore up earnings.

For the UAW, the agreement could preserve health care coverage at current levels for years to come and preserve the benefits in case one or more of the automakers goes bankrupt in the coming years. 'There's probably no one single element that could have as big an impact as this one,' one high-ranking company official said in an interview. 'But this is not a slam-dunk by any means.'

'The operations in North America can't sustain those types of expenditures anymore, 'said analyst Bradley Rubin of BNP Paribas. 'It's just not feasible. They have to find a way to get rid of that if they're ever going to be profitable again.'

Goodyear faces much the same quandary. 'When I started, there were 14,000 workers out there,' said Howard Kropff, benefits officer at USW Local 2 in Akron, as he gestured out his window at the quiet Goodyear factories that once produced many of the nation's tires. 'That was 40 years ago.' Now, fewer than 500 workers work there. But Kropff proudly notes that the other 13,500 all made it to retirement.

The leading tire manufacturer will no longer have any responsibility for health benefits for union retirees. Before the signing of the pact, the cost of those benefits was set at $1.2 billion for accounting purposes, and Goodyear was able to get rid of that liability for 83 cents on the dollar.

'The money is there, and that's a big thing,' Kropff said. 'I'd rather have the money in our bank, with us managing the plans.' Active workers will still receive their health insurance through the company until they retire, when they will be covered by the union-run plan.

Meanwhile, top UAW officials would not discuss the health care issue, but many members and retirees are already anxious about their health care benefits. 'It's caused me a lot of stress, and it's caused a lot of other people a lot of stress,' said Bob Bowen, a Ford retiree and former president of UAW Local 849 in Ypsilanti. 'You can see it in their eyes.'

Bowen is the man many former Ford workers go to with their queries and concerns. While he is worried that retirees could lose everything if the Dearborn-based automaker is forced into bankruptcy court, he is not sure a union-run trust is the answer. 'At one time, I thought it would be ideal,' Bowen said. 'Now, I'm not certain they've got the expertise to handle that. We don't have the experience.'