The United Auto Workers recently announced a pact Friday with bankrupt supplier Dana Corp. that would transfer duty for retiree health care from the company to a union-run trust fund.
The pact could serve as a forerunner for the labor talks starting this month between the UAW and Detroit's Big Three. The Dana deal is likened to one negotiated in 2006 between the United Steelworkers and the Goodyear Tire and Rubber Co. that the automakers consider a possible model for managing their own retiree health care liabilities. The Steelworkers are also part of the UAW-Dana pact.
The company said the settlements with the UAW and the USW include four-year extensions of Dana's current contracts at union plants in the United States, as well as new agreements with several recently organized facilities. They also establish two-tier wage structures at some Dana facilities and modify existing disability benefits.
Detroit's automakers also are expected to press on for a two-tier wage arrangement, which would allow them to pay new hires considerably less than existing employees. Under the Dana agreement, the auto supplier will contribute $700 million in cash and approximately $80 million in common stock to fund two VEBAs or voluntary employee beneficiary associations.
Each union will run one of these trusts, which will be providing health coverage for retirees, as well as long-term disability insurance for active workers. In view thereof, the Toledo-based supplier will be freed of all future obligations for such coverage. As such, the company expects to save more than $100 million annually.
Part of the funding will come from private equity firm Centerbridge Capital Partners LP, which has agreed to invest up to $500 million in cash for convertible preferred shares in the reorganized Dana. Additionally, the company has agreed to help set up another $250 million from other investors.
The deal is a success for Centerbridge, which hired former General Motors Corp. executive and star auto analyst Steve Girsky to lead the deals. Centerbridge was part of a failed bid for the Chrysler Group earlier this year.
"This settlement would not have been possible without the involvement of Centerbridge Partners," UAW President Ron Gettelfinger said in an interview. "They're going to play a key role in the future of Dana, and we look forward to working with them to help this company succeed in the marketplace."
Dana said the unfunded portion of its retiree health care and long-term disability obligations currently total $1.1 billion. If the deal is ratified by the members of both unions and approved by the federal bankruptcy court, the auto supplier will have eliminated that liability from its balance sheet for 71 cents on the dollar.
As reported, GM and Ford Motor Co. would like to negotiate a figure closer to 50 cents on the dollar. But the goal is not that simple. Some observers in the industry believe the union was cautious about setting the bar too low.
Like the , capable of making the vehicle more adaptable to different road conditions, the UAW's pact with Dana also is expected to cover varied health demands of auto workers. The Dana deal is further proof that the union is willing to negotiate on retiree health care. "There does seem to be a pattern developing," said Jim Gillette, an analyst with CSM Worldwide. "I do think they understand the realities of the situation."
"If they were ever able to get these retirement health care liabilities off the books, it would go a long way toward making them more competitive," said Bradley Rubin, auto analyst for BNP Paribas. "This is encouraging."
