GM and the UAW arrived at a preliminary labor agreement yesterday. The terms of the agreement released to the public are purposely sketchy as it awaits communication and approval by the UAW membership. Based on what I have read, little of substance is changing. The union continues to bleed the pay, benefits and work rules it won over the years - just slowly enough to eventually kill it but not quickly enough to provide GM with the radical changes it needs to save itself.
Take, the cornerstone of the proposed deal: the implementation of a Voluntary Employee Benefit Association (VEBA). The VEBA would assume responsibility for the administration and financing of the union's retiree medical plan. The NYT describes the deal as follows:
The contract’s main feature — a health care trust called a voluntary employee benefit association, or VEBA — means that G.M. will no longer have to carry the debt it will owe for employee and retiree health care benefits on its books. Earlier this year, G.M.’s chief executive, Rick Wagoner, referred to those obligations as “very large and frankly formidable.”
That debt is estimated at $55 billion for the next 80 years. So G.M. will establish the trust with about 70 percent of that amount, making an upfront payment of cash, stock and other assets. The difference is expected to come from gains on investments by the trust.
In return, the union won guarantees that medical benefits for hourly workers and retirees and their families will remain in place for the next two years. G.M. will also invest money in its American plants, and will maintain its current union work force of 73,000, according to Ron Gettelfinger,
What is really happening with the retiree medical benefits? GM is transferring the liabilities for retiree medical benefits to a trust and then promising to fund those liabilities over time. There is an accounting benefit in that GM's balance sheet looks better without all the liability and it also appears as if they have been able to cap their future exposure to health care cost increases. GM has exchanged its open ended promise of retiree medical benefits to one that is more predictable. Potentially a good change for GM shareholders, but one that will not impact GM's cash flow for the foreseeable future (until either the cap kicks in or the VEBA trustees actually elect to reduce retiree benefits).
It looks like GM has gained a superficial concession from the Union. On the bright side for GM it has provided the Union with its own superficial concessions: an increase in the number of UAW members through a conversion of a lot of part-time employees to a lesser number of full-time employees and vague promises of investments in US plants.
The VEBA itself is basically a financing mechanism. A savings account. It does nothing to improve the lot of UAW members, improve the quality of GM cars or decrease health care costs.
The whole strike thing seems anachronistic. A bunch of guys walking around in a circle with placards yelling tired slogans of union brotherhood while fevered negotiations go on inside a conference room. This is not 1970. GM is right in the thick of the global economy and has little or no control over the pricing of its vehicles. GM and the other members of the "big 3" are no longer a monopoly that can pass on the costs of any labor agreement to consumers.
What is happening to employer-provided retiree medical benefits in the real world where unions do not have the traditional strength that they appear to have in the auto industry? They are going away. Companies are overwhelmingly either freezing these plans to new hires, reducing benefits significantly or terminating the plans altogether. I am not saying this is a good trend but it is a trend in reaction to competitive pressures.
Given that the unions and GM have so little power and that consumers obviously care less and less about whether there are GM cars to buy makes the negotiations closer to a civil war reenactment than a business negotiation. It would be kind of funny if the lives of the employees and suppliers were not so subject to disruption and insecurity.
Another dance around the basic issues of competitiveness and quality avoided by management and union alike - whew a close call.
