By Micheline Maynard
The New York Times Published: July 7, 2007
Detroit, - The United Automobile Workers union has cracked open the door a little wider to the kind of innovative deal on retiree health care benefits that Detroit auto companies would like to see.
It also appears to have softened its stance on dealing with private equity firms, which could be good news for Cerberus Capital Partners as it prepares to complete its purchase of the Chrysler Group.
The two steps came Friday, when the U.A.W. and the United Steelworkers union reached four-year agreements with the Dana Corporation, one of the nation's biggest auto parts companies, which is operating under bankruptcy protection.
Those deals help position Dana to reorganize - and give a glimpse of the kind of steps the U.A.W. is willing to consider, at least in the case of companies in dire straits.
Dana will shift its liability for retiree health care and long-term disability coverage for other workers to a trust, called a Voluntary Employee Benefit Association or V.E.B.A., moving the obligation off its books.
It will contribute about $700 million in cash and, once it reorganizes, $80 million in stock to the trust, which will be administered by the unions.
The agreement is similar to one reached by the Steelworkers at Goodyear Tire and Rubber Company, which set up a trust fund this year for retiree health care liabilities. Goodyear is investing about $1 billion in stock and cash.
The U.A.W. has agreed to such arrangements in the past to take over part of retiree health care obligations, particularly at Navistar, where it reached a deal in 1992. There are also partial health care trusts at General Motors and the Ford Motor Company, where the union granted concessions on health benefits over the last two years. But the Dana deal is thought to be the first time the U.A.W. has allowed a company to transfer its entire liability for retiree health care.
The U.A.W. discussed the idea with G.M. and Ford earlier this decade, people with knowledge of those discussions said. Ultimately, the union and the companies agreed that workers would pay part of their health care expenses instead. Until that time, workers' health care coverage was financed almost entirely by the auto companies.
Now, facing billion-dollar losses and dwindling market share, the Detroit companies have revived the proposal to shift health care assets, although the prospect would be expensive. Collectively, the three companies face a burden of about $100 billion for current and future health care benefits, far greater than at the parts suppliers.
Analysts estimate the automakers would have to contribute at least $70 billion in cash to establish trusts similar to those at Goodyear and now Dana, and more investments would be needed later. Likewise, the union would then have to administer or find an administrator for the enormous health care trust.
That could be too great a challenge to address fully in the coming labor talks, which begin July 23, said Gary N. Chaison, professor of industrial relations at Clark University in Worcester, Mass.
U.A.W. leaders have maintained that the deals reached at bankrupt companies should not be viewed as a road map of what might happen in the talks with Detroit carmakers.
But Professor Chaison said the Dana deal reflected the union's willingness to try new ideas. Last month, after two years of difficult negotiations, U.A.W. members at the bankrupt Delphi Corporation agreed to accept sharply lower wages.
"Even if it's not going to solve all the problems," he said of the Dana agreements, "it's a step in the right direction. The other thing is that there are investors who are interested here."
Dana said that Centerbridge Capital Partners, a private equity firm, would invest $500 million in Dana once it emerged from bankruptcy protection and would line up investors to put $250 million more into the company.
Officials from Centerbridge took part in the health care discussions with Dana and officials from the two unions. Their presidents, Ron Gettelfinger of the U.A.W. and Ron Bloom of the Steelworkers, were kept apprised of the talks.
"We believe that our partnership with, and investment in, Dana will create significant upside for all of the company's constituents," Stephen J. Girsky, the president of Centerbridge's industrial unit, said in a statement. Mr. Girsky was formerly a veteran automobile industry analyst for Morgan Stanley who briefly acted as an adviser to G.M.
The U.A.W.'s cooperation is something of a reversal for Mr. Gettelfinger, who vehemently criticized private equity funds during DaimlerChrysler's effort this year to sell Chrysler. He subsequently surprised his members by endorsing the deal as being in their best interests.
Professor Chaison said Mr. Gettelfinger now was showing "an element of great flexibility" that could make the outcome of this summer's labor talks difficult to predict.
http://www.nytimes.com/2007/07/07/automobiles/07auto.html?_r=1&oref=slogin
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