GM, UAW Agreement on Changes to Health Benefits Could Prompt Similar Action by Other Automakers
General Motors and United Auto Workers on Monday announced that they have reached a tentative agreement on changes to health benefits for union employees to reduce company health care costs, a deal that likely will prompt other automakers to shift more health care costs to employees, the Wall Street Journal reports (Hawkins et al., Wall Street Journal, 10/18). GM -- which spends $5.6 billion annually on health care for employees -- reported a loss of about $2.3 billion for North American operations in the first half of this fiscal year and announced a third-quarter loss of $1.6 billion on Monday. GM CEO and Chair Rick Wagoner in June announced that the company will eliminate 25,000 hourly manufacturing jobs by 2008 and close an unspecified number of facilities, in part because of health care costs. The GM board reportedly had established an internal deadline of June 30 to reach an agreement with UAW on health benefits, but the deadline passed without a deal. In recent months, UAW President Ronald Gettelfinger has said that the union will not reopen the GM contract. The agreement would reduce GM retiree health care liability by about 25%, or $15 billion, and would reduce annual health care costs by about $3 billion, Wagoner said (Kaiser Daily Health Policy Report, 10/17). In addition, GM will contribute $1 billion annually in 2006, 2007 and 2011 to a Defined Contribution Voluntary Employee Benefit Association to offset the cost impact of the health benefit changes on retirees (Hirsh, Baltimore Sun, 10/18). An individual familiar with the negotiations said that the agreement will require UAW employees to pay deductibles and copayments for medical services other than prescription drugs (Hakim, New York Times, 10/18). GM declined to release additional details about the health benefit changes in the agreement until UAW union leaders are briefed (Peters/Freudenheim, New York Times, 10/18). Local UAW leaders will meet on Thursday to discuss the agreement (Hakim, New York Times, 10/18). UAW and GM officials did not comment on whether the agreement requires them to reopen the union contract with the company, and UAW officials said that union members would have to approve the deal (Wall Street Journal, 10/18).
Effect on Other Automakers
According to Bill Adams, a management side labor consultant, the agreement provides other automakers with "a license to cut costs," adding, "If the UAW made a concession for GM, try to convince me," as DaimlerChrysler and Ford Motor, "why you're not going to give me the same deal or better" (Baltimore Sun, 10/18). A spokesperson for Chrysler said that UAW likely will address the need to reduce company health care costs in accordance with "the industry's history of pattern bargaining" (Wall Street Journal, 10/18). Chrysler Vice President for Communications Jason Vines said, "We can't be put at a competitive disadvantage" (Hakim, New York Times, 10/18). A Ford spokesperson said that the company has entered negotiations with UAW and likely will announce an agreement to reduce health care costs this week (Wall Street Journal, 10/18).
GM, UAW Reaction
In a joint statement released on Monday, Gettelfinger and lead GM negotiator Richard Shoemaker said that the agreement is "clearly in the best interests of UAW-GM active workers, retirees and their families" (Bernard, Tennessean, 10/18). Wagoner said that the agreement will help GM become more competitive, as wage and health care costs for UAW employees represent the "single line item of greatest cost uncompetitiveness" (Freeman/Joyce, Washington Post, 10/18). The price of GM stock, which has decreased by 25% this year, increased by 7.5% after the announcement of the agreement (Peltz, Los Angeles Times, 10/18).
Other Reaction
According to the Journal, "UAW's acceptance of the proposed cuts loudly signals the labor movement's further decline." Wilbur Ross, a bankruptcy turnaround specialist, said that the agreement is "a real watershed for the automotive industry and for American manufacturing in general," adding, "I view this GM agreement as a big, red, neon sign that says here comes reasonableness to American industry. ... The competition from abroad is too severe" (Wall Street Journal, 10/18). According to David Cole, chair of the Center for Automotive Research, the agreement indicates that unions have begun to take the role of "partner and collaborator rather than an antagonist. ... There's been a sea change. It's a coming out party for collaboration" (Washington Post, 10/18). Himanshu Patel, an auto industry analyst with JP Morgan Chase, said that the agreement likely will have a large impact on GM health care costs, but other analysts said that the company remains at risk for bankruptcy (Durbin, AP/Philadelphia Inquirer, 10/18). Helen Darling, president of the National Business Group on Health, said, "It doesn't sound like it is any more than most corporations did 15 to 20 years ago. This isn't going to solve their problem at GM. They're still 15 years behind everybody else" (Peters/Freudenheim, New York Times, 10/18). Mark Oline, a credit analyst with Fitch Ratings, said, "If they are unable to alter the current rate of growth (in health care liabilities) then they could be right back in the current position several years from now," adding that, although the agreement is a "good first step," GM must sell more vehicles (Wall Street Journal, 10/18).
Editorial
The agreement "is significant" and "should not be underestimated," but "unfortunately, more is required," a Detroit News editorial states. The agreement represents the start "down the road ... toward a relationship that allows the company to be profitable," the editorial states, adding that UAW "should always remember that the best job security comes from making sure the employer makes money" (Detroit News, 10/18).
Broadcast Coverage
Several broadcast programs reported on the agreement:
- ABCNews' "World News Tonight": The segment includes comments from Cole, Wagoner, and GM employees and retirees (Reynolds, "World News Tonight," ABCNews, 10/17).
- NBC's "Nightly News": The segment includes comments from William Brody, president of Johns Hopkins University; Cole; Mark Zandi of Economy.com; Wagoner; and small business owners (Thompson/Costello, "Nightly News," NBC, 10/17). The complete segment is available online in Windows Media.
- NPR's "All Things Considered": The segment includes comments from Cole and Wagoner (Vaughn, "All Things Considered," NPR, 10/17). The complete segment is available online in RealPlayer.
- NPR's "Morning Edition": The segment includes comments from Harley Shaiken, a professor who specializes in labor studies and global economics at the University of California-Berkeley; David Sedgwick, editor of Automotive News; and Wagoner (Langfitt, "Morning Edition," NPR, 10/18). The complete segment is available online in RealPlayer.
- PBS' "Nightly Business Report": The segment includes comments from Robert Bruno, a professor of labor relations at University of Illinois-Chicago; Jerry Marks, an auto industry analyst with Raymond James; and Wagoner (Eastbrook, "Nightly Business Report," PBS, 10/17). The complete transcript is available online.
