President Bush To Provide Two Automakers With $17.4B in Loans, Require Concessions on Benefits, VEBA Payments
President Bush on Friday announced an agreement to provide $17.4 billion in short-term loans to automakers General Motors and Chrysler that includes a number of requirements for the companies and the United Auto Workers, the Washington Post reports (Whoriskey, Washington Post, 12/20). Earlier this month, Congress failed to pass a $14 billion financial assistance package for the Big Three automakers after negotiators failed to reach an agreement on certain provisions in the legislation (Kaiser Daily Health Policy Report, 12/12).
Under the agreement announced on Friday, the companies must make wages and benefits for UAW employees "equal" to those provided to nonunion workers by foreign automakers with U.S. operations (Whoriskey, Washington Post, 12/20). The agreement also requires UAW to accept half of the contributions from companies to a voluntary employees' beneficiary association, which will provide health benefits to UAW retirees, in newly issued stock, rather than cash (Mufson et al., Washington Post, 12/20). Under contracts negotiated last year, the Big Three agreed to contribute about $56.5 billion to the VEBA, which UAW will manage. The VEBA, which will take effect in 2010 and remain operational for 80 years, will reduce retiree health benefit liabilities for the Big Three by about $100 billion (Kaiser Daily Health Policy Report, 12/12).
The agreement also will require UAW to eliminate a "job banks" program, which provides union employees who lose their jobs with as much as 95% of their previous wages and benefits (Riechmann/Krisher, AP/Bergen Record, 12/20). In addition, the agreement will require the companies to repay the loans on March 31, 2009, in the event that they do not develop major restructuring plans by that date (Koffler/Stanton, Roll Call, 12/19).
According to the Wall Street Journal, "UAW leaders and their congressional allies were already signaling Friday that they would seek to ease the terms of the deal next year as they expect more friends on Capitol Hill and in the White House" (McKinnon/Stoll, Wall Street Journal, 12/20). President-elect Barack Obama will be able to revise the terms of the agreement after he takes office because the funds were provided by executive decision rather than through a law approved by Congress. Obama said that the companies "should seize on this opportunity over the next weeks and months to come up with a plan that is sustainable" (Silke Carty/Woodyard, USA Today, 12/22).
Editorial
"It was worth trying to avoid" the potential "economic shock" caused by the failure of the automakers, "as long as the government used its leverage to exact drastic changes in the way the two companies" and UAW "do business," a Post editorial states. "On this score, the Bush administration seems to have struck the right balance, requiring the companies, their bondholders and the UAW to make painful but necessary sacrifices in return for the money," according to the editorial (Washington Post, 12/20).
