US autoworkers union UAW and Ford have reached a tentative deal to modify terms of their agreement on the Voluntary Employee Beneficiary Association (VEBA) health care trust.
UAW President Ron Gettelfinger said in 2007 the creation of the VEBA trust would safeguard retiree health care for 80 years.
This week’s deal enables Ford to fund 50 per cent of its VEBA obligation with stock instead of cash, Ford said.
Previously, all payments were due in cash.
‘We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value,’ Ford said in a statement.
Membership and court approval are required.
The deal is the first one the UAW has reached regarding revisions to the funding terms for the VEBA, created in 2007 to provide a method for the Detroit ‘Big Three’ auto makers to clear billions of dollars in health care obligations from their books.
Initially, General Motors was to provide $24.1 billion in funding, with $13.2 billion from Ford and $8.8 billion from Chrysler.
More recently, GM and Chrysler have been negotiating with the UAW over deals to pay half of their obligations in stock, an adjustment required under terms of federal bailouts.
GM said negotiations between the automaker and the UAW are continuing but it has nothing to announce relative to the VEBA.
Some analysts have suggested that failure of those negotiations is likely and could force GM and Chrysler into bankruptcy court, where a judge could resolve the disputes.
The Ford deal could result in a revision of that analysis, although failure to resolve other issues, particularly involving unsecured bondholders, could also force bankruptcies.
Ford has not sought a federal bailout.
Last week, Ford and the UAW reached a tentative agreement on modifications to their 2007 contract, including changes in labour costs, benefits and operating practices.
Neither Ford nor the UAW provided further details on the contract changes.
Ford group vice-president for global manufacturing and labour, Joe Hinrichs said in a prepared statement: ‘The agreements, if finalised, will allow Ford to become competitive with foreign automakers’ US manufacturing operations, and are critical to our efforts to operate through the current deep economic downturn without accessing government loans and continue to fully invest in our ONE Ford product plan.’
Hinrichs said Ford will have the discretion, when each payment is due, to fund with cash or stock.
A UAW statement said: ‘UAW President Ron Gettelfinger announced today that the union has reached an agreement with Ford Motor Co on modifications to the Voluntary Employee Beneficiary Association (VEBA), the union’s health care trust for UAW Ford retirees.
‘The union also reached tentative agreement with the company on other modifications to the 2007 UAW-Ford National Agreement on February 15.’
Gettelfinger said: ‘We appreciate the solidarity, understanding and patience the members have demonstrated throughout the bargaining process.
‘The modifications will protect jobs for UAW members by ensuring the long-term viability of the company.’
UAW Vice-President Bob King, who heads the union’s National Ford Department, added: Our bargaining team stepped up to confront numerous challenges.
‘They’re to be commended for their hard work under difficult circumstances.’
The UAW statement added: ‘The proposed changes will be presented to the union’s local leadership at a council meeting early this week.
‘Any changes to the contract are subject to approval of the UAW membership at Ford.
‘In addition, proposed changes to the VEBA will require court approval.’
In trading Monday morning, Ford shares were rising, up 23 cents to $1.81.
Shares of GM were up 8 cents to $1.85.
GM, Ford and Chrysler collectively have pledged about $48 billion to the VEBA fund through transfers of current trusts and future payments to cover a share of their estimated $80 billion health care liability.
But with GM and Chrysler running short of cash and Ford also battling to survive a brutal downturn in car sales, the UAW has come under intense pressure to accept concessions that would rewrite provisions for funding the VEBA even before it takes effect in 2010.
Separately, a Treasury official said on Monday that outside advisers to the Treasury are lining up contingency financing options for GM and Chrysler as part of a review of restructuring options for the automakers.
The official commented after the Wall Street Journal reported that outside advisers to the Treasury were in talks with banks about financing of at least $40 billion for the car companies, in case the two automakers needed it.
People involved in talks with senior administration officials had told the paper that the Obama administration believes that the option of Chapter 11 filings by the two automakers needs to be seriously considered.
The Treasury official said that the action is not an indication of future plans for the companies, but is aimed at ensuring all options are properly considered and made available.
The White House also does not want to anger the United Auto Workers union by appearing to push for bankruptcy, the Wall Street Journal report said.
The initial discussions call for private banks to provide the financing known as a debtor-in-possession (DIP) loan with the government guaranteeing the loan, the paper said.
Under this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year, the paper said.
Recently, government advisers have aggressively courted big lenders Citigroup Inc and J P Morgan Chase & Co, which have also received government aid, to participate in any bankruptcy financing, the paper claimed.