It appears that the worker takeover of what remains of industrial America will be short lived. The other day the Senate shot down the possibility of bankruptcy judges being able to alter the terms of first mortgages, citing the “sanctity of contracts.” Considering that the big worry here is how to finance the commitments to retired workers, it will be interesting how much concern these same Senators for the contracts of auto workers.
STERLING HEIGHTS, Mich. – The United Auto Workers union has no intention of keeping its 55 percent stake in the new Chrysler and will sell the shares to fund a trust that will take over retiree health care costs next year, the union’s president said Monday.
Speaking to reporters at a news conference in suburban Detroit, Ron Gettelfinger said the trust, called a voluntary employees beneficiary association (VEBA), will struggle at first. It is starting with $1.5 billion from an existing company health care trust, and will get $300 million from the company next year. The total retiree health care obligation is $10.9 billion for about 82,000 retirees, as well as current workers who eventually will retire.
While he said he is confident in the trust’s funding, Gettelfinger warned that the VEBA may need to make additional cuts. Benefits such as dental and vision coverage already have been cut.
“The VEBA will be on life support initially,” he said. “We took a lot of risks here.”
Although the trust has a seat on Chrysler’s new board, it essentially has no voting rights because it must vote with a majority of independent directors, he said. Retirees have the right to object to the VEBA settlement in bankruptcy court.
The union endorsed a deal for Fiat to run Chrysler and potentially take a controlling stake because it was the best option, Gettelfinger said.
“Of all of the alternatives that were out there in front of us, clearly this is head-and-shoulders above anything else,” he added.
Gettelfinger said that critics who think the union is getting a better deal than Chrysler’s secured debtholders are wrong because the UAW is taking a big risk with Chrysler stock funding the trust. The stock is worthless today, he noted.
“Let’s be honest, it’s zero today. The equity is going to be stressed,” Gettelfinger said. “This isn’t about finance, it’s about people that expected health care benefits for life.”
Gettelfinger said the union made concessions in 2007 and this year that have helped the company, although he would not place a specific number on how much the concessions are worth.
“It is billions and billions of dollars in relief to the corporation from the standpoint of cash flow,” Gettelfinger said.
Some of Chrysler’s secured creditors, however, are objecting to the deal in bankruptcy court and the UAW’s larger ownership stake.
After the automaker and Treasury couldn’t come to an agreement with certain debtholders, Chrysler filed for bankruptcy protection Thursday and is trying to emerge in 30 to 60 days as a stronger company that could eventually end up majority owned by Italy’s Fiat Group SpA.