Ford, UAW reach deal on health care trust

DETROIT -- Ford Motor f and the United Auto Workers union reached an agreement Monday to modify the payments on its health care trust, which could pave the way for similar agreements with General Motors and Chrysler and remove a significant stumbling block in the automakers' attempts to comply with federal loan obligations.

At issue was how the automakers would fund a Voluntary Employee Beneficiary Association, or VEBA. Millions in cash payments were due next year, but the cash-strapped automakers were hoping to talk the union into taking equity in the companies in lieu of real green dollars.

Although the details will differ, the fact that the UAW agreed to take on stock as part of the health care trust at one automaker makes it likely the union will do the same for the other two. The UAW generally gives all three domestic automakers about the same level of concessions to ensure one company is not more financially competitive than the other two.

Under the agreement, which still has to be ratified by union members, Ford has the option of issuing up to 50% of the payment in stock rather than cash. "The agreements, if finalized, will allow Ford to become competitive with foreign automakers' U.S. manufacturing operations, and are critical to our efforts to operate through the current deep economic downturn without accessing government loans," says Joe Hinrichs, Ford's group vice president of labor affairs.

Just last week, union members were refusing to take company stock. That's because taking stock is a risk for the union, says Harley Shaiken, a professor of labor studies at the University of California-Berkeley.

"Stocks are inherently volatile, and they're especially volatile in the automobile industry," Shaiken says. "Health care for retirees is a pivotal issue for workers and the union, so the volatility of stocks made the union reluctant to sign on."

Ford shares closed Monday at $1.73 a share, up 15 cents from Friday but down from their 52-week high of $8.79. GM gm shares closed Monday at $1.77, flat with Friday but down from its 52-week high of $25.15.

So why did the union agree?

"The union made a tough decision to work with the company so that it survives," Shaiken says. "And the paradox is that by taking a risk on stock now, the union feels it will establish the best security later."

GM and Chrysler have been working on getting union and bondholder concessions as part of the $17.4 billion government loan package granted in December. Last week, they asked for $21.6 billion more.

The Treasury Department, which is leading an automotive task force set up by President Obama, on Monday announced that Wall Street restructuring expert Steve Rattner would join the team.

He'll be an adviser to Treasury Secretary Timothy Geithner, working alongside adviser Ron Bloom, who was named to the task force last week.