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The US automobile industry is in trouble! For example, the biggest challenge for General Motors (GM) is its rising health care costs, especially for its retired workers. During the recent contract negotiations with the UAW, GM may have found a way out of this enormous obligation. In doing so, GM and the UAW may have significantly changed the way employer financed health care is done in the US. Let me explain.
The contract, which covers about 74,000 US auto workers, restructures GM’s obligations to cover health care for UAW retirees. It also sets up a mechanism for GM to buy out thousands of workers, whose wages and benefits total about $70 an hour, and to replace many of them, particularly those in nonproduction jobs, with new employees earning far less. In return, GM has agreed to invest in UAW-represented factories and to make certain improvements to retirement benefits. Most importantly, the proposed contract permits GM to shift to an independent trust $51 billion in liabilities for UAW retirees’ health care. GM could eventually contribute as much as $35 billion to that trust, called a voluntary employees’ beneficiary association (VEBA). The net result for GM is that this gets about $51 billion off the books of GM’s obligations. Assuming a decent economy and relatively good return on investments, this trust would be expected to grow in value and eventually cover the larger costs for the retirees’ health care. Assuming that Ford and Chrysler agree with something similar in their UAW contract negotiations, for the Big Three, which lost over $15 billion last year, the establishment of such a trust would constitute a major step toward avoiding the fates of the US steel industry and airline industry, where crushing pension and health-care costs forced them to seek bankruptcy protection. In this deal, the UAW is taking a risk, because health care costs could rise faster than the trust fund grows. But obviously, the much larger risk for the UAW is that GM goes under and then they lose everything. As E.J. Dionne has argued, “The lesson of the ‘New Treaty of Detroit’ is that in the face of globalization’s challenges, risks and rewards can be shared if there’s a will to negotiate them.”
This a revolutionary agreement, potentially. The economic world is changing and the status quo will no longer work. The danger as well is that the Democratic Party especially will fall back on its old script and pit the working class against the capitalist owners. That line will no longer work. If the Party works from a populist base (as John Edwards is trying to do) it will be doomed. Populism will not work in this global economy. No one can eliminate the dislocation or the transition of a global economy. The only thing they can do is limit that dislocation and transition. It would seem that the agreement between GM and the UAW is a model of how to do that. It should allow GM to narrow the cost gap between its unionized US operations and non-union Toyota and other Asian and European auto makers—a gap now pegged at $25 to $30 an hour. This new pact will permit GM to reduce that differential by 40 to 50%. Cutting off health benefits entirely is unfathomable to most large employers that must compete for talent. But, this kind of agreement demonstrates that some middle ground of offering a fixed contribution toward individual coverage may actually be the wave of the future. There is no question that for the US to be competitive, it must get its labor costs under control—and the best and most logical place to do that is health care. The GM—UAW agreement may set the pace.
See Dionne’s editorial in the Washington Post (28 September 2007) and a major news report by Joseph B. White, John D. Stoll and Jeffrey McCracken in the Wall Street Journal (27 September 2007). |
