A retiree healthcare deal astir in Detroit
Detroit automakers, hit with huge losses, may spin responsibility off to the labor union during contract talks this summer.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the May 29, 2007 edition
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There's a silver lining in the Detroit automakers' financial distress. Things appear so bad that the companies and their main labor union might agree to something radical.
Right now, a growing burden of retiree healthcare costs is one of the biggest challenges facing Ford, General Motors, and a soon-to-be-independent Chrysler.
That liability – one not shared by competitors like Toyota and Honda – goes a long way toward explaining why German-based DaimlerChrysler views its Chrysler Group as a clunker to be sold no matter the price. And it explains why the private investment firm Cerberus had to offer so little this month to become the buyer.
In this climate, a once-unthinkable idea is being seriously discussed: In effect, spin the healthcare problem off to the labor union. The automakers would each agree to pour billions of dollars into a trust fund to help provide for the retiree insurance. But with that one-time payment, the carmakers would win a cap on their future liability.
"That [liability] will be part of the upcoming negotiations for sure," says Tony Faria, an automotive expert at the University of Windsor's Odette School of Business, just across the Canadian border from Detroit. "The unions fully realize these companies are in trouble."
Unloading healthcare on the union is far from assured. Historically, the radical ideas in auto-industry labor contracts have been concessions to the United Auto Workers (UAW), not by them.
But the current crisis is arguably the toughest in Detroit's history, making possible an experiment that could become a model for other industries.
"The auto companies would provide some major amount of funding," Mr. Faria says. "From there on, they'd be paying at a known rate, rather than an ever escalating rate."
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