A retiree healthcare deal astir in Detroit

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."

The arrangement, known as a "voluntary employee beneficiary association" (VEBA), is not a new idea. A number of state governments use so-called VEBA trusts to provide benefits for current workers such as teachers, for example. Ford and General Motors already use VEBAs for some retiree health costs.

But the idea of turning to a VEBA as an escape hatch for a full-scale retiree health plan is still novel.

In 2006, a major supplier to the auto industry, Goodyear Tire & Rubber Co., reached such an accord with the United Steelworkers.

Goodyear agreed to put $1 billion into the trust. The amount falls a bit short of the estimated liability. But it's enough that the union saw a fighting chance that the new trust will be able to provide for the beneficiaries.

The steel union doesn't directly control the trust fund, but it plays a guiding role through the appointment of trustees.

"We needed to get a billion dollars for this to be feasible at all," says Wayne Ranick, a spokesman for the United Steelworkers International in Pittsburgh.

That same kind of arithmetic will be at work when the Big Three bargain with the UAW this summer and beyond.

Workers will want to find a balance between preserving benefits and preserving jobs, striking a deal that allows for a healthy company to move forward.

At Goodyear, Mr. Ranick says a key element of the deal was a measure of job security. The tiremaker pledged to invest $550 million in plants and to operate them at a certain manpower level.

Page: 1 | 2