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.
from the May 29, 2007 edition
Page 3 of 4
For the Detroit automakers, the cost of retiree healthcare isn't the only problem, but it is a major one. The liability totals about $100 billion by some estimates, an amount more than double the stock-market value of the three firms.
Such a number is guesswork, because the future cost of healthcare and the longevity of retirees are uncertain. But the scale, coupled with uncertainty, weighs on the companies and their shareholders.
In announcing the deal to sell Chrysler on May 14, DaimlerChrysler chairman Dieter Zetsche breathed an audible sigh of relief in unloading this liability. It was "especially important," he said, that the retiree costs would be borne by the new Chrysler Corp., not shared with Daimler, which had managed Chrysler since a 1998 merger.
Now, tackling the liability will be crucial for the new owners, helping to determine whether their $7.4 billion investment to buy Chrysler succeeds or fails.
The finances and demographics at the Big Three are scary for workers and management alike.
Their pensions are generally well funded, but the healthcare is not, and the ranks of retirees already outnumber current workers.
Moreover, autoworkers stop young, based on a "30 and out" system in place since 1970, which allows full retirement benefits after 30 years on the job. Such bargaining victories by the UAW, starting in the years right after World War II, helped set a tone for an era in which factory jobs nationwide became tickets to middle class living and secure retirements.
Now UAW bargaining could again help set the tone, this time during an era when unions are struggling to maintain their place amid global competition and a less-friendly policy environment that took root in Washington since the 1980s.
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