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Big Three discussing joint healthcare fund

Recently, the UAW decided to look at the unusual step of taking over heathcare liabilities from the Big Three. The reason being that pension fund costs for future retirees is adding a terrific sum to the expense sheet every year -- GM's costs alone were $4.8 billion in 2006, and combined costs could have amounted to $12 billion. That's the price they are paying to assure healthcare for 2 million workers, ex-workers, and dependents. That drag on the bottom line is making GM, Ford, and Chrysler's return to competitiveness difficult, as if the job wasn't difficult enough already: the domestics lost $15 billion in '06, while Toyota, Honda, and Nissan made $23 billion.

In terms of total liabilities, the Big Three owe a combined $114 billion right now. The car companies have begun to discuss a fund, called a VEBA (voluntary employee beneficiary association) among themselves. They would proffer a one-time, lump sum payment, which would be a percentage of what they owe. After that, their contribution would be capped at a consistent rate that would keep them competitive. GM already uses VEBA's for some of its workers, and Goodyear set up a VEBA last year with $1 billion for the United Steelworkers, and has no further healthcare obligation.

A VEBA is just one option on the table, and neither side has said it will bring it up during labor talks. The discussion among the Big Three is in its initial stages, so company contributions have not even been determined yet.

[Source: Bloomberg]

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