GM has been offering health-care benefits for its retirees since the 1960s, but in the last 40 years, healthcare costs have grown three times faster than inflation and the company’s retirees now outnumber current employees by more than 3:1.
Many of GM’s investors have been pushing for the company to shift control of the retiree benefits to the UAW, the union that represents 73,000 of GM’s employees and nearly 270,000 retirees. The union would create a voluntary employees’ beneficiary association (VEBA), similar to the plan that Goodyear set up with the United Steelworkers last year.
“With the healthcare burden gone, GM becomes a much more competitive company,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
In the short term, funding the trust could put GM in a cash squeeze unless they raise the money by floating stock or issuing debt.
“If you don’t go along with a VEBA, the automakers may reach a point where the only alternative is to file Chapter 11,” said Eric Merkle of IRN Automotive Intelligence. “The (union) has to take on more of the risk.”
If the union takes control of the VEBA, they will undoubtedly face hikes in healthcare costs. Before long, they may have to limit choices, reduce costs and ask members to contribute money to keep the plan afloat, said Uwe Reinhardt, an economist at Princeton University.
