The United Auto Workers on Tuesday asked a federal court in Detroit to approve a tentative agreement with General Motors Corp. that would cut benefits for 750,000 U.S. hourly workers, retirees and their families. It was another step toward what could be a sharp decline in union benefits at the Big Three U.S. automakers.
After learning of the deal between GM and the UAW, Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group said Tuesday they’ll ask the UAW for similar cuts. It’s typical for automakers to match each others’ agreements.
Dieter Zetsche, the former head of Chrysler who will take over as head of DaimlerChrysler next year, said he is interested in matching GM’s agreement but didn’t give a timeline for official talks with the UAW. Ford said it already is in talks with the union.
“The company and the UAW continue to be engaged in very private and constructive discussions to address Ford’s health care cost reduction needs,” said Joe Laymon, Ford’s group vice president of human resources and labor affairs.
GM and the UAW announced an outline of the agreement Monday. If UAW members ratify the agreement, GM expects to save $3 billion annually before taxes on health care. The agreement also would cut GM’s liability for retiree health care by $15 billion, or 25 percent.
UAW spokesman Paul Krell said the union needs the court’s approval because the settlement will cut retirees’ benefits.
“It assures the retirees will be fully notified and have a right to participate in the process,” Krell said.
The union also must get court approval so retirees can’t sue if benefits are cut. GM has maintained it has the legal right to unilaterally cut retirees’ benefits but the UAW disagrees with that view. The court case will bind retirees together so there is no doubt the settlement applies to all of them, GM spokesman Stefan Weinmann said.
GM said it supports the court filing and is working with the UAW to expedite approval of the agreement.
The UAW won’t release details of the agreement until it has briefed union leadership. Local union leaders from around the country are scheduled to meet Thursday in Detroit to learn about the agreement. They will then present the details to their members, who will decide whether to ratify the agreement.
Analysts said Tuesday that the UAW’s decision to offer concessions before its contracts with U.S. automakers expire in 2007 shows the gravity of the automakers’ financial situation. GM lost more than $3 billion in the first nine months of this year, and Ford is expected to announce a third-quarter loss on Thursday.
“Years from now, October 2005 may be looked upon as the month when the relationship between the UAW and the U.S. auto industry began a restructuring,” Himanshu Patel, an analyst with JPMorgan Chase & Co., said in a note to investors. “This landmark deal may mark a more pragmatic and realistic UAW.”
Merrill Lynch analyst John Casesa expressed some concern that if GM’s financial conditions worsen, the automaker won’t get more help from the UAW and could face a severe strike that could cost it billions of dollars. Casesa revised his ratings on GM and Ford stocks from “neutral” to “sell” on Tuesday.
“The domestic auto industry’s structure is not stable, and simply put, we expect it will get worse before it gets better,” Casesa said.
GM, Ford and Chrysler expect to spend about $11 billion on health care for its employees this year. GM spends the most, $5.6 billion. Ford spent $3.1 billion to cover 550,000 hourly and salaried workers, retirees and dependents in 2004, and expects that to rise to $3.5 billion this year, spokeswoman Marcey Evans said. Chrysler spent $1.9 billion in 2004 to cover 375,000 people, Chrysler spokesman Edward Saenz said.
GM wasn’t the first automaker to win cuts from the UAW this year. In March, the UAW and Chrysler agreed that certain hourly workers and retirees would pay deductibles of between $100 and $1,000 for their health care for the first time.
But U.S. automakers say far more is needed because their labor costs leave them at a huge disadvantage against competitors from Asia and Europe, where governments play a greater role in covering health care. At Ford, the average U.S. autoworker cost the company $62.93 per hour last year, including $30.93 in wages and $32 in benefits. At GM, the average hourly cost was $73.73 and at Chrysler it was $57.99.