The United Auto Workers union has signed a deal with Dana, a bankrupt Ohio-based automotive parts maker, which could help smooth the way for a big restructuring of the US car industry’s crippling healthcare costs.
Under the agreement, the UAW and the United Steelworkers union will take over management of Dana’s healthcare and long-term disability liabilities.
These obligations will be funded by tax-deductible Voluntary Employees’ Beneficiary Association trusts, known as Vebas, to which the company will make a one-time contribution of about $700m in cash and $80m in common shares.
The agreement with Dana, which has 35,000 employees, is similar to one concluded this year at Goodyear, the tyre maker. Navistar, the heavy truck and engine maker, negotiated a Veba with the UAW in 1992.
The creation of union-managed healthcare funds is expected to form part of talks on new labour contracts at General Motors, Ford Motor and Chrysler starting this month.
Analysts at JPMorgan estimate GM would need to contribute $17.8bn and Ford $11.5bn to such funds.
While hourly wages at the Detroit companies are comparable to their Asian and European rivals, healthcare and pension expenses are roughly three times higher per worker.
As part of the restructuring, Centrebridge Capital Partners, a private equity fund, will invest up to $500m in Dana convertible preferred shares, after an approach by the unions.