GM close to healthcare deal with unions

General Motors and the United Auto Workers union are closing in on a new labour contract that could dramatically alter the way the Detroit-based carmakers provide healthcare benefits for their workers.

Negotiators spent long hours at the bargaining table over the weekend seeking to narrow differences over GM’s proposal to transfer about $55bn in future healthcare liabilities to a union-managed fund, known as a Voluntary Employees’ Beneficiary Association (Veba).

“The two sides have made progress, but a number of issues remain that we have to close the gap on,” said one person familiar with the talks on Sunday.

A union branch in Ohio said on its website that “our leadership continues to negotiate with contract extensions on an hour-to-hour basis. Be patient and keep the faith”.

The existing four-year contract, covering about 80,000 GM workers and 432,000 retirees, expired on Friday night.

The UAW has granted an indefinite extension to the other two Detroit carmakers, Ford Motor and Chrysler, pending the outcome of talks with GM. It is likely to use the GM settlement to extract “pattern” concessions from the other two.

GM’s top priority is to bring down its healthcare costs as a way of narrowing its cost disadvantage against its foreign rivals, especially Toyota, which is set to displace it this year as the world’s biggest carmaker.

Benefits for retirees are by far the biggest millstone, making up more than half of the $20 per hour gap between wages and benefits paid by the Detroit carmakers and their rivals based overseas.

A key issue in the negotiations is the scale of GM’s contribution to the proposed Veba. Analysts expect it to pay in about $30bn-35bn, funded by a combination of cash, equity and the surplus in its pension fund.

The UAW is in a tight corner. While its leaders recognise the Detroit industry’s financial troubles, concessions risk triggering a backlash among their members, who must approve the new contracts.

Healthcare concessions to Ford in late 2005 were approved by a razor-thin majority.

Some union branches issued strike instructions to their members last Friday. However, a 16 per cent gain in GM shares last week was propelled by optimism that a deal will be reached without a work stoppage.

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