R.I.P General Motors

I am a GM retiree. If someone told me even 2 years ago that GM would be taken over by the government and her CEO fired by the president of the US, I do not think I would have believe it.

Yet it has happened. Along with so many things that only a few years ago would be considered fodder for the "tin foil" hat crowd.

I have said I believe that bankruptcy would be the best thing however only as a private bsuiness and not engireed by the Federal governemnt.

However I can not completely divorce my emotions as a large part of my adult life was spend as a GM employee and I mourn the passing of a great American car company. And even more than that but GM was a large part of Americana.

In that vein I have decide to re post an article from November 19, 2008

The article can be read in its entirety below:


I ran across this paper from my 2005 Writing class, titled "The times, they are a-changin’" in which I wrote about GM’s financial woes. Since then I have retired and the question I asked then " "Will it be too little too late to save GM?" is still being answered.

As a retiree who worked for General Motors for 30 years, my ties are not just financial but emotional as well. I remember the "hay days," when we sold a history making amount of autos. I remember working six days a week, nine hour days in order to supply America with the cars they wanted. I remember the Toronado line, Oldsmobile 98's and 88's, and Cutlasses that were produced here in Lansing.

And its from that perspective, as an insider, a former employee, a current retiree of General Motors, I believe the best interest of the company would be to go into Chapter 11. I do not say this lightly as I have a huge financial stake in the outcome, my health care is on the line and my pension could be reduced. However, with that being said, I believe Chapter 11 to be in the best interest of not only GM but Michigan and other "Union states" for several reasons.

1. The ability to make the UAW Union contract null and void

In 1984 the Supreme Court ruled that employers can unilaterally break an existing collective bargaining contract upon filing a Chapter 11 bankruptcy petition.

2. Keeps doing business and its stock and bonds may continue to trade in our securities markets. This is extremely important as almost 4% of the Gross Domestic Product is auto-related. Three million U.S. jobs ( and families) are dependent on the health of U.S. automakers, and they are not all in the Midwest.

3. Hold debt at bay while restructuring for profitability

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.

The question is, do GM Executives have the fortitude to try and entangle themselves from the chains of the Union in a Chapter 11?

In an e-mail I received from GM which asks employees to write/call their reps to encourage the "bridge loan", GM addresses the Myth of "GM’s biggest problem in North America is its union contracts" :

As The most recent GM-UAW agreement, signed in 2007, helps close fundamental competitive gaps with our import competitors, and we anticipate significant savings as we implement the key provisions of the agreement between now and 2010.

GM’s unionized North American factories compete with the best in terms of quality and productivity.

We are confident that a collaborative relationship with our unions continues to be in everyone’s best interest.

August 26, 2008

But then at this point what can they say as the UAW with its support of Barack Obama and Democrats is the best hope of a "bridge loan".

However with all the GM bashing, the fact is that GM has made significant improvements. In the last contract in 2007. GM freed itself of its obligation to pay health care benefits to its nearly 400,000 retirees and their dependents by setting up a multi-billion-dollar union-controlled trust fund—known as a Voluntary Employees’ Beneficiary Association, or VEBA, that will pay out benefits. In addition, the agreement establishes a two-tier wage system—the first ever in a national UAW contract—that will drastically reduce wages and benefits for the next generation of auto workers.

Cost-of-living increases will be diverted to help offset the cost of retiree health benefits. The four-year contract includes three lump-sum bonuses but no wage increases, The two-tier wage agreed to by the UAW will reduce labor costs (wages and benefits) for new-hires in so-called “non-assembly jobs” to an average of $27 per hour, compared with the current average of $73 per hour. The union and company will offer buyouts and early-retirements to move current workers out of their jobs, so they can be replaced with far cheaper labor

The jobs bank, which pays laid off workers while they are jobless, will be changed so that the geographical area within which workers will have to move to an open position or lose their incomes will be expanded

In addition:

GM cars and trucks have improved significantly over the past decade. Critics are taking note, and customers are responding.

In 2007, the Saturn Aura, and Chevy Silverado won North American Car and Truck of the year.

In 2008, the Chevy Malibu was named North American Car of the Year, The Cadillac CTS was Motor Trend’s 2008 Car of the Year.

Customers have responded just as enthusiastically as the critics. Although total U.S. vehicle sales are down almost 13% so far this year, a number of GM cars and crossovers have enjoyed significant sales increases:

Saturn Vue +5%
Chevy Cobalt +6%
Pontiac G6 + 8%
GMC Acadia +8%
Saturn Aura +10%
Cadillac CTS +25%
Chevy Malibu +36%
Pontiac Vibe +39%
Buick Enclave +124%

October 1, 2008

However as I have said I also have an emotional tie to GM as a large part of my life up to this time was spend as an employee and part of the GM culture. But its not just that, GM IS part of not only Michigan's heritage and culture but America's also, a great American automobile company,conceived and build by Americans.

From the 1905 song, "In My Merry Oldsmobile", to the 1950's image of Dinah Shore throwing a kiss after singing,"See the USA in Your Chevrolet". Mel Torme's "What a thrill to take the wheel of a Rocket Oldsmobile!" To Bob Seger’s "Like a Rock" Chevy Truck To Cadillac's "Breakthtrough" commercials with Led Zepplin. Great GM "muscle cars", Chevy Chevelle ss 454, Chevy Camaro Z/28, Olds 442. And GM cars and trucks in the movies

Add to that the GM cars and trucks driven by millions of Americans throughout its history. And generations of Americans who worked hard, raised their families and built their communities as GM employees.

GM is a part of the American Landscape and Experience. There is an old saying, What’s good for GM is good for America”. Although perhaps in a smaller measure now, I still believe that’s true.


November 23, 2005

The times, they are a-changin’
Bob Dylan

September 18, 1978. To most it’s just another day without any significance To me, this date proved to be a milestone in my life.

September 18, 1978 was the day I started my career at General Motors (GM).GM had just opened a new assembly plant that summer in Lansing. I was one of 20,000 new GM employees. My staring wage was $6.50, per hour (good money then) plus benefits. GM employees build over 359,825 Oldsmobile’s that year. (Lansing Production 4 )

Fast-forward 27 years. The same plant where I started working in 1978 closed in May of 2005 and will soon be demolished. Total number of GM employees in Lansing is approximately 6,200. My hourly wage is over $27.00 plus benefits. GM build approximately 240,000 vehicles the year before the assembly plant was closed. Most astonishingly, GM’s debt rating has been downgraded to junk bond status. Immediate costs saving cuts are needed to stave off bankruptcy. As I write this paper, the United Auto Workers (UAW) has just set a precedent by opening up its contract with GM before it expires in 2007 to re-negotiate for concessions in health benefits and wages for its membership.

So who is responsible for the financial descent of one of America’s largest corporations? Some will say the culprit is management, while others contend the UAW as a whole is to blame. As a GM employee of 27 years, I feel I am in the unique position to make a qualified judgement regarding the downfall of GM. I believe that both management and the UAW share the responsibility. However, ultimately, I believe that the burden of blame rests with management.

First, let’s review the UAW’s role in GM’s current crises. Foremost is the UAW contractual costs incurred by GM. Contractual demands for higher wages and benefits have increased with each contract. These costs have made it unfeasible for GM to be competitive with other automobile companies and make a profit in a global economy. Health care costs are exponentially higher for GM than many other companies and are unaffordable. For example, “UAW workers currently pay 7 percent to 10 percent of their health-insurance costs, compared with 20 percent for GM’s white- collar workers and 40 percent for Americans generally, according to union data.” ( GM Powertrain par 33 )

In addition to unaffordable health care costs, there is another unsustainable contractual cost, the “jobs bank” This is a program that is initiated after a large layoff or plant closing. A displaced employee attends a job bank and may not do any work, yet still receive a full paycheck and benefits. In Lansing, because there is a lag between the old plants being closed and the new Delta Plant being built, some job bank employees show up at a given place and spend the entire day doing nothing. Others may do community service, while others, like me go to school as my “job".

I estimate because of my position of being in the job bank, that there about 200 people in Lansing’s job bank. The payroll, based on my weekly salary, for job bank employees is over $216,000 per week! What business could possibly survive by paying its employees full wages not to work?

Another indefensible contractual cost to GM in light of a global economy is the “30 and Out” rule. An employee who hired in at the age of 18 may retire at 48 and can collect pension plus fully paid health care for another 30 years or more. For health care alone in dollars and cents…”GM provides $5.2 billion in health care annually to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. About $4 billion goes annually to retirees does not go into developing products people want to buy.” (Will, pars. 11)

GM cannot continue to incur these costs and survive in the face of manufacturing moving into and competing globally with companies that pay far less to their employees,in wages and benefits, and therefore can design and produce less expensive cars which generate the kind of profits necessary to survive, prosper and grow in a global market. Of these companies, most are non-union including those with plants in America. And because they are non-union, these companies are not forced into contracts that they can ill afford.

To illustrate the difference in union and non-union on profits, “Toyota generated the highest revenues per vehicle last year, an average $26,514, once you stripped out incentives and other discounts. By comparison, General Motors’ net was a meager $20,659 per vehicle. “That’s an alarming number,” stressed Harbour, “all the more alarming because it hasn’t changed much in seven years.”

It is clear that GM cannot continue to give in to Union contractual demands and be profitable. (Eisenstein, pars. 21)

On the other hand, although GM management has been burdened with these demands, management is not without blame.

Management has capitulated to the Union’s unrealistic demands despite the reality of the monetary bottom line needed to successful compete in the global market place. Moreover adding to the financial overtaxing to GM is the huge salaries and bonus packages given to executives and CEOs even in the face of the coming financial maelstrom.

One case in point, according to Richard Freedman, for Executive Intelligence Review,Counting some other benefits, GM CEO Rick Wagoner’s total compensation came to over $10 million; this does not count an additional lavish pension benefit. GM’s Chairman Bob Lutz, and its chief financial officer, John Devine, each received total compensation packages of $6.4 million in 2004. It is estimated that the GM top management team took in more than $50 million in compensation for the year. (Freeman, pars.17)

In the final analysis, both management and the UAW are responsible for the GM’s current financial woes.

I believe that at one time the union was necessary to fight for the working conditions and wages of the “Average Joe” However, the UAW has become what they have fought against, a bureaucratic organization that has lost focus of what is good for the company is good for its employees.

I acknowledge I have benefited from many of the UAW benefits, good wages, health care, benefits such as tuition assistance and I am grateful. But at what cost to GM, my employer of 27 years and to my post retirement life?

In summary, the UAW shortsighted and prohibitive costly contractual demands in the face of a changing business economy has contributed to its membership not just losing pension and health benefits, but also perhaps their jobs as well.

Conversely GM management’s own self-created bureaucratic management hierarchy has contributed to highly paid executives, whom in turn, capitulated to UAW’s demands of higher wages and costly benefits in spite of the changing market in the automobile industry. Such demands have made it impossible for GM to compete with other automobile companies and make a profit.

To GM’s credit some changes have been made. GM has consolidated its divisions at the RenCen in Detroit to facilitate communications, implementing new assembly technology, cutting salaried and blue-collar jobs and closing aging plants and cutting benefits.

But will it be too little too late to save GM?

Nevertheless, the ultimate responsibility and blame for GM’s current financial position must lie with GM management. Management is the final arbitrator of all company decisions and as such carries sole responsible for acquiescing to the unworkable, and unrealistic UAW financial demands, in addition to paying huge salaries and bonuses to non-producing executives.

Of course I cannot view these events dispassionately. Not just because I face a monetary loss but in view of the fact that a large portion of my adult life was spend as a GM employee. But also in a much larger sense because General Motors is a part of Americana. Cultural and historically, GM, is a part of our American heritage, a great American automobile company, conceived and build by Americans.

There is an old saying, What’s good for GM is good for America”. Although perhaps in a smaller measure now, I still believe that’s true. So then it is my hope and prayer that like the mythical Phoenix General Motors will rise from the ashes to a new prominence.

WORKS CITED


Dylan, Bob, “The Times They Are A-Changin’” The Times They Are A-Changin’
Atlantic, 1964.
Eisenstein, Paul A. “Detroit’s productivity gains aren’t enough to outclass Japan.” The Carconnection.com. 6 June 2005. 23 Oct. 2005 21 pars .
Freeman, Richard. “Corruption in America:Big Three Execs Get Huge Pay To Ruin Auto Sector .” Executive Intelligence Review 2 Sep. 2005. 23 Oct. 2005 17 pars .
GM Powertrain. 23 Oct. 2005 (http://uawlocal14.org/News/Regional/04-14GMBoard.htm)
Lansing Production. 2004. Lansing: GM Heritage Center, n.d.
Will, George. “GM Makes Turn Toward Fiscal Sanity .” The Grand Rapids Press 20 Oct. 2005. 11 pars. InfoWeb. NewsBank. Lansing Community College. 23 Oct. 2005

Just in..Union Spending in Michigan

Mackinac Center for Public Policy

MIDLAND — In 2008 the state of Michigan made union dues and agency fees payments in excess of $17.6 million to six union organizations, according to state documents obtained through a Freedom of Information request filed by Paul Kersey, director of labor policy at the Mackinac Center for Public Policy.

This figure covers state government employees only;

...The following unions received "membership dues" payments from the state:

UAW Local 6000 $5,838,655.20
Michigan Corrections Organization (SEIU Local 526M) $4,959,645.28

SEIU Local 517M $2,433,129.78

Michigan State Employees Association (AFSCME Local 5) $2,187,813.60

Michigan State Police Troopers Association
$1,125,395.91

AFSCME Council 25
$1,050,559.04

TOTAL: $17,595,198.81

...Unions typically claim that political activism and lobbying make up a modest portion of their activities, but both SEIU and AFSCME records show political spending making up more than 10 percent of their budget. Kersey found that many unions attempted to characterize political activism as representation or charitable activity, meaning that the actual percentage is likely to be higher.

Complete report Union Spending in Michigan: A Review of Union Financial Disclosure Reports

Hundreds gather as UAW addresses domestic auto crisis

Louis Aguilar
Detroit News

DETROIT -- Hundreds of United Auto Workers locals have converged at the Marriott Hotel in the Renaissance Center this morning, and many are prepared to be asked by top UAW leaders to reopen national labor agreements that will allow for a vast overhaul of the way autoworkers are paid, the health and retiree benefits they receive, and determine how many will hold on to their jobs.

The local leaders said it was unclear if they were going to vote today on reopening, which is the first step toward a general vote for its 139,000 active workers. But on Tuesday, each of the Detroit automakers made it clear they intend to reopen the 2007 labor agreements.....

They could save some $$ by eliminating benefits to partners of same-sex couple. Anyone discussing that??

The Big Three automakers -- DaimlerChrysler,, General Motors and Ford Motor -- announced in June that they would offer health benefits to the same-sex partners of their 466,000 hourly and salaried employees in the United States. This was a ''landmark move'' in the effort by corporate America to provide such benefits for gay and lesbian couples, the report concluded.


I could not find much on the cost of providing these benefits however

A 2005 Hewitt Associates study revealed that a majority of employers experience a total benefits cost increase of less than 1 percent.

Several studies have shown that enrollment rates tend to be in the 1 percent to 2 percent range.

2% of 446,000 is over 93,000

93,000 @ $395 for health care for active workers and $950 for retirees. Equals for active workers $36,735.000.00 and for retirees $88,350.000.00

Total $125,085.000.00

Eliminating same sex couple partner benefits is an over 25 million savings to GM.

So if we are going to talk about eliminating benefits for actual employees...

The UAW's Awakening

September 29, 2007; Page A8
http://www.opinionjournal.com/weekend/hottopic/?id=110010668

This week's deal between General Motors and the United Auto Workers is being hailed as a new era for Detroit, and for once that advertising may be justified. The UAW in particular made historic concessions that show a new awareness of global competition. What's less encouraging is how much this reality-based compromise still contrasts with the policies that unions and their political friends are promoting in the unreal world of Washington, D.C.

Our friends in the AFL-CIO often think we're too critical, but we're not responsible for taking union membership down to 7.4% of the non-government American labor force last year. (See nearby chart.) The reality of a dynamic world economy did that, assisted by the failure to adapt by union leaders and corporate managers. These columns support collective bargaining, and our belief has long been that if a company's workers vote to join a union, they and the company deserve what they get.

The problem with unions is not all that dissimilar to that posed by entrenched management: Once they win comfortable contracts, they often become impediments to the kind of innovation and flexibility essential to success in today's economy.

So in the name of "job security," they undermine a company's -- or a nation's -- competitiveness. The result, over time, is less job security for everyone, especially the union workforce. There's no better example of this than GM, where the UAW now represents about 74,000 hourly workers, compared to 246,000 in 1994. Some security.

The new GM-UAW contract is a belated recognition that the choice has now become change, or Chapter 11. Under the deal, wages are frozen, save for bonuses and some lump-sum payments. GM in turn promises to invest in American plants with UAW workers, though of course it will also keep investing abroad.

In what seems to be the most creative stroke, GM will pay some $35 billion toward a new health-care trust fund to be administered by the union. That's a big initial cash flow, but it means the company can divest itself of some $50 billion in long-term liabilities, which would only have grown as health-care costs rose and retirees lived longer. Investors loved it, driving up GM stock by around 7% for the week.

The UAW now gains ownership of its members' health-care resources, in effect becoming a financial manager of a giant Health Savings Account for auto workers. If the union is creative, it will rethink its coverage plans, using the new generation of consumer-driven health-care options (such as personal health savings accounts) to encourage and reward more careful spending by beneficiaries. UAW President Ron Gettelfinger has told his members the trust fund will last 80 years, and the union's job now is to make sure it does.
A similar arrangement at Caterpillar Inc. didn't work because the money ran out in six years.

This new Treaty of Detroit in the marketplace is all the more notable when you consider how little the union political agenda has changed. The AFL-CIO famously split in 2005 over the priority of organizing over politics. But organized labor's share of the private workforce has kept falling.

We had a friendly visit not too long ago with Andy Stern, the Service Employees International Union President and perhaps the most successful modern labor leader. He is a shrewd man, but his main message seemed to be that union salvation lies in America adopting the work rules and income redistribution of Europe. He says companies need to pass their health-care costs onto government, meaning taxpayers. And while he recognizes that unions can't secede from the global economy, the trade rules need to be changed -- that is, restricted or managed -- so that the pace of change is less disruptive and wealth more equally shared.

With Democrats now running Congress, and ahead in the Presidential polls, Mr. Stern and his union mates are closer than they've been in decades to seeing that agenda implemented. But they also reveal their own lack of faith in the appeal of unions when they support a ban on secret-ballot elections at work sites. And of course they still benefit -- unlike anyone else in American politics -- from being able to coerce the payment of dues.

The larger irony is that Europe is now learning the hard way that Mr. Stern's "social contract" is itself deeply flawed. French President Nicolas Sarkozy was elected this year in part because he acknowledged that even France can't sustain the French model any longer. Health-care expenses represent a huge chunk of the tax burden in France, where restrictive work rules and such union demands as the 35-hour week have led to far higher joblessness and far less prosperity than in the U.S.

Mr. Sarkozy is now pushing American-style reforms precisely when Mr. Stern and Democrats are promoting French policies. Our guess is that economic reality will in the end limit Mr. Stern's political ambitions in the same way that global competition has finally awakened the UAW.

STRIKE!

Well looks like the UAW decided to pour on the pressure during the contract talks as a strike was called today at 11:00am

Is this just a move by the UAW bigwigs for the benefit of the union kool aid drinkers?

Or do they REALLY believe that in a global economy
any company can guarantee job security?

Surely they know that even though GM, has a surplus of about a 65-day supply cars/trucks that a strike will damage sales and profits?

Tom Libby, senior director of industry analysis for J.D. Power and Associates, said even a short strike could hurt the company because its new crossover vehicles, the Buick Enclave, GMC Acadia and Saturn Outlook, are selling well and in short supply.

"The momentum they've established for those products would be interrupted if there's a supply interruption," Libby said. "There's not a lot of inventory available to sell down. So they need to keep that pipeline full."
Libby called the Enclave and Acadia a success story for GM because they don't stay on lots for long and they sell at or near full price.

And what about workers making only $200 per week in strike pay?

Worker Anita Ahrens burst into tears as hundreds of employees streamed out of a GM plant in Janesville, Wis., just after the strike began at 11 a.m. EDT.
"Oh my God, here they come," said Ahrens, 39. "This is unreal."
Ahrens has seven years at the plant, where she works nights installing speakers in sport utility vehicles. She waited Monday for her husband, Ron Ahrens, who has worked there for 21 years.

The couple has three children, including a college freshman, and Ahrens worried about how they would pay their bills.
"This is horrible, but we're die-hard union, so we have to," Ahrens said. "We got a mortgage, two car payments and tons of freaking bills."

Tom Libby, senior director of industry analysis for J.D. Power and Associates, said, "I just think it's going to hurt both sides in the long run."

I agree Mr. Libby, I agree

Quotes taken from; http://www.chron.com/disp/story.mpl/ap/fn/5160480.html

UAW sets 11 a.m. GM strike deadline

CONTRACT TALKS IN OVERTIME
UAW sets 11 a.m. GM strike deadline
September 24, 2007

By KATIE MERX
FREE PRESS BUSINESS WRITER

http://www.freep.com/apps/pbcs.dll/article?AID=/20070924/BUSINESS01/709240367&theme=AUTOTALKS072007

The Game Changes

Autos May 17, 2007,


A Deal that Could Save Detroit http://www.businessweek.com/autos/content/may2007/bw20070516_345880.htm
Handing the UAW a chunk of long-term health-care liabilities is a radical plan but may be the one that works

by David Welch and Nanette Byrnes

Just a few weeks ago, United Auto Workers President Ron Gettelfinger had nothing but contempt for the "strip-and-flip" private equity investors bidding for Chrysler Group DCX. So most people expected him to come out slugging when Cerberus Capital Management agreed to buy the struggling automaker on May 14. Instead, Gettelfinger embraced Chrysler's new owner. "The status quo is off the table," he declared.

Attitudes are evolving rapidly in Detroit these days, and it is clear that the arrival of the bare-knuckle financial wizards from Cerberus is only going to hasten the pace of change in town. Managers and UAW leaders alike appear to accept that a time of reckoning is at hand. As they look ahead to landmark labor talks this summer, both sides finally appear set to face up to the most vexing problem of all: unsustainably high health-care costs. Thanks to luxe benefits handed over during the golden age of corporate largesse in the 1950s, the Big Three will have an estimated $120 billion in long-term medical liabilities, a crippling burden that puts them at a nearly insurmountable disadvantage to global rivals.

But General Motors (GM), Ford Motor (F), and Chrysler's new owners at Cerberus believe they may have a cure for Detroit's epic health-care woes. Their idea: to propose handing over the companies' long-term liability to an independent fund managed by the UAW, which would be financed by a huge one-time injection of cash and stock. Union workers would probably contribute more toward their own coverage costs but would gain protection from the devastating prospect of bankruptcy.

The automakers, meanwhile, would wall off a risk that terrifies investors—and earn perhaps their final shot at becoming competitive again. "I think an independent health-care fund has to happen," says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. "Ron Gettelfinger may even be resigned to doing it." Big Costs, Big Hopes

This radical idea already has some precedent in Detroit. In 2005 GM and the UAW created a so-called voluntary employee benefits association (VEBA) trust, for a small portion of the company's retiree health-care expenses. The union has also consented to VEBA funds for individual plants belonging to a few parts suppliers. Over the past few months, managers at all three car manufacturers have been closely studying a similar deal struck between the United Steelworkers and Goodyear Tire & Rubber (GT) in December that relieved the tiremaker from most of its medical obligations without stiffing union workers.

While the Big Three have not been trumpeting the VEBA trust plan, expect to hear more about it as this summer's labor talks approach. Creating such a trust "for the whole industry [is the] primary objective of this year's round of bargaining," says one investment banker well-connected in Detroit. "That's clearly what the Big Three want."

To see why Motown executives are so excited, take a look at how GM would benefit from such a trust. The company has UAW health-care liabilities of $52 billion, not including $18 billion for white-collar workers, according to JPMorgan Chase (JPM) analyst Himanshu Patel. The company's first step would be to reduce its liability by asking current and former workers to fork over more for their own health coverage. Then GM would set up a trust fund. Because it would be invested to grow over time, the fund could be valued at, say, 60% of the liabilities, around $31 billion. That may sound risky for the union, but there are risks on both sides of the equation. Unlike pensions, retiree medical benefits are not guaranteed by law and would not be protected in a bankruptcy, a big worry with the U.S. car companies floundering.

How in the world would GM come up with so much money? The company could start with the $15 billion in VEBA money already set aside in some existing trusts. Patel thinks GM could then afford to take a further $8.2 billion in cash from its coffers and sales of some assets, plug in some equity, and borrow about $5 billion. Add it up, Patel contends, and GM could fund all of its union health-care obligations.

Quick Bounce
Setting up the fund would add debt and drain cash, but it would yield big benefits immediately. Patel estimates that such a deal would boost pretax profits by $900 million in the first year and save GM about $700 million in cash. Accounting for inflation, GM's health-care expenses would drop by about $200 million a year and cash flow would improve by $400 million a year. Ford's health-care expense would drop by $800 million the first year and cash flow would improve by $200 million. Patel thinks the growing improvement to cash flow would help the Big Three narrow the gap with Toyota (TM) on product and research and development spending. Right now Toyota dedicates almost 12% of its revenue to capital expenditures and R&D. GM spends just 8.4% of its revenue.

If it all sounds too good to be true, it may very well be. The devil will be in the plan's infinite details. The companies' ability to fund a big trust, first of all, depends upon how much money the UAW requests. If the union seeks assets totaling 80% of liabilities, then GM and Ford may not be able to afford it. Since GM already borrowed $18 billion in 2003 to shore up its pension fund and Ford borrowed $23.5 billion this year for restructuring, neither wants to shoulder much more long-term debt. Both have junk debt ratings, so the money would be quite expensive.

At some point, a judge would also have to sign off on a global Big Three trust, because Ford and GM face a legal impediment. When the union gave them concessions on health care last year, a lawsuit was filed to freeze retiree benefits. The courts upheld the deal, but froze the new benefits package until 2011. GM Chairman and CEO G. Richard Wagoner Jr. said in a December interview that further concessions made on behalf of those retirees would need court approval. The same goes for Ford—but not Chrysler, which never won the same health-care concessions as its rivals
.
"The Game Changes"
Nothing in the court order prevents the two companies from setting up a fund to cover new retirees, of course. McAlinden says that the 34,000 GM workers who took retirement as part of the company's recent restructuring could be covered by a new independent VEBA if UAW leaders consented to such a deal. Then, GM and Ford could set up a fund to cover the rest of their retirees beginning after 2011. McAlinden estimates that 80% of the long-term liabilities will be incurred after that date.

The diverging legal and business dynamics at the three companies make a big trust covering benefits at each one difficult to establish. But it is unlikely the UAW would allow one or two of the companies to establish a separate trust to wall off health-care liabilities, even though such a scenario is theoretically possible. That would violate a longstanding union policy against giving any particular member of the Big Three a substantial cost advantage over the other two.

If giant independent trusts get established for all of the auto companies, one far-reaching implication of the move is that the UAW would become an enormous health-care provider. Another is that the union would be forced to manage benefits. That means if costs rise faster than investment returns, the union might have to offer weaker medical benefits to its own members. Right now, if health care gets more expensive, GM, Ford, and Chrysler just cut bigger checks. But it's possible the UAW may do just as well at managing the money as the companies do. Major union-run pension plans nationwide made nearly 14.6% returns last year, about half a point better than large corporate-run funds did, according to Wilshire Associates.

So there's reason to believe that the UAW, even though it will certainly negotiate aggressively, may be willing to go for the idea of a VEBA trust. Although the idea would have been a nonstarter in 2003, the last time the union contract was renegotiated, things have taken a powerful turn for the worse in the past few years. And the arrival of Cerberus may well increase Detroit's willingness to engage in complex financial engineering. "You bring in private equity, and the game changes," says Center for Automotive Research Chairman David E. Cole.

With Anthony Bianco in New YorkWelch is BusinessWeek's Detroit bureau chief, and Byrnes is a senior writer for BusinessWeek in New York

We are living in very interesting times. I have said all along that Gettlefinger's tough talk was just a show for Union kool aid drinkers as he does an about face in the wake of Chrysler's sale to the private equity group, Cerberus. He know where his bread is buttered. However its interesting because the worm would turn and the UAW would be sitting in management's seat if this health care deal goes through. I wonder how how they will spin reduced benefits to the membership after years of fighting to keep costly entitlements?

Stayed tuned, the UAW contract with GM will expire this September so there will be ground breaking announcements to come...

Reality Check for UAW Leaders

Ron Gettelfinger, UAW President. In a fire and brimstone speech that would have been appropriate 20 years ago, but is woefully out of touch with today's realities, Ronnie G. told 1,500 UAW representatives who were gathered in Detroit that "Our union does not want to strike, but when employers act as if collective bargaining is a one-way street, not a two-way street, then we will do what we have to do."

Strike? Ahem, Ron, we hate to break it to you, but your side of the "two-way street" has been blown-up for good. You can do the rabble rouser routine for the short-term gratification it brings from your back-slapping membership, but it's all just sound and fury signifying absolutely nothing.

The question before you and your membership, despite your out-of-touch posturing and grandstanding is this: Would you rather have jobs with reduced wages and benefits - or no jobs at all? It's a clear-cut decision that seems to be totally lost on you, Ron, but you and your membership better get religion real soon, or it's going to get much worse - with no "better" any where to be seen.

As a recent GM retiree I could not agree more with the "Autoextremist" http://www.autoextremist.com/page6.shtml

I hope that Mr. Gettlefinger is only making noise for the benefit of the Union kool aid drinkers or all of us GM employees and retirees are in big trouble!