The UAW-Dana Retiree Health Insurance VEBA: Implications for the U.S. Auto Industry Bargaining

Implications: The UAW is willing to consider innovative ways to address health insurance retirees, including the creation of a VEBA.  But it is also appears that the UAW is interested in seeing investment in the company as the price of its agreement.  The UAW seems to be using the financial difficulties of the auto parts companies as a vehicle to question the commitment of management to business success through manufacturing.

Analysis:

    The agreement between the UAW and Dana Corporation to create a $780 million VEBA for health insurance for retirees suggests that that the UAW is giving serious consideration to the VEBA model as a way to address health care for retirees.  But this does not necessarily portend that the UAW will agree to a VEBA at GM, Ford, and Chrysler in the 2007 negotiations.   The negotiations at Dana occurred while Dana was in bankruptcy, putting substantial pressure on the UAW to come to an agreement with Dana, and also raising questions about whether Dana would have been able to fund retiree health insurance into the future. In addition, Centerbridge Capital Partners provided $500 million to Dana, suggesting that the UAW was able to obtain investment in Dana as a price for its agreement, a component of which was a VEBA. 

            It is interesting that the UAW and Delphi did not agree to a VEBA.  Rather they permitted workers to take "buydowns" or “flowback” to GM.  All of this suggests that the UAW is being cautious with respect to proposals for a retiree health insurance VEBA. Given the potential financial commitment of a GM-Ford-Chrysler VEBA, the number of retirees affected, and the complex and generally democratic internal decision-making structure of the UAW, it is not clear that the UAW leadership would be in a position to agree to a VEBA with the domestic automakers in 2007 even if the leadership favored a VEBA.

    It is also interesting that the UAW endorsed the Cerberus acquisition of Chrysler and Cerberus provided $5 Billion to Chrysler.  When considered in the context of the UAW citation of the Centerbridge investment in Dana as important to its agreement, this suggests that the UAW is increasingly interested in business strategy issues for firms in financial difficulty. For such firms, the UAW is less willing than previously to show confidence in management judgment.  Their strategy appears to be obtain commitments on the business side of the company as part of an agreement on the labor side of the company.