Ford Reaches Deal with Union on Health Care Costs

Will fund part of health care plan with stock instead of cash

Ford Motor Co. said on Feb. 23 it has reached a tentative deal with its main union that will allow it to fund a multibillion dollar health care plan with stock instead of cash.

The tentative agreement will allow Ford to meet up to 50% of its outstanding obligations to a trust fund for retiree health care benefits with common stock instead of cash, Ford said. Ford owed $13.2 billion to the fund as of August 29.

A similar deal will likely be made with General Motors and Chrysler.

The deal comes just days after the UAW reached agreements with Ford, GM and Chrysler to lower labor costs by modifying the terms of its 2007 contracts.

"The agreements, if finalized, will allow Ford to become competitive with foreign automakers' U.S. manufacturing operations, and are critical to our efforts to operate through the current deep economic downturn without accessing government loans and continue to fully invest in our ONE Ford product plan," Joe Hinrichs, Ford's vice president for global manufacturing and labor affairs, said.

"We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value."

The modifications will protect jobs for UAW members by ensuring the long-term viability of the company," union president Ron Gettelfinger said.

The Detroit Three reached a deal with the UAW in 2005 to transfer responsibility for retiree health care befits to the union by setting up a Voluntary Employee Beneficiary Association (VEBA). Ford said at the time that it would be able to reduce its overall health care liability by five billion dollars as a result of the deal, which it estimated would also produce an average annual net corporate savings of about $650 million.

Copyright Agence France-Presse, 2009

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