Tonawanda News (North Tonawanda, New York), September 30, 2007, Sunday

Copyright 2007
Tonawanda News (North Tonawanda, New York)

Distributed by McClatchy-Tribune Business News

September 30, 2007, Sunday

SECTION: STATE AND REGIONAL NEWS

HEADLINE: BUSINESS: New contract is a gem for GM: BUSINESS: New contract is a gem for GM

BYLINE: Daniel Pye, Tonawanda News, North Tonawanda, N.Y.

BODY:
Sep. 30--NORTH TONAWANDA, Ny -- VEBA: GM health care structure reduces liability for company, likely to lead the way for labor agreements to come.
BY DANIEL PYE
pyed@gnnewspaper.com

As GM employees will vote to ratify their new labor contract, national companies are looking at what the new deal might mean for the future of labor relations in the United States.

While GM and union officials are keeping the exact terms of the deal a secret, details are slowly leaking out pending ratification by the 73,000 affected United Auto Workers members next week. The most contentious item, a Voluntary Employee Beneficiary Association that will transfer responsibility for employee health care costs from GM to the UAW, is a drastic departure from the way things have been done in the past, said David Lipsky, professor of dispute resolution at Cornell University's school of Industry and Labor Relations.

"The big difference is the liability in terms of paying for retirement and health care is transferred from the corporation to the union, which takes responsibility for administering the trust," Lipsky said. "The union leadership approved GM putting $29.9 billion into the VEBA and now the union will be responsible for administering the fund and managing it."

In past collective bargaining agreements, the employer assumed responsibility for health care, retirement and many other expenses. But now that the auto industry has close to 750,000 retirees including surviving spouses, those costs were putting a serious hindrance on doing business in the United States, Lipsky said.

"Under the previously existing collective bargaining agreements, that responsibility for health care and retirement benefits is extremely expensive," Lipsky said. "At the same time, the number of active employees is shrinking, now around 180,000, so there's a huge legacy cost that can't be sustained. It's not just about the retirees they have now, be-cause that number will only grow in the future, meaning GM's liability would only grow in the future."

Although GM will likely be making more than one large lump-sum payment, when compared to the long-term li-ability the company had before the VEBA, making these payments in the short-term will save the company between $20 billion and $25 billion and get rid of a lot of responsibility, Lipsky said.

"The corporation should be delighted," Lipsky said. "The question is whether it works for the union."

The idea of a VEBA isn't new, with hundreds of companies, including some major airlines, already operating with similar setups. But the arrangement is a new one for the auto industry, and may be cause for concern, Lipsky said.

"The VEBA track record isn't so good," Lipsky said. "One example that's been in the media is the VEBA for steel-workers at Caterpillar, where their VEBA went bankrupt. The employees filed a class action lawsuit against the com-pany, and later the corporation sued the steelworkers union for not administering the fund properly."

There's some dissent in the rank-and-file membership about the agreement, with some workers very unhappy with the VEBA and others chafing at the new two-tiered pay scale that protects the wages of core employees and leaves non-core employees and new hires to drop to a lower pay rate. While the details are still unclear on who will be affected, as many as 24,000 of the UAW's 73,000 GM employees could fall into this new lower tier, Lipsky said.

"Rumors have been going around that anywhere from three to 33 percent could be in that first tier, so who knows," Lipsky said. "If it was three percent, that would be relatively trivial, but when you get up to 33 percent you're talking about 24,000 people. My prediction is that it will fall somewhere in between, and if that's the case it will still affect around 10,000 people."

GM Powertrain workers like Tonawanda resident Jose Matos see the wage problem first-hand and are worried about the new lowered wage scale.

"They want us to work for peanuts," Matos said. "Free trade is killing us and they want to cut our benefits and make us work for nothing."

Even $3,000 bonuses for active employees, which seems on its face to be a victory for the workers, comes at the cost of no pay raises for three years and is a bargain for GM in the long-run, Lipsky said.

"It's nice to get a bonus, but that's a one-time event," Lipsky said. "When an employee's salary doesn't go up and the benefits related to that salary don't go up for three years, GM reduces the creep effect and doesn't face those extra costs."

The main concession the union will get in exchange is job security. The new deal is arranged with a stipulation that gives employees from plants that close preferential treatment for hiring at new plants, Lipsky said.

"The job bank was negotiated years ago, retaining employees that might be out of a job in the future," Lipsky said. "Now, while they're in the job bank and not working at all, they'll still get preference for new job openings. That's a major measure that the majority of workers in this country don't have."

The UAW is already in talks with Ford and Chrysler and if the agreements the union reaches with those companies aren't exactly the same, they'll be very similar, Lipsky said.

"Everywhere the UAW has representation, including the parts industry, farm implements and aerospace, this agreement will be very significant," Lipsky said. "It will even move out into other industries with some variation, be-cause the GM contract has always had tremendous influence."

Despite some grumbling, Lipsky expects the 73,000 union members to vote in support of the agreement, he said. The true test will be how GM's cars do on a national and international stage now that GM can't blame failure on any-thing but poor sales, Lipsky said.

"The question is can GM sell cars that U.S. and worldwide consumers will want to buy," Lipsky said. "Their track record on that has been spotty, while Toyota and other Japanese manufacturers have been much better at gauging what Americans want to buy. GM could reduce its labor costs to zero, but unless people want to buy the cars they're going to be in trouble."

Contact reporter Daniel Pye
at 693-1000, ext. 158.
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LOAD-DATE: October 1, 2007