Vol. 71/No. 38      October 15, 2007

The Wall Street Journal headlined its story: “GM Labor Deal Ushers In New Era for Auto Industry.” The Financial Times said the agreement “represents a milestone in efforts by U.S. companies to shift healthcare costs to their workers.”

Under the contract, GM will no longer be responsible for the medical insurance of its current employees, retirees, or spouses. Health-care costs will instead be paid out through a trust fund called a Voluntary Employees’ Beneficiary Association (VEBA), which the UAW will manage. GM will put about $36 billion into the VEBA. That’s about 70 percent of the $51 billion liability the company has for health insurance. The remaining 30 percent will supposedly come from investment of VEBA funds.

In the United States, GM employs 74,000 workers and pays benefits to 340,000 retirees.

UAW president Ron Gettelfinger praised the VEBA, saying it “will secure the benefits of our retirees and every seniority employee … and that stretches out in our projections for the next 80 years.”

That’s not the way it worked out for UAW members at Caterpillar, Inc. They signed a contract with the company in 1998 that established a VEBA of $32.3 million. The money lasted six years. Today, 20,000 Caterpillar retirees have to cover their own medical costs.

The auto bosses are also gleeful over the attacks on union rights and wages codified in the agreement. The new contract introduces a permanent two-tier wage and benefit structure in GM plants. The new workers GM hires for “noncore positions” will earn far lower wages and have 401(k) plans instead of a pension. The Wall Street Journal reported that GM will be able to “define some entry-level production work and skilled-trade positions as a ‘noncore position,’ whereby they get paid about half or less” what GM workers currently earn. The Journal estimated GM could turn some 24,000 of its current 74,000 jobs into “noncore positions.”

To win the UAW officials’ agreement to these onerous terms, GM promised to maintain current jobs and invest in some plants. The company also agreed to increase retiree pensions by $700 a year, which amounts to $58 a month. GM will pay a $3,000 signing bonus, but there is no wage increase.

The contract, once accepted by the union membership, will bring unionized auto workers much closer to the conditions faced by nonunion auto workers in the United States. According to the Wall Street Journal, “The raw hourly wages of U.S. auto workers employed by Asian auto makers, such as Toyota, Honda and Nissan, are on par with wages on Detroit factory floors—roughly $25 an hour. It’s the benefits that create the gap.” Toyota, for example, pays health insurance premiums only for its workers, not their families. The Journal estimated that in terms of benefits, the nonunion plants pay $25 to $30 an hour less than GM.

With this contract GM has gone a long way toward closing that gap, at the expense of the health, standard of living, and working conditions of the UAW membership. Ford and Chrysler can be expected to do the same.  
 
 
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