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GM talks grind on, health care trust in focus

DETROIT (Reuters) - Negotiations between General Motors Corp GM.N and its major union ran through a fifth day of overtime on Wednesday with the automaker suggesting a trust fund that would take over nearly $5 billion in annual health care costs, according to a person familiar with the proposal.

United Auto Workers President Ron Gettelfinger addresses UAW delegates in Detroit, March 27, 2007. Negotiations between the UAW and GM entered a fifth day on Wednesday, taking on a slower pace that the union warned could lead to setting a deadline for a conclusion. REUTERS/Rebecca Cook

For GM, key issues in high-stakes talks include cutting health-care costs and establishing a “two-tier” wage system that would allow the top U.S. automaker to cut wage and pension costs as its aging work force retires, other people familiar with the talks have said.

To offset those concessions, the UAW has sought job security guarantees and a substantial signing bonus for the 73,000 GM workers it represents, according to these people, who asked not to be named because they were not authorized to discuss the private talks.

The UAW’s contract with GM expired on Friday, although both sides have continued to honor the terms of that expired pact while talks continue in Detroit.

Negotiations started two months ago between the UAW and all three Detroit-based automakers, but the union selected GM as its “strike target” last week, setting off intensive bargaining that kicked into high gear on Friday.

The outcome of the contract talks is seen as crucial to efforts by the three Detroit-based automakers -- GM, Ford Motor Co F.N and Chrysler LLC -- to recover from combined losses of $15 billion last year and sales difficulties that have driven their share of the U.S. market below 50 percent.

Representatives from the UAW and GM have declined to comment on the content of the private talks.

SUPER VEBA ON THE TABLE?

In a development that could deliver deeper savings for GM, negotiators for the automaker have proposed the establishment of a health-care trust that would cover both active UAW-represented workers and some 540,000 retirees and spouses, the person familiar with the proposal told Reuters on Wednesday.

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Previously, the talks had focused on the narrower issue of retiree health care, representatives of both sides in the talks have said.

Specifically, negotiations have hinged on how fully GM should be required to fund a special trust -- known as a voluntary employee beneficiary association, or VEBA -- in exchange for clearing an unfunded liability estimated at about $50 billion from its balance sheet.

Shelly Lombard, senior high yield analyst at Gimme Credit, an independent research firm on corporate bonds, said that a retiree-focused VEBA could save GM some $3 billion per year. It also would need to be financed by up to $16 billion in new debt and equity from GM, she said.

A broader VEBA that would include active workers, could produce deeper savings near $5 billion for GM, but raises the risk that the automaker could give up too much on other key issues to get a health-care deal, she said.

“The negotiations are difficult this time because GM needs everything,” Lombard said. “They need the health-care deal and work rule changes. They need everything because the industry is in such dire straits.”

Separately, the UAW is seeking a substantial signing bonus for its members as a sweetener to help clinch ratification of a contract expected to include concessions elsewhere, people familiar with the talks have said.

The union’s 2003 contract included a $3,000 signing bonus, increased pensions and additional health-care benefits. It also boosted income for the average production worker by $18,500 over the term of the deal.

Since Monday, bargaining has shifted into a slower-moving phase as both sides stepped away from the kind of round-the-clock sessions that the automakers and the union have used in the past to hasten a deal.

UAW leaders have suggested some impatience with the pace of the negotiations in a letter to UAW local presidents on Monday, which was obtained by Reuters.

UAW President Ron Gettelfinger and Vice President Cal Rapson, who are leading the union negotiations with GM, have cautioned that the union would set a firm deadline for talks to conclude if progress stalls. GM employees, meantime, continue to report to work as usual.

“The complexity is pretty high and if they weren’t reasonably close, I don’t think this would be continuing like this,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.

“This kind of thing can only go on so long,” Cole said of the marathon negotiating sessions. “At some point it has to come to a head. You can’t sustain this kind of intensity indefinitely.”

GM, Ford and Chrysler said before talks began that they were seeking sweeping concessions from the UAW to close a cost gap with Toyota Motor Corp 7203.T they say amounts to more than $30 per hour for the average factory worker.

In a research note issued on Wednesday, consulting firm PricewaterhouseCoopers estimated that retiree-related costs amounted to a cost disadvantage of $800 per vehicle for GM, Ford and Chrysler compared with Asian and European rivals.

Additional reporting by Kevin Krolicki and Poornima Gupta

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