UAW could own chunk of Ford, GM

November 17, 2007|By Detroit Free Press

DETROIT -- The United Auto Workers union, traditionally a mighty force in the struggle of labor against capital, could be on the brink of a new role: the U.S. automakers' biggest stockholder.

Under new four-year labor agreements with the three Detroit automakers, retiree health care costs will be shifted to independent trusts under the auspices of the union. These trusts could take control of hundreds of millions of shares of General Motors Corp. and Ford Motor Co.

The fact that the UAW could virtually be holding almost one-sixth of the equity in the nation's two biggest automakers could drive profound changes in the way the union thinks and acts, experts say.

"Equity as part of the [trusts] does bring the UAW membership into being an investor group," said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

The UAW announced Wednesday that its members had ratified the agreement at Ford, joining colleagues at GM and Chrysler LLC.

A cornerstone of each of the agreements is the creation of an independent health care trust, although it remains unclear whether the contracts will create one large trust or three individual trusts for each auto firm.

In any case, the trust or trusts will receive billions of dollars to pay for retiree health care costs.

According to UAW figures, the three automakers will spend $56 billion to shed retiree health care obligations, much of it in cash.

But GM and Ford also have pledged to the trusts convertible debentures, which are bond-like financial instruments that can be exchanged for stock.

It is these convertible securities - valued at $4.7 billion and $3.3 billion, respectively - that have the potential to make the trusts the largest shareholders in both publicly traded companies.

But the trusts would convert the debentures only if the stock rises above a certain level.

Newly private Chrysler partially paid for its trust with a warrant, or the right to buy stock, "with a potential equity upside value of $605 million," according to UAW literature. Chrysler also issued a $1.2 billion debenture.

If GM and Ford are able to convert the notes into company stock, the trust or trusts could own as much as 16 percent of GM's stock and nearly 15 percent of Ford's stock.

A new role

Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass., agrees that the UAW will play a new role with the automakers but he warns against thinking of the union as a shareholder.

Because the companies' stock will be held by an independent trust outside the direct control of the UAW, Chaison said he doesn't believe the union will have the same kind of sway as a major stockholder.

But he believes the union has new incentives and power to have a hand in directing the companies' futures.

He noted that the UAW always has been a stakeholder in the automakers' futures, but now "it's a much closer link, I think, between the interests of the UAW and the prosperity of the automakers than there ever has been before."

The automakers went into the contract negotiations this summer wanting to reduce their labor costs, bringing them more in line with what Asian automakers pay workers in North America.

A major reason Detroit automakers' labor costs are $20 to $30 an hour more is obligations to retirees. The creation of the retiree trust saved the automakers an estimated $34 billion.

One argument

One argument given often for shifting retiree health care obligations from the automakers to the trusts is that they protect those benefits in case the companies go broke.

The three automakers together lost $25 billion in 2005 and 2006. GM posted the biggest quarterly loss in automotive history this month - $39 billion - because of a tax-related write-off.

UAW President Ron Gettelfinger has acknowledged the risk of putting retiree health care benefits in an independent trust but has said he prefers that to leaving it with the automakers.

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