Wednesday, September 26, 2007

Did the GM-UAW Settlement sell out the Retirees?

Yes and No.

Why Yes? According to press reports, the settlement means General Motors will be able to break its promise of health care benefits for retirees. Once the deal in consummated, General Motors will not be responsible for providing health care benefits to retirees granted in prior bargaining session. Retirees, who worked for years in factories, relied on a promise and the promise is now broken.

Why No? General Motors is transferring an enormous amount of money to a trust fund to pay for retiree benefits. Both the UAW and GM claim this money will be sufficient to fund the obligations retirees are counting on.

The Reality:
1. Although the trust fund is enormous, its ability to pay for benefits will depend on its investment return and the growth of health care spending by retirees. While GM and the UAW will trot out experts willing to say the fund is “big enough,” health care expenses never come in below expectation. If GM is claiming the fund will last 80 years, I would bet on 30-40 years.
2. General Motors and the UAW did not have a choice. GM simply could not compete with Toyota and Honda without a dramatic change in its labor costs. Without fundamental change, GM was unlikely to survive long enough to pay off the obligations.

Hopefully, GM will use the fresh start to rebuild its once great brand.

1 comment:

Anonymous said...

Damn right they did! GM most certainly did sell out the retirees. The core or hard-working employees who helped make GM what they are today are once more getting the shaft. Why doesn't GM take away some of the millions paid to the upper management and bring them down to a more reasonable level of income.? As many thousands of retirees that are out there, the amount funded will not be enough. Anyone in their right mind can see this coming. Who in the Union has the capability of managing this fund and investing the money in the market? Will GM be still funding this retiree account as the years go on? Who is it to say that some person may mishandle this money and clean out the fund?