Heart Health Articles

Washington Post Examines How Retiree Health Benefits Affect Automakers

August 24, 2017

The Washington Post on Friday examined how "one of the most delicate issues" U.S. automakers "face is what to do about the health benefits of an estimated 800,000 retirees." According to the Post, "The rising cost of health care is one of the key burdens confronting [auto] companies as they try to avoid collapse, all parties acknowledge, illustrating the drag that health care can exert on the U.S. economy."

Under the terms of a federal loan granted in December 2008, General Motors must try to reduce its $20 billion obligation to a retiree health fund established in 2007 by asking that the union accept payments to the fund in the form of company stock. However, using stock for these payments would put the fund -- called a voluntary employees' beneficiary association -- at risk because the value of the stock could fall, "maybe precipitously," the Post reports. According to a source familiar with negotiations between GM and United Auto Workers, the automaker has been trying to reduce its total obligation to the VEBA. GM CEO Rick Wagoner and Chief Operating Officer Frederick Henderson met with members of the Obama administration's auto task force on Thursday to discuss the firm's restructuring plan. Wagoner said, "Today's meeting with the Presidential Task Force on Autos was just the beginning of the hard work ahead for GM and the president's team."

In 2005 and 2007, GM negotiated reductions of its health care obligations by about 40%, according to analysts and union representatives. Kristin Dziczek, a research manager for the Center for Automotive Research, said the health care liability is "a huge part of [GM's] problem," adding, "Going into the recession you had to be pretty strong to survive, and unfortunately these companies were hamstrung by the costs of retiree health care." According to Dziczek, "If there were national health care, we wouldn't be talking about any of this." The Post reports, "The union and the retirees have been willing to give back benefits for fear that if they don't, they might push the companies into bankruptcy where reductions could be steeper" (Whoriskey/Marr, Washington Post, 2/27).

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