Made in Detroit: GM and UAW Set Health Care Precedent

A health care trust fund that will assume a current General Motors Corp. liability of about $50 billion is the linchpin of the proposed settlement reached at 3 a.m. Eastern time Sept. 26 between the automaker and the United Auto Workers. GM already capped its contribution to retirees' health care beginning this year to get some of the $9 billion in manufacturing structural cost cuts it is on track to achieve, according to its latest SEC quarterly report, and this potential cost-sharing package was what the company felt it had to have from these negotiations.

Both sides announced the tentative agreement, which covers about 74,000 current employees and roughly four times as many UAW retirees. The union declined to reveal specifics until it is presented for a ratification vote, possibly later this week. The UAW International Executive Board and the UAW GM National Negotiating Committee unanimously recommended ratification, the union said.

"We're proud of this tentative agreement and we look forward to getting into the field and discussing it with our membership," said UAW President Ron Gettelfinger. GM confirmed that the agreement includes a memorandum of understanding to establish an independent retiree health care trust, which must receive court approval and a satisfactory review of accounting treatment by the Securities and Exchange Commission before it can be implemented. "This agreement helps us close the fundamental competitive gaps that exist in our business," GM CEO Rick Wagoner said. "The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States, along with significant future investments."

If the agreement is ratified, the UAW is expected to try to make it the pattern for agreements with Ford and Chrysler. The union's gamble to share the huge burden of legacy health care costs also sets a precedent for organized labor and U.S. manufacturing, labor experts say.

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