GM's 2-Tier Wage May Trump VEBA as Game Changer

General Motors Corp. says the new retiree health-care trust to be established with the United Auto Workers union could place roughly $3 billion in extra cash annually on the auto maker's balance sheet as soon as 2010, although the agreement's unprecedented 2-tier wage structure might be the biggest game changer. GM and the UAW officially agreed on the Voluntary Employees' Benefit Assn. (VEBA) with

General Motors Corp. says the new retiree health-care trust to be established with the United Auto Workers union could place roughly $3 billion in extra cash annually on the auto maker's balance sheet as soon as 2010, although the agreement's unprecedented 2-tier wage structure might be the biggest game changer.

GM and the UAW officially agreed on the Voluntary Employees' Benefit Assn. (VEBA) with the recent ratification of a new 4-year collective-bargaining agreement.

GM will contribute a total of $31.9 billion to the health-care trust, which the UAW will manage. Although it will wipe $2.6 billion in short-term cash off the auto maker's books this year and another $4 billion in liquidity by 2009, favorable cash flow will begin in 2010 at $2.8 billion and reach $3.3 billion in 2011.

The savings could go higher down the road, GM says, as it offers details of the historic contract in a presentation to Wall Street analysts and the financial press.

“There's no question this contract is a huge deal,” says Brett Hoselton, an analyst with KeyBanc Capital Markets. “It's a concession by the UAW, but a necessary one.”

But while the VEBA is a major piece to the puzzle, the conference call reveals the 2-tier wage structure likely will make the greatest difference in closing the competitive gap with Toyota Motor Corp.

Under the current contract, that's a $30 difference.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish