Judge OKs GM-UAW deal

March 4, 2008 5:32:50 PM PST
A federal judge on Tuesday granted preliminary approval to a settlement between General Motors Corp. and the United Auto Workers that would set up a trust to fund the automaker's retiree health care. GM and the UAW agreed to form the trust as part of contract negotiations last fall, but they need court approval for it to take effect. The UAW and attorneys representing several retirees sued GM last month in an effort to get court approval for the change.

If they win court approval, the trust would take on $46.7 billion in health care costs starting as early as Jan. 1, 2010. The trust, called a voluntary employees beneficiary association, or VEBA, would cover 500,000 GM retirees and spouses, plus current UAW workers when they retire.

U.S. District Judge Robert Cleland praised GM and the UAW for their cooperation and said the deal appears to be reasonable and fair.

"It is an extraordinary feat, it seems to me, what has been accomplished," Cleland told lawyers for GM and the UAW after a brief hearing. "It's a very impressive body of work."

Retirees and workers will get a mailing with more information on the trust by March 28, and Cleland has scheduled another hearing for June 3 to consider the fairness of the settlement.

William Payne, the attorney representing UAW workers in the case, told Cleland that the settlement protects workers' benefits regardless of GM's financial position. The automaker and the UAW have fought in the past over whether GM has the right to change retirees' benefits.

"It is much better to have a bird in hand rather than something in the bush," Payne said. "GM will not be able to make any more threats in the future that it is going to terminate benefits."

GM attorney Richard Godfrey reiterated that GM believes it has the right to change retirees benefits, but said the deal makes that moot.

"This settlement finally ends the dispute once and for all," Godfrey said.

Under the agreement filed with the court, the trust would be run by an 11-member committee, with six members picked by the court and five chosen by the UAW. Retiree health benefits will continue without change at least through 2011, when the committee would then have the authority to change the benefits.

GM would contribute between $33 billion and $36.5 billion to the trust, depending on the value of shares it is contributing and other factors. GM has said the new contract will save it $3 billion per year, with a big chunk coming from reduced retiree health care costs.

Ford Motor Co. and Chrysler LLC also agreed to form trusts to fund their retiree health care as part of their new contracts and will also seek federal court approval for those trusts. In all, the Detroit Three have a combined $86 billion in retiree health care liabilities on their books.