Private equity backs VEBA
Dana contract saddles UAW with health care
Published Jul 19, 2007 9:06 AM
The auto industry, including the parts sector, has decided to dump health care
coverage on the unions. The July 6 agreement between the Dana Corporation, a
major worldwide producer of axles and other vital parts, has begun the process,
which presents a danger and a challenge to the organized labor movement.
Central to the proposed settlement, through which Dana hopes to emerge from
Chapter 11 bankruptcy by year’s end, is the establishment of a Voluntary
Employee Beneficiary Association (VEBA), which will be controlled and
administered by the union.
For decades autoworkers have engaged in collective bargaining over not only
wages but a wide range of benefits from pensions and health care coverage to
vacations, holidays and income security during layoffs. It is generally
understood that benefits are a form of deferred wages—compensation
different in form but not in essence.
Because health care is so important for workers and their families, the UAW has
over the years made wage concessions—deferrals—to offset rising
medical costs and maintain the level of coverage members are accustomed to.
Most recently workers at Ford and GM agreed to forgo a dollar an hour in
previously negotiated annual raises and cost-of-living-allowance (COLA)
Since 1964, in all but two contracts, the union agreed to divert part of the
COLA and apply it to health coverage. With all of the horse trading that has
gone on in negotiations over the years, it’s been with a mutual
understanding that employers were responsible for insuring employees to shield
them from prohibitive medical costs. At what cost? The concessions have led to
the overall downsizing of the living standards of auto workers.
What is a VEBA?
VEBA is a trust established to fund workers’ and retirees’
benefits. A trust is a transfer of something of value to another party—in
this case the UAW. VEBA will be responsible for the dispersing of funds for
health care. The UAW will become the trustee of those funds giving the union
control of the assets. The retirees and disabled will be the beneficiaries of
those assets. They must be protected if the deal is consummated. Dana is
contributing $700 million in cash and $80 million in stock in seed money to
start up the VEBA.
While legal since 1928, VEBAs were relatively uncommon and became a topic of
widespread discussion only with this year’s settlement of the Goodyear
strike. Goodyear agreed to make an initial contribution of $1 billion to
establish the fund, but the fund is to be run by the United Steel Workers and
relieves the company of all future pension liabilities.
Dana is the first auto parts supplier to require its unions to take full
responsibility for providing health care to retirees and disabled. Dana’s
plan in creating a VEBA is to dump the rising health costs onto the union,
which they believe will save them millions when they come out of bankruptcy in
September. Dana plans to close eight North American plants and sell several
manufacturing units if the deal goes through.
Centerbridge, a Wall Street private-equity firm and one that lost the bidding
war over Chrysler, is paying Dana $500 million to acquire a 25-percent stake in
ownership. The union must challenge this ownership of a private equity
corporation. Herein lies the struggle over property rights and control.
The bosses are all too happy about the potential of VEBAs as long as the UAW
bureaucracy blesses them. JP Morgan said that profits will rise if auto
companies convert union retiree health care liability into a fund run by the
UAW. (Detroit News, July 10). They believe that VEBA will force the UAW to
impose health care cuts.
For the unions, the risks are tremendous, as the VEBA could become underfunded,
forcing a union that is the administrator of the trust to make benefit
If the union remains passive on this critical issue, the squeals of joy in
Detroit boardrooms and on Wall Street will be deafening. If the trend becomes
widespread, this could put the health care of a half-million UAW workers at the
mercy of huge debt to cover the rising costs. The Big Three, bankers, private
equity companies and the medical-industrial complex will be the big winners.
Collective bargaining between the Big Three and the UAW begins next week when
Ford and Chrysler meet with the union. GM follows a few days later. VEBA will
be at the top of the agenda.
For the UAW to promote VEBAs is a form of class collaboration that is dangerous
to the organized labor movement. However, the assets contained within the VEBA,
combined with the value created by the decades of labor power of retirees and
their deferred wages and benefits, can be translated into a form of property
rights, an early stage of workers control. Through the VEBA the UAW should
exercise its rights over Dana’s property as collateral for rising health
care costs and an underfunded benefit.
It is time for the labor movement in defense of the UAW in the coming
negotiations to mobilize the vast numbers of rank-and-file workers and retirees
to protect health care and jobs—a property right—by any means
necessary. The health care crisis is permeating all sectors of the workers and
the oppressed nationalities, including community groups, immigrant rights
organizations and the anti-war movement. Health care is a universal right and
demands a universal and united response.
Milt Neidenberg also contributed to this article.
Martha Grevatt has been a Chrysler worker and UAW activist for twenty
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