UAW stepping into new role with automakers

The UAW is moving from a confrontational role to a
collaborator.

DETROIT FREE PRESS

DETROIT — The UAW, traditionally a mighty force in the struggle of Labor against Capital, could be on the brink of a new role: the U.S. automakers’ biggest stockholder.

New four-year labor agreements UAW members ratified with the Detroit automakers shift retiree health-care costs to an independent trust under the auspices of the union, which could take control of hundreds of millions of shares of General Motors Corp. and Ford Motor Co. The fact that the UAW could virtually be holding almost one-sixth of the equity in the nation’s two biggest automakers could drive profound changes in the way the union thinks and acts, experts say.

“Equity as part of the VEBA does bring the UAW membership into being an investor group,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

“What we are witnessing is the transformation from a confrontational way of working to one of collaboration, which is absolutely necessary.”

On Nov. 14, the UAW’s Ford members ratified the labor agreement with the Dearborn, Mich., automaker, joining their colleagues at GM and Chrysler LLC who had finalized similar contracts.

Along with allowing the automakers to hire some new employees at a much lower wage, a cornerstone of each of the agreements is the creation of an independent health-care trust called a voluntary employee beneficiary association, or VEBA. It will receive billions from each car company to pay for retiree health-care costs.

According to UAW figures, the three automakers will spend $56 billion to shed retiree health-care obligations, much of which comes in the form of cash.

GM and Ford also have pledged to the trusts so-called convertible debentures, which are bond-like financial instruments that can be exchanged for stock. It is these convertible securities — valued at $4.7 billion and $3.3 billion, respectively — that have the potential to make the VEBAs the largest shareholders in both publicly traded companies.

The trusts would convert the debentures to shares only if the stock prices rise above a certain level.

Newly private Chrysler partially paid for its VEBA with a warrant, or the right to buy stock, “with a potential equity upside value of $605 million,” according to UAW literature.

In all three cases, the companies are slated to pay interest on notes — Chrysler also issued a $1.2 billion debenture — to an independent trust set up to manage the money. It remains unclear whether it would be one large trust or three individual trusts.

With GM and Ford, the trust — or trusts — have the ability under certain circumstances to convert the notes into company stock. In doing so, the trust could own as much as 16 percent of GM’s stock and nearly 15 percent of Ford’s stock. There are limits, however, such as how many shares could be sold in a given year and to whom. The shares also must be voted in the same proportion as other shareholders vote.

Some UAW officials feared going into the negotiations over the creation of the health trust fund that union leaders could see their roles as investors and not as worker representatives.

“It’s a huge psychological change,” Cole said.

Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass., agrees that the UAW will play a new role with the automakers, but he cautions not to think of the union as a shareholder.

Because the companies’ stock will be held by an independent trust outside the direct control of the UAW, Chaison said he doesn’t believe the union will have the same kind of sway as a major stockholder. But he said he does think the union has new incentives and power to have a hand in directing the companies’ futures.

He noted that the UAW always has been a stakeholder in the automakers’ futures, but now “it’s a much closer link, I think, between the interests of the UAW and the prosperity of the automakers than there ever has been before.”

“They can no longer say: ‘That’s management’s responsibility, you make those decisions,’” Chaison said. “Now they are very much tied in with the health of their employers.”