UAW and Ford Reach Agreement of VEBA Modifications

Ford announced that the agreement provides it with the option to use Ford common stock in lieu of cash for up to 50% of the payments into the VEBA. “We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value,” said Joe Hinrichs, group vice president, Global Manufacturing and Labor Affairs, Ford Motor Company, in a statement on the company’s Web site.

The VEBA agreement and an agreement reached February 15 by Ford and the UAW to modify certain operating provisions of the 2007 National Labor Agreement are subject to ratification by the active UAW-Ford membership and other conditions, including pursuing restructuring actions with other stakeholders, the statement said. The VEBA agreement also requires court approval.

Ford said the agreements, if finalized, are critical to its “efforts to operate through the current deep economic downturn without accessing government loans.”

According to the Wall Street Journal the proposed terms of the Ford/UAW pact mirror those contained in the federal loan guarantees extended to GM and Chrysler, which the auto makers have to meet by March 31. Renegotiating the health-care obligations due to UAW members and their spouses is a key part of the restructuring plans presented by GM and Chrysler to the U.S. government last week as part of strategies to stay out of bankruptcy protection, the news report said.

The Ford pact will likely set a benchmark for talks with Chrysler and GM — which the WSJ says owes $20 billion to its VEBA.

All three U.S. auto makers reached deals in 2007 to transfer legacy health costs into VEBAs, but payments to the trusts add to a liquidity drain that has weakened their competitive position. Almost a year after making the deal to establish a VEBA GM announced it was deferring payments in an effort to boost liquidity (see GM Puts the Brakes on Health Care VEBA).