Issue of the Week

Is the GM contract the way forward?

What’s good for General Motors may be good for America after all, said The Philadelphia Inquirer in an editorial. The “trailblazing agreement” that General Motors cut last week with the United Auto Workers after a two-day strike could set the pattern for other old-line industrial companies struggling to remain competitive in a global marketplace. The union came away with lump-sum bonus payments for rank-and-file workers and promises from GM to build new models at its U.S. plants rather than overseas. But the centerpiece of the new contract is something called a voluntary employee beneficiary agreement, or VEBA. In essence, it’s a giant trust fund—seeded with $35 billion of GM’s money—that the union will manage and tap to pay for the health care of GM retirees and their families. There’s a big upfront cost for GM, of course. But by shifting future liability for retiree health benefits to the UAW, GM gains financial flexibility to invest in new plants, technology, and car designs. “It should also focus more debate nationally over efforts to stem health-care costs for all Americans.”

Ford Motor and Chrysler certainly are giving the GM deal a long look, said Christine Tierney in The Detroit News. “Rising health-care costs have become a huge burden to traditional manufacturers with unionized workforces.” And it’s not just carmakers that could benefit from a GM-style medical trust fund. “All sorts of businesses could profit from the broader concept” of shifting the cost of health care. The deal instantly made GM more attractive to investors, as evidenced by a 7 percent gain in GM shares that followed the end of the strike. If the carmaker continues to show improvement, “VEBA” could become a household acronym.

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