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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.

Clearly, GM gained a lot from the settlement, said Katie Merx in the Detroit Free Press. But that doesn’t mean the UAW necessarily lost. UAW President Ron Gettelfinger notes that in exchange for union concessions, GM has committed to build new products in the U.S., beginning with the Volt electric car, which will be made at GM’s plant in Hamtramck, Mich. But some experts wonder why GM is pledging to keep plants open when it ought to be eliminating excess manufacturing capacity. The UAW may have gotten the best deal it could. The question now is whether it extracted promises “that GM can’t afford to keep.”

Still, the UAW’s “new awareness of global competition” is enormously encouraging, said The Wall Street Journal. The GM pact exemplifies “the kind of innovation and flexibility essential to success in today’s economy,” and it’s significant that a major American union understands that. Unfortunately, many of the UAW’s allies in the labor movement seem stuck in another era. The most powerful union leader in the country, Andy Stern of the Service Employees International Union, remains convinced that “union salvation lies in America adopting the work rules and income redistribution of Europe.” Apparently, he hasn’t noticed that the Europeans, led by French President Nicolas Sarkozy, are moving away from that model and adopting American-style workplace rules. But if an old-fashioned union such as the UAW can wake up to “economic reality,” there’s hope that others can, too.

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