Obama Vows Swift Overhaul As Chrysler Enters Bankruptcy
By Peter Whoriskey, Brady Dennis and Kendra Marr
The Washington Post
May 1, 2009
Chrysler, the nation’s third-largest automaker, filed for bankruptcy protection yesterday, with President Obama promising that court relief would give the company a “new lease on life.”
Now largely under government control, Chrysler will seek in court to strip itself of its overwhelming debts.
The new majority owner will be Chrysler’s union retiree health fund, which would receive a 55 percent stake in the new company. Fiat would get a 20 percent stake, with its share potentially rising to 35 percent over time based on performance. The United States would take 8 percent, while the Canadian government, which is also providing financing, would receive 2 percent.
http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043001639.html?sid=ST2009043001828
And…
Bondholders Propose an Alternative to G.M.’s Plan
By Cyrus Sanati
The New York Times
April 30, 2009
Under the proposal released Thursday, G.M.’s bondholders would receive 58 percent of the restructured company in exchange for tearing up their $27 billion in unsecured G.M. bonds.
The United Automobile Workers, through an entity known as a VEBA, which holds workers’ health care obligations, would get about 41 percent to offset the $20 billion G.M. owes the union. Current shareholders would receive 1 percent.
Under (another) proposal that G.M. made this week, bondholders would get 10 percent of the company for their unsecured debt, while the government would receive 50 percent in exchange for forgiving at least half of G.M.’s outstanding Treasury debt by June 1, which G.M. estimates would be about $10 billion. The VEBA would get 39 percent of the equity for giving up $10 billion of the $20 billion G.M. owes it, while current shareholders would get 1 percent.
http://www.nytimes.com/2009/05/01/business/01gm.html?_r=1
And…
UAW, Ford reach agreement on VEBA
By Brent Snavely
Detroit Free Press
February 23, 2009
The UAW said today it has reached a tentative agreement with Ford Motor Co. to modify the payment requirements for a retiree health care trust fund, and is likely to use the agreement as a template for talks with General Motors Corp. and Chrysler.
Ford said the tentative agreement gives it the option to use stock for up to 50% of its payments to fund the Voluntary Employee Beneficiary Association, or VEBA.
The UAW and each of the domestic automakers agreed to create a union-managed retiree health care trust fund during contract talks in 2007, and the UAW is scheduled to begin managing the fund in 2010.
http://www.freep.com/article/20090223/BUSINESS01/90223018/
And…
Health Costs Soaring, Automakers Are to Begin Labor Talks
By Danny Hakim
The New York Times
July 15, 2003
Uwe Reinhardt, a Princeton University health care economist, calls the Big Three “a social insurance system that sells cars to finance itself.”
http://www.nytimes.com/2003/07/15/business/15AUTO.html
It was almost six years ago that Uwe Reinhardt called the Big Three “a social insurance system that sells cars to finance itself.” We have frequently quoted him, even though the statement was an exaggeration to make a point. But how prescient!
Saddled with legacy costs, each of the Big Three negotiated the transfer of their retiree health funds to the United Auto Workers (UAW) in the form of a voluntary employee beneficiary association (VEBA). With further deterioration in the auto industry’s financial status, the VEBAs are now accepting a major ownership position in these firms.
Thus Uwe Reinhardt was spot on. The VEBAs actually are “a social insurance system that sells cars to finance itself.”
Health care reform anyone?