Will Underfunded VEBA Fund Enter Into GM’s UAW Negotiations?

The Wall Street Journal has reported that the UAW’s voluntary employees’ beneficiary association (VEBA) fund was underfunded by approximately $20.7 billion in 2014, which was the latest reported period. The shortfall has grown from the previously reported 2013 figure when the trust was estimated to be 93% funded. The latest funding figure, which was hurt by growing medical benefits costs, plummeted to 74% in one year.

The VEBA fund was established in order to transfer liability of retiree medical benefits costs from General Motors, Ford and Chrysler (now Fiat Chrysler Automobiles) to the UAW prior to GM going bankrupt in 2009. In fact, the fund was one of the primary driving forces of GM’s bankruptcy as the company agreed to fund the account with $30 billion as part of the agreement; money they didn’t have.

Total net assets for the VEBA trust stood at about $60 billion in 2014. GM’s portion is largely funded with common shares of the company, which the UAW was granted with as part of the Obama-orchestrated bankruptcy process. Funding for the trust is therefore partly dependent upon GM share performance (which has been lackluster) along with performance of the markets in general.

The VEBA agreement has been touted as a huge success with the risks of future downturns to funding being minimized. I pointed out that fact in June when I brought up the possibility of GM buying back some of the trust’s shares with the following statement:

Despite the generous funding of the VEBA by GM (i.e., American taxpayers), it is questionable as to how well-funded the account will continue to be. The fund currently is one of the largest holders of GM shares. It would not surprise me if the VEBA funding goes back on the negotiating table, perhaps with GM agreeing to repurchase some of the shares at a premium.

So we are now at the stage where the UAW will be entering negotiations with GM from a position of strength. As I also recently pointed out, GM CEO Mary Barra has helped the UAW’s bargaining position by boasting about the prospects for future profitability at GM. Given the additional fact that GM has the DNA of the UAW-friendly Obama Administration, it is likely that the UAW will get a better deal from GM than any deal negotiated with Fiat Chrysler Automobiles.

The latest report that the VEBA fund is being depleted has to bring into question whether or not GM has really been relieved of retiree health care costs for perpetuity. Given the current sizzling auto sales figures that have been coming in at the industry’s cyclical peak along with Barra’s rosy proclamations of future profitability, it would be a good time for the UAW to prop up funding for the VEBA trust as part of the latest contract settlement. GM shareholders will have to worry about the consequences at a later date if history repeats itself when the industry has its inevitable downturn and GM can again not afford the costs.

Mark Modica is an NLPC Associate Fellow.