UAW Allows Ford to Meet Debts with Stock Instead of Cash
The UAW agreed to accept shares of Ford stock instead of cash, for 50 percent or more of Ford’s future payments to the union’s Voluntary Employee Beneficiary Association.
In 2007, a new labor agreement transferred responsibility for health care costs from Ford to the VEBA, starting in 2010. In light of the auto industry crisis since last fall, Ford asked the union to accept shares of stock instead of cash. The UAW accepted the proposal on March 9.
Chrysler and GM are pursuing similar concessions from the UAW. Unlike Ford, Chrysler and GM are operating on government loans, and would like to secure more.
Ford’s move reduces debt and conserves cash for Ford, which said its existing VEBA-related obligations are around $13 billion. It also represents a risk to the union, considering how Ford shares have fallen, from almost $9 per share last spring to less than $2 recently.
To sweeten the pill, Ford agreed to give up its right to make VEBA contributions in the form of stock, if the shares fall below $1 per share, or if Ford gets a “going concern” warning from its auditors, similar to what GM recently received.
Joe Hinrichs, Ford group vice president – global manufacturing and labor affairs, said in a conference call today that changes to the VEBA agreement provide for near-term deferral of payments, and the option to make up to $6.5 billion of payments in stock.
“In summary, these modifications will help us remain on track to deliver our key business and financial goals over the next few years,” he said.
Chart: Yahoo Finance
Jim Henry has been writing about the auto industry from a business perspective for more than 20 years. He is also a member and past president of the New York-based International Motor Press Association.
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