The Association of U S West Retirees



Ford Expects to See Health Savings Ahead of Rivals
By Terry Kosdrosky and Jeffrey McCracken
The Wall Street Journal
Friday, 2007, November 16, 2007

Ford Motor Co. said its new labor deal with the United Auto Workers will let it book savings on retiree health care as early as the third quarter of 2008, ahead of its Detroit rivals, and will allow it to buy out more workers.

Ford officials said yesterday that the company will offer buyouts to UAW workers by the end of the year, with employees leaving in early 2008.  Ford and the UAW still need to work out the specifics.  But as part of the new contract with the UAW, the company won't close five factories it had previously indicated it would shut as part of a broader restructuring.

Ford shares fell 20 cents, or 2.5%, to $7.78 in 4 p.m. New York Stock Exchange composite trading.

Ford's four-year contract with the UAW, which union members ratified this week, allows it to shed its hourly retiree health obligations, which are expected to total $23.7 billion in 2007, by seeding a union-run trust with $13.2 billion.   The health-care debt will be shifted to the trust, known as a VEBA, for voluntary employees' beneficiary association.

Ford, which sees the VEBA being established by 2010, expects to see a $1 billion benefit in annual net cash flow and annual health-care savings of $2 billion thanks to the trust.

Ford, considered the weakest of the Big Three auto makers of Detroit, says one key difference in its UAW contract compared with those of General Motors Corp. and Chrysler LLC is that Ford will be able to recognize some VEBA-related expense savings months sooner.  Ford's agreement with the UAW sets the effective date of the VEBA upon approval by a federal district court and preclearance review from the Securities and Exchange Commission.  Under their UAW agreements, GM and Chrysler must wait until they get approval from a circuit court, along with SEC preclearance review.

Ford estimates this will allow it to get positive accounting treatment in the third quarter of 2008, "which helps us because of our 2009 profitability goal," said Ford human-resources head Joe Laymon.  Ford has said its automotive operations will be profitable in 2009.

Marty Mulloy, Ford's vice president of labor affairs, said during the conference call that the contract comes "very close" to closing the $30-an-hour gap between Ford's factory labor costs and the labor costs at nonunion U.S. auto plants owned by Japanese auto makers.

--Jeff Bennett contributed to this article.

Write to Terry Kosdrosky at and Jeffrey McCracken at