Ford, UAW Reach Deal on Health Care Trust

Ford and UAW will modify terms of terms of their agreement on the Voluntary Employee Beneficiary Association health care trust.
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Updated from 10:23 a.m. EST

The United Auto Workers and

Ford

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have reached a tentative deal to modify terms of their agreement on the Voluntary Employee Beneficiary Association health care trust.

The deal enables Ford to fund 50% of its VEBA obligation with stock instead of cash, Ford said. Membership and court approval are required.

The deal is the first one the UAW has reached regarding revisions to the funding terms for the VEBA, created in 2007 to provide a method for the Detroit Three automakers to clear billions of dollars in health care obligations from their books.

Initially,

General Motors

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was to provide $24.1 billion in funding, with $13.2 billion from Ford and $8.8 billion from

Chrysler

. More recently, GM and Chrysler have been negotiating with the UAW over deals to pay half of their obligations in stock, an adjustment required under terms of federal bailouts.

Some analysts have suggested that failure of those negotiations is likely and could force GM and Chrysler into bankruptcy court, where a judge could resolve the disputes. The Ford deal could result in a revision of that analysis, although failure to resolve other issues, particularly involving unsecured bondholders, could also force bankruptcies. Ford has not sought a federal bailout.

Last week, Ford and the UAW reached a tentative agreement on modifications to their 2007 contract, including changes in labor costs, benefits and operating practices.

"The agreements, if finalized, will allow Ford to become competitive with foreign automakers' U.S. manufacturing operations, and are critical to our efforts to operate through the current deep economic downturn without accessing government loans and continue to fully invest in our ONE Ford product plan," said Joe Hinrichs, Ford group vice president for global manufacturing and labor, in a prepared statement. He said Ford will have the discretion, when each payment is due, to fund with cash or stock.

Meanwhile, UAW President Ron Gettelfinger said in a prepared statement that: "The modifications will protect jobs for UAW members by ensuring the long-term viability of the company." Added UAW Vice President Bob King, who oversees Ford negotiations: "Our bargaining team stepped up to confront numerous challenges."

In trading Monday morning, Ford shares were rising, up 23 cents to $1.81. Shares of GM were up 8 cents to $1.85.