Updated from 10:43 a.m. EDT
The United Auto Workers rejected a proposal from
for setting up a union-controlled health care trust fund aimed at freeing Detroit's Big Three automakers from about $95 billion in retiree obligations, according to a source familiar with the negotiations.
GM declined to comment on the negotiations, but Deutsche Bank analyst Rod Lache, in a note to clients, cited the development.
"The union has agreed to the concept of the
trust fund," Lache wrote. "They just don't like the terms."
A UAW spokesperson could not immediately be reached for comment. GM spokesman Tom Wickham said talks were set to resume Friday morning.
"We're going to keep negotiations in the negotiating room," says Wickham.
GM is the lead negotiator in talks with the UAW at this point, but the outcome of the negotiations is highly consequential for its Detroit counterparts,
, as well.
"We're waiting to hear what the next step is," says Ford spokesman Tom Hoyt.
Chrysler spokesman Mike Aberlich said the company is in contact with the UAW, but it's also waiting to see where the GM talks go.
The U.S. automakers are trying to get out from under the burden of the massive pension and health care liabilities that have accumulated over the years under past agreements with the UAW so they can better compete with low-cost, foreign-based competitors like
. Setting up a union-controlled fund, or VEBA fund, to shoulder the liabilities would require a large, one-time payment from the automakers, and the two sides are in dispute over the size of that payment.
"The UAW knows that GM cannot sign a contract that excludes a VEBA deal at this point, and that they cannot accept the consequences of an uncompetitive cost structure either," said Lache in his report. "Without a VEBA deal, GM has threatened to begin a much more aggressive downsizing of its U.S. manufacturing base."
That threat is countered by the UAW's ability to rally its workers for a strike, which could cripple the automakers who are already ready reeling from high costs, sales declines and market-share losses.
"GM knows that they're risking a walkout by not agreeing to UAW's terms," wrote Lache. "It's our belief that the most likely outcome is that GM and the UAW will reach a compromise, and pursue a VEBA solution after a few days of drama."
Erich Merkle, auto analyst with IRN, says that when it comes to investing in shares of GM and Ford, the labor negotiations with the UAW are the most important factor, and setting up a VEBA fund is the best solution for investors.
"The VEBA deal has to get done," Merkle says. "I don't see any other way out of this, except keeping the clock ticking until GM finally has to file for bankruptcy. I don't think the deal is dead. It's shelved, and my understanding is they have third-party auditors coming in to evaluate the proposals."
Shares of GM were recently up 28 cents, or 0.8%, to $34.75, while shares of Ford were up flat at $8.26. Chrysler was recently taken private by the private-equity firm Cerberus Capital Management.