Business Insight Zone

Well, that was quick.

Don’t get me wrong: I’m glad that GM and the UAW came to such a tidy end to their negotiations. There’s much to be gained by both sides for finding a way through the fog after just two days of the UAW’s nationwide strike against the top US car maker. But, to be honest, the journalistic side of me would have loved for this thing to drag on for weeks, if only for the drama value. (Now we’re back to more acre-feet of navel-gazing by the financial markets. sigh)

So what about this deal? GM and the union are all smiles today, and most news sources are calling the deal a success, especially because it establishes an independent health-care trust that will take GM retirees’ health-care obligations off the GM balance sheet. Even though GM will contribute the lions’ share of funding for the trust, this is a vitally important move that is apt to be copied by Ford and Chrysler in their negotiations with the UAW.

Why is this so important? Two reasons. First, these health-care costs are vast — which is why the trust will be more than $50 billion. Second, these costs are structural. Until GM established some sort of provision like this, retiree health-care costs would always be a sea anchor on the company’s financial progress. This is a key competitive issue because many of GM’s competitors — companies like Toyota and Volkswagen — are headquartered in countries where health-care costs fall on the public sector rather than on individual companies. So, kudos to GM and the UAW for addressing the issue in a way that should be sustainable and that deals with realities as they are.

More coverage:

• Dow Jones newswire
• NYT via International Herald Tribune
• Chicago Tribune
• Financial Times

For more on the history and the consequences of retiree health-care costs as they relate to Detroit’s Big Three, see this 2006 New Yorker article from Malcolm Gladwell:

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