UAW Fund Could Be Powerhouse

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The Wall Street Journal


UAW Fund Could Be Powerhouse
By JOHN D. STOLL and JEFFREY MCCRACKEN
September 19, 2007; Page A4

DETROIT -- Wall Street could be in for a windfall when the United Auto Workers and the Big Three U.S. auto makers reach an agreement on a new labor contract. In exchange, the union may find itself with a lot more clout.

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GM, Ford Motor Co. and Chrysler LLC, which are obligated to cover the cost of health care for hundreds of thousands of UAW retirees, collectively owe about $90 billion to $95 billion but are pushing to pay no more than 70 cents on the dollar, said both union and company people involved in the talks. The fund -- known as a voluntary employees' beneficiary association, or VEBA -- would be an investment vehicle overseen by the UAW. Such a fund could make the union a significant player in financial circles. At the same time, it could put the UAW in a position of having to rely on banks and investment companies to manage money.

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While both sides are open to the idea of a fund, the union and lead negotiator GM must come to agreement on a number of complex details. The VEBA may not be completely funded up front, say people involved in the talks. This would affect how much the UAW or its investment manager would have to invest at first. By paying into the fund over several years, Detroit's auto makers can hedge their bets on the possibility of some sort of national health-care plan being passed in the next few years.

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If a VEBA is formed, the UAW will appoint independent trustees to oversee the fund. The UAW is likely to be an extremely cautious investor, said several union and management people involved in the talks. The UAW's fund would be much smaller than an investment powerhouse such as the $247.5 billion California Public Employees' Retirement System. But it would still represent a "significant new client for everybody," according to Bill Smith, president of Sam Advisors, another New York firm that has $80 million under management.

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At an estimated $60 billion to $70 billion, the UAW trust would be equal to the 20th-largest pension fund in the country, according to Global Proxy Watch. As a point of reference, Verizon Communications Inc.'s pension fund is about $56 billion and airline maker Boeing Co.'s about $69 billion, according to Pension & Investments magazine.


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