The New UAW Contract: A New Beginning, and a Sobering Lesson Hopefully Learned

Saturday’s OpinionJournal.com column laid it out nicely about the realities of “job security” in the global economy, and noted a little-known historical precedent that one hopes the United Auto Workers union will learn from (bolds are mine):

The problem with unions is not all that dissimilar to that posed by entrenched management: Once they win comfortable contracts, they often become impediments to the kind of innovation and flexibility essential to success in today’s economy. So in the name of “job security,” they undermine a company’s–or a nation’s–competitiveness. The result, over time, is less job security for everyone, especially the union workforce. There’s no better example of this than GM, where the UAW now represents about 74,000 hourly workers, compared to 246,000 in 1994. Some security.

The new GM-UAW contract is a belated recognition that the choice has now become change, or Chapter 11. Under the deal, wages are frozen, save for bonuses and some lump-sum payments. GM in turn promises to invest in American plants with UAW workers, though of course it will also keep investing abroad.

In what seems to be the most creative stroke, GM will pay some $35 billion toward a new health-care trust fund to be administered by the union. That’s a big initial cash flow, but it means the company can divest itself of some $50 billion in long-term liabilities, which would only have grown as health-care costs rose and retirees lived longer. Investors loved it, driving up GM stock by around 7% for the week.

The UAW now gains ownership of its members’ health-care resources, in effect becoming a financial manager of a giant Health Savings Account for auto workers. If the union is creative, it will rethink its coverage plans, using the new generation of consumer-driven health-care options (such as personal health savings accounts) to encourage and reward more careful spending by beneficiaries. UAW President Ron Gettelfinger has told his members the trust fund will last 80 years, and the union’s job now is to make sure it does. A similar arrangement at Caterpillar Inc. didn’t work because the money ran out in six years.

Gettelfinger had best learn, and soon, that continuation of the current regime of very generous, and therefore overutilized, health benefits can’t continue. With the kitty it has to work with, the UAW could become a pioneer in creative health-benefits strategies — or watch the well run dry.

It also seems that the agreement, especially assuming that Ford and Chrysler fall in line, will reduce some of the big-company pressure to “do something” about health insurance (i.e., nationalize it, as all three major Democratic presidential candidates are proposing).

Cross-posted at Wide Open.