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Car deal US$54m spur
Last Updated(Beijing Time):2007-11-19 14:54

General Motors Corp, Ford Motor Co, Chrysler LLC and the United Auto Workers have created a US$54.4 billion plum for Wall Street.

With Ford workers' approval of a new labor pact two days ago, all three US car makers have agreed to turn retiree health-care costs over to a union-run trust known as a Voluntary Employee Beneficiary Association, Bloomberg News reported.

The contract agreements have put the previously obscure VEBAs on money managers' radar screens, said Dave Osterndorf, chief health-care actuary at consulting firm Towers Perrin in Milwaukee. The trust may draw interest from investment firms including JPMorgan Chase & Co, State Street Corp and Merrill Lynch & Co, he said.

"There haven't been these sized funds out there in the past, so no one has really made it their business," Osterndorf said. Telecommunications, energy and other companies probably will follow the car makers in creating VEBAs, he said.

Detroit-based GM agreed to seed its fund with US$32 billion, Michigan-based Ford will contribute US$13.6 billion, and Chrysler, also based in Michigan, will give US$8.8 billion. Under the contracts, the union is allowed to combine the funds, while maintaining separate accounting for each car maker. The VEBA will start in January 2010.

The autoworkers' health-care trust will be equal in size to some of the country's largest pension funds, matching the University of California's US$54.4 billion endowment, the 25th largest, according to trade publication Pensions & Investments.

"There's nothing like this in America in terms of health care, and arguably in the world, of this size," said Geoff Bobroff, an independent investment consultant in East Greenwich, Rhode Island, with three decades of asset-management experience. "A lot of people are going to be lining up to service this fund." He estimated that fees for managing the VEBA may total US$285 million.

The UAW has been "inundated" with offers from Wall Street firms to manage the trust, union President Ron Gettelfinger told reporters on September 28, after the GM contract was ratified.

The car makers agreed to fund the VEBAs to gain the right to shed as much as US$7 billion in retiree health-care costs annually and about US$87 billion in future obligations. The current payments contribute to hourly labor costs that are US$25 to US$30 higher than at Toyota's US manufacturing operations.

Retiree health-care obligations of all companies in the Standard & Poor's 500 Index totaled US$387 billion last year.



Source:Shanghai Daily 
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