General Motors (NYSE:GM) negotiated a landmark deal with the UAW. By establishing the VEBA they moved approximately $51 billion of unfunded liabilities from the corporate balance sheet to the VEBA structure. GM will kick in approximately $30 billion to fund the program. So it looks like GM made $21 billion plus solved the problem forever. Ford (NYSE:F) and Chrysler supposedly will arrive at something similar. On the surface that’s a nice day’s work and the shareholders have declared there is now more value in the stock than several weeks ago.
The VEBA is being set up by way of a memorandum of understanding between GM and UAW. So it will be separate from the official labor contract that is negotiated every four years. The union membership is supposed to be happy now that their rich retirement benefits are taken care of.
Other than the respective GM and UAW negotiators has anyone else seen this memorandum? Maybe it’s just me and my inadequate research skills but I cannot find it on the UAW or GM website. Everyone is buying into the big solution, but can we read it somehow?
This is too big a deal to just flip it off the balance sheet and pretend it will never ever again be a factor. While there is no doubt that the VEBA will go a long way to solving the problems the market place has become delusional that it its really gone forever.
The market is still dealing with documentation problems in the sub prime mortgage mess. So why not make the document public? Clarity and transparency would all be well served. When will Moody’s and Standard & Poor cast their eye over the mystery document and make a prognostication about quality of cash flow and interest coverage ratios. You know the stuff that ratings are made of.
Here are some of the confusing items out there.
1. How much is GM putting in? I have seen estimates from $29.9 Billion to $35 Billion.
2. Will GM actually guarantee the VEBA? This item has been dangerously quiet. Will there be three VEBA’s with three separate guarantees from three car manufacturers?
3. I have seen commentary that GM is guarantying the VEBA, which means that there will be one hell of a footnote to the financial statements. If GM is guarantying after they put all the money in what is the difference from the current and conflicted set up? GM will have a bite me big scenario if the VEBA goes wrong.
4. Speaking of big bites, the VEBA needs to beat inflation in the health care sector which is currently running at approximately 10%. So when Hillary Clinton promises to reform health care some Wall Streeters and retired auto workers may be her biggest fans. Imagine those two groups cheering for the same thing.
5. The VEBA is supposedly going to be regulated by the SEC, according to many reports even in the financial press. The VEBA is really a health care insurance vehicle. More like an insurance company, I reckon. The SEC regulates securities. (SEC= Securities Exchange Commission). I believe a host of other entities are tasked with regulating insurance vehicles. Who will be the lead regulator on this one?