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GM Canada reaches deal on health-care trust fund

General Motors of Canada Ltd. will pump $2.535-billion into a trust fund that will finance health-care costs for its retirees, eliminating a key legacy cost that the auto maker said hobbled it in the fiercely competitive North American auto market.

GM Canada has reached an agreement with representatives of its unionized retirees to finance the fund with an initial cash payment of $1-billion, plus another $1.535-billion in contributions between 2014 and 2018.

The creation of the trust fund to pay for dental care, glasses and other health benefits was a condition of the $10.8-billion contribution the federal and Ontario governments made to the bailout of GM Canada's parent company, General Motors Co.

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The agreement with the retirees is subject to approval by courts in Quebec and Ontario, but it is opposed by a group of retirees from the company's massive operations in Oshawa, Ont.

The fund is expected to save GM Canada billions of dollars because retiree health-care costs will be taken off its books, but it means reduced benefits for about 30,000 retirees and surviving spouses of GM workers.

"The contributions by GM Canada to the Auto Sector Retiree Health Care Trust will not be sufficient to maintain the retiree health care benefits at their current levels," says an information package prepared for retirees.

"Consequently, it is expected that benefits will have to be reduced or otherwise modified to ensure that the available funds will be sufficient to look after the needs of current and future retirees for their lifetimes."

Estimates done by actuaries for the retirees show the value of the plan represents between 77 per cent and 84 per cent of the value of the existing coverage, which was financed by GM Canada and adjusted according to contracts negotiated with the Canadian Auto Workers union.

The issue of the health-care trust erupted in May, when GM announced that a plant in Michigan would produce the next version of the Chevrolet Impala sedan, now made solely at the Oshawa plant. When the company made that announcement, GM Canada issued a memo saying that no agreement on the health-care trust had been reached so "we are not making any announcements regarding our Canadian operations today.".

That led the CAW to accuse the auto maker of threatening to pull the Impala out of Oshawa unless the union persuaded the retirees to agree to the company's version of the health-care trust.

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There were more negotiations between GM Canada and the retirees after the May announcement. The retirees negotiated additional contributions from the auto maker worth about $240-million, the presentation on the deal says.

"[Negotiators] feel this is a significant improvement over the original offer made by GM Canada and do not believe they could have obtained more," the document says. Financing health care through a trust means the funds are protected from any potential future insolvency of GM Canada, it added.

The group of Oshawa retirees opposes the deal in part because they are not allowed to vote on it.

"If you're going to start taking away our benefits and negotiating downward it would be nice if we could protect ourselves with a vote," said Gord Vickers, who sat on the retirees' negotiating committee, but is now part of the group that has hired a lawyer to argue against the deal in court.

"We have a collective agreement and we expect them to honour it," he said. "That's all we want. We want the commitment that people retired with."

GM Canada spokesman Jason Easton said the company will not comment on specific aspects of the agreement, but noted that "as an important element of our restructuring, the health-care trust is critical to improving our competitive position in Canada."

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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