Funding is a challenge.
The United Auto Workers and the trustees of the Voluntary Employee Beneficiary Association (VEBA) for retired workers selected Stephen J. Girsky yesterday to fill its seat on General Motors’ board of directors. How the process worked was not revealed.
The VEBA trustees have the right to name a director of the corporation, with consent of the UAW. Starting on 1 January 2010, the VEBA will assume responsibility for paying the health-care bills of GM’s retired workers.
The idea of the VEBA has been around for years, but as adopted by GM, Ford Motor and Chrysler it was a piece of financial engineering that removed obligations from their balance sheets by shifting the responsibility for retiree health care to an independent trust, which in theory will have its own income stream. It lowered automaker borrowing costs for a time. But the funding never appeared in anywhere near the amounts promised to the UAW.
Girsky is president of S.J. Girsky and Company, an advisory firm based in New York. For the past three years, Girsky also has been an advisor to UAW President Ron Gettelfinger and the UAW’s executive board as the union dealt with demands for major concessions from automakers, Congressional critics and even the U.S. Treasury. He also previously worked for GM.
A significant part of the concessions involve retiree health care, which is now completely dependent on the VEBA. The union’s right to appoint directors at both GM and Chrysler Group has been controversial because critics suggest it gives the union too much power. However, Gettelfinger has said directors selected by the union would have solid credentials.
GM will be allowed replace more than half of the contributions that it owed to the VEBA with stock, and the remainder of the contributions will be replaced with a $2.5 billion note and $6.5 billion in preferred stock. These changes will save GM billions of dollars. “They also greatly increase the risks being assumed by retirees. Depending on the value of the company’s stock, the trustees of the retiree health-care trust fund may have to make further reductions in benefits in the coming years,” the UAW said.
GM also hailed Girsky’s appointment.
“GM is pleased with the UAW Retiree Medical Benefits Trust’s selection of Stephen J. Girsky as its member to the Board of Directors of the New GM. Girsky’s vast experience as a leading auto industry analyst and broad knowledge of our business make him a strong candidate to the Board of the New GM. Upon emergence of the New GM, his broad-based experience and no-nonsense approach will provide tremendous value to the Board and the management team as the company moves forward,” GM said in a statement.
Girsky has a unique resume. He has 20 years of automotive experience, having served as a managing director and senior analyst of the Morgan Stanley Global Automotive and Auto Parts Research Team. The team was ranked No. 1 for 14 consecutive years by Institutional Investor’s “All-American Research Team” and the Greenwich Associates poll.
He has also had positions at both General Motors and Ford Motor before returning to Wall Street.
Last week, the Chrysler VEBA, with the approval of the UAW, named former Michigan Governor James Blanchard to the Chrysler board of directors. Blanchard had been a Michigan Congressman when the first Chrysler bailout was approved by Congress in 1980s. Blanchard also served as ambassador to Canada for a time during the Clinton administration.
Ken Zino reported on this story.