GM, Ford, UAW Dangle $54 Billion Health Fund Before Wall Street

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

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

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 automakers in creating VEBAs, he said.

Detroit-based GM agreed to seed its fund with $32 billion, Dearborn, Michigan-based Ford will contribute $13.6 billion, and Chrysler, based in Auburn Hills, Michigan, will give $8.8 billion. Under the contracts, the union is allowed to combine the funds, while maintaining separate accounting for each automaker. 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 $54.4 billion endowment, the 25th largest, according to trade publication Pensions & Investments.

`Nothing Like This'

``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 $285 million.

The UAW has been ``inundated'' with offers from Wall Street firms to manage the trust, union President Ron Gettelfinger told reporters on Sept. 28, after the GM contract was ratified. He didn't name them. Roger Kerson, spokesman for the Detroit-based union, declined to comment.

State Street spokeswoman Marie McGehee in Boston and JPMorgan spokesman Thomas Kelly and Merrill Lynch spokeswoman Jennifer Grigas, both in New York, also declined to comment.
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