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Ford to court: Cut health costs

Automaker's lawyers say action must be taken to stop financial crisis as prices soar for retiree care.

David Shepardson / Detroit News Washington Bureau

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After two days of hearings scheduled this week, the judge is expected to rule within two weeks.
Ford retirees could see the changes as early as July 1.

Ford Motor Co. goes to court today seeking approval of a deal to reduce its mounting hourly retiree health care costs and will offer graphic details of the company's mounting financial woes to gain judicial approval.

"To avert a financial crisis, Ford Motor Co. must take immediate action to reduce costs," the company's lawyers said in a brief seeking final approval that will improve pretax profits by $650 million and improve its cash position by $200 million annually.

Ford spent $3.5 billion last year to provide health care to 590,000 people, including employees, retirees and dependants. Its health care costs have soared 67 percent since 2000 and the company now spends $1,100 per vehicle on health care -- more than it spends on steel.

According to court records, Ford's accumulated obligation to retirees now totals $37 billion -- with $35 billion attributable to health care costs and a figure now three times the market capitalization of the automaker. By comparison, the average pension obligation of a Fortune 500 company is less than 10 percent of its market capitalization.

If approved, the deal also will reduce Ford's overall retirement obligations by $5 billion.

Most of the changes would go into effect July 1 "if the judge moves quickly and favorably," Ford spokeswoman Marcey Evans said Tuesday.

"It's important that the company be able to continue quality health care benefits to all of its employees and retirees," Evans said. "It's pretty hard to offset the skyrocketing costs. It really is a balancing act."

Under a deal between Ford and the United Auto Workers, hourly retirees will initially pay no more than $370 a year and $752 per family -- and that figure will rise no more than 3 percent annually. Hourly retirees at Ford are not required to pay any fees for health care coverage now.

Because the UAW can't negotiate on behalf of retirees, Ford is seeking court approval to prevent any legal challenges to the deal.

Some of the nearly 800 retirees who filed written objections are expected to ask U.S. District Judge Paul Borman to reject the plan in a hearing scheduled to last two days.

But that seems unlikely. U.S. District Judge Robert H. Cleland approved a similar deal that will reduce General Motors Corp.'s health care liability by $1 billion annually. DaimlerChrysler AG's Chrysler Group is negotiating a similar accord with the UAW.

To help reverse North American automotive losses that reached $1.6 billion last year, Ford is also trimming the benefits of salaried employees and retirees, which are less generous than union retirees. In 2007, Ford will limit health care contributions to salaried retirees at 2006 levels. Additionally, Ford is limiting paid life insurance benefits for future salaried retirees.

Ford also plans to shed 30,000 jobs and close 7 manufacturing facilities by 2008, and shutter another 7 facilities by 2012 to counter falling sales and revenues. The automaker has been hit especially hard by a slump in SUV demand.

Under the health care deal, Ford will contribute $108 million to a trust between now and 2012 to defray some additional costs to be imposed on retirees. Each current employee will contribute on average $2,000 annually to fund retiree health care costs. The trust will also receive 8.75 million shares of Ford stock appreciate rights

In a sign of how controversial the deal is, only 51 percent of Ford's UAW members voted to ratify the agreement in December, while the GM deal passed by 61 percent of workers who voted in November.

Retirees and beneficiaries who receive $8,000 or less in pension benefits -- about 32,000 out of 170,000 retirees-- will not be required to pay any additional fees.

Judge Borman is the third judge to be assigned the Ford-UAW health care case after two judges withdrew from the case. The last, U.S. District Judge Anna Diggs Taylor, withdrew May 4 after she disclosed she was a member of the board of directors of the Henry Ford Health System, which owns the Health Alliance Plan, an HMO that covers numerous Ford retirees.
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