Auto parts firm, unions in deal

Auto parts maker Dana Corp. took a huge step Friday toward emerging from Bankruptcy Court protection when it struck a deal that would free it from paying for healthcare for retirees.

The company expects to save more than $100 million per year by shifting the responsibility of retiree healthcare to a union-controlled trust fund and establishing a two-tier wage system. Dana will put a one-time payment of $800 million into the trust fund and says retirees and the unions should not need to put any more money toward the plan.

The proposal could provide Detroit’s Big Three automakers with a road map on how to bring long-term healthcare costs under control and help them compete against Toyota and Honda.

Detroit automakers are expected to propose a similar fund in national contract talks with the United Auto Workers that will formally begin this month.

“It’s a template that many organizations will be following in the future,” said analyst Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich.

Dana also announced Friday that Centerbridge Capital Partners would invest $500 million in the company, giving the investment group up to 25% control of Dana.

Centerbridge also agreed to help line up investors for an additional $250 million.

“These agreements will resolve significant ongoing cost issues when implemented, and they provide important momentum toward our completion of a reorganization plan,” said Michael Burns, Dana’s chairman and chief executive.

U.S. automakers and many other manufacturers have complained that the cost of retiree health has left them unable to compete with foreign companies with lower labor and benefits expenses.

The Detroit Three say they have a $30-an-hour labor cost gap with Japanese rivals. They want to significantly reduce or eliminate the gap in this year’s contract talks.

The automakers also are studying a new contract between Akron, Ohio-based Goodyear Tire & Rubber Co. and the United Steelworkers union with a similar healthcare trust fund.

Goodyear estimated it would save $275 million over the next three years by setting up the trust fund. The company made a one-time $1-billion contribution to the fund.

The trust funds are relatively new and untested. Some Goodyear union workers have criticized the idea, saying they fear the trust fund is underfunded.

Dana’s deals, reached with the Steelworkers and UAW, will require a contribution of $700 million along with $80 million in stock to the trusts, which will take over obligations for retiree healthcare and long-term disability coverage for employees.

The settlements also include four-year extensions of Dana’s contracts with the two unions at its plants in the U.S. They cover about 8,000 workers, or half of its union employees.

The unions had threatened to strike if Dana canceled its labor agreements.

The agreements also establish a two-tier wage structure that will cut pay for new employees at some Dana operations and change disability benefits, the company said.

Dana filed for Chapter 11 protection in March 2006 amid pressure from carmakers to sell parts at lower prices in recent years.