UAW VEBA Jumping Monkey

The UAW VEBA for lack of a formal name should be operating within the next twelve months. When you include all three Detroit automakers they will cover approximately 500,000 retired auto workers and have approximately $65 billion in obligations. To date the auto industry and most businesses have treated health care as a cost. The car guys wanted to make cars and really never said health care was a core competency.

Once you get past the set up process you have to consider how this VEBA will conduct itself. The UAW VEBA is being born out of severe economic necessity. Health care has been sucking money out of everyone’s pocket. It is possible for millionaires to go bankrupt because of personal health problems. That’s how powerful the black energy of health care costs has become.

Will VEBA eventually accept or seek a significant role in shareholder activism in general and in the health care and pharma industries in particular? Most individuals do not have the resources. Most corporations view the health care exercise in a cost containment context. They do not have the will or resources to become proactive.

VEBA to ensure its financial integrity will need to learn how to brawl and rumble in the health care field. The union DNA will serve it well. The UAW will want to ensure its members are well taken care off. The auto companies will want to make sure the funding checks they write are the last ones. The auto companies are more than willing to let go but will the UAW step back and let the VEBA executive manage their own problems. Some governance issues need to be addressed. Union executives are not health care administrators; they most likely do not have the necessary skills to actively manage the VEBA.

What will happen to the capital markets if we know a new player is coming on board with fresh new capital in the range of $65 Billion which needs to start working now. Actuarially the core investments should be highly predicable. They will be waiting for you.

Here are some dynamics which will influence the VEBA’s eventual power.

1. With approximately 500,000 retired auto workers they have automatically organized a very large buying group.

2. Given the location of auto plants they probably are concentrated in the same geographic regions giving them political and economic clout. Not everyone moved south.

3. I suspect that the health care issues have common themes as a result of common work histories. This will concentrate focus on certain drugs and therapies.

4. If VEBA does not like what it hears or sees from the health care or pharmaceutical industry it will have a huge amount of on hand documentation to support legal fights and class action lawsuits.

5. The trust arrangements under which they operate will influence their shareholder activism in the health care and pharma worlds. The VEBA memorandum of agreement and other incorporating style documents will be scrutinized closely by defendants as to legitimacy and cause of action.

This monkey may be off the auto industry’s back but will it crawl up on the back of health care and pharma companies.