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Gettelfinger did not hesitate.

“We agree,” he said.

“Great!” Mulally exclaimed. “If we can come to a competitive agreement going forward, here’s what we’re willing to do.”

He flipped the page over and started on a clean sheet. This time Mulally outlined Ford’s entire North American cycle plan—every product, every plant—for the life of the next contract. Mulally’s biggest carrot was the Ford Focus. The North American version was being built at Ford’s Wayne Stamping and Assembly Plant in Michigan. But he had already decided to replace it with the far better European version. The current plan called for the new Focus to be built in Mexico, because that was the only way Ford could make a profit on the inexpensive compact. Now, he told Gettelfinger, he was willing to keep building the Focus in Michigan—if the UAW would give the company the concessions it needed to build it profitably.

“I’m not trying to run away from you,” Mulally promised the UAW president. “If we can do that, I’ll make it here in the United States. That’s my commitment.”

W
hat followed was a series of regular, covert meetings between Ford and the UAW. Sometimes it was just Alan Mulally and Ron Gettelfinger in the room, but Bob King was often there, too, as were Joe Laymon, Joe Hinrichs, and Marty Mulloy. Sometimes it would just be the latter two sitting down with the UAW leaders. Sometimes Don Leclair would be the man sitting across the table from Gettelfinger. These informal bargaining sessions were held every week or two. Gettelfinger, who despised the media, was worried some enterprising reporter might notice him coming or going from the Glass House, so they usually met in an empty, nondescript office building Bill Ford owned behind the Detroit Lions’ practice facility in nearby Allen Park. It was a scene right out of a bad spy novel. The men would arrive in separate cars early in the morning, wait to make sure the coast was clear, and then hurry into an unlocked side door, taking care not to spill the steaming cup of coffee each brought with him. Once inside, they would gather around a conference table in an
otherwise empty room and begin hashing out the details of a new national contract.

It had been a year since Hinrichs first delivered his tough love speech to union leaders in Las Vegas. Since then, Ford and the UAW had negotiated forty-four new competitive operating agreements at facilities around the country. Together they had
convinced 38,000 hourly workers to sign up for buyouts or early retirement packages, halving the company’s factory workforce in the United States and exceeding the goal set in Ford’s original Way Forward restructuring plan. But one enormous problem remained: retiree health care.

By 2007, some in Detroit were joking that Ford, GM, and Chrysler should be reclassified as insurance companies since they were providing health care to hundreds of thousands of employees and retirees, as well as their spouses and dependents. As medical costs skyrocketed in the United States, this was becoming a crushing weight on the three American automakers—one their foreign competitors did not have to shoulder. Even the Japanese, German, and Korean carmakers that opened factories in the United States were comparatively unencumbered, because they had a much younger workforce and few retirees. Nor were they contractually obligated to provide health insurance for them.
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Ford’s own obligation for hourly retiree health care totaled approximately $23 billion. It was like a black hole on the company’s balance sheet, sucking away all hope of future profitability. And it would only get bigger as more employees retired and insurance premiums continued to increase. Getting it off the books was Mulally’s top priority in the upcoming negotiations with the UAW.

The UAW already knew the situation was untenable. In fact, it was the union that first proposed a solution. Back in 2005, Gettelfinger suggested to General Motors—which had the largest liability and was the most eager to get rid of it—that it transfer responsibility for
hourly-retiree health care to a trust run by the UAW. It would have required GM to pony up a substantial amount of cash, but once the bill had been paid, the automaker would no longer have to worry about providing health insurance for its union retirees or the drag that exerted on its bottom line. It was known as a voluntary employees’ beneficiary association, or VEBA, and a similar deal had been negotiated between the UAW and Caterpillar in 1998. It had since run out of money, but the union believed it had learned enough from that experience to put together one that would work for both GM and its retirees. But the price proved too high for GM, and since it was unwilling to pursue a VEBA, Gettelfinger never extended the offer to Ford.

A lot had changed since then. By the end of 2006, the UAW knew all three Detroit manufacturers were careening toward bankruptcy. Ford knew it, too, and even GM and Chrysler were beginning to see that they had grossly underestimated the severity of their own situations. If the companies filed for Chapter 11 protection, the union’s retirees could lose everything. And if the companies could not cut a deal with the UAW on retiree health care, that might be their only option. So there was a new impetus on both sides to find a solution.

In Mulally’s early discussions with his counterparts at General Motors and Chrysler, the three CEOs had agreed that negotiating a VEBA would be the central focus of their upcoming contract talks with the UAW. All three had agreed to limit their dickering over other issues that might threaten a deal on retiree health care.

Laymon was worried that Hinrichs’ efforts to negotiate local competitive operating agreements might do just that, and he asked him to ease off. Changing the work rules was all well and good, he said, but they were not going to save the company. They were saving Ford mere millions at a time when it needed to cut billions of dollars from its balance sheet in order to survive.

“We need twenty-three billion dollars,” Laymon told Hinrichs. “There’s nothing you’ve said yet in the plants that can get me there. I’m going to get twenty-three billion from health care. I’m going to get it from one guy—Ron Gettelfinger. So don’t piss him off!”

T
he terms of Ford’s VEBA became the major topic of discussion in the secret meetings between the company and the union. Joe Laymon made Ford’s position clear in one of the first sessions.

“You know you’re in a position to pick us apart on this thing. You can have three different VEBAs,” he told Gettelfinger. “Here’s how we want ours constructed. We want to put less money on the table, but we’ll give you a lot of leverage. We can’t convince the other two companies that this is in their best interest. But this is what we need.”

Laymon told Gettelfinger that, while Mulally may have just secured the largest home improvement loan in history, it was the last one Ford was likely to get anytime soon. He brought in Ford’s chief economist, Ellen Hughes-Cromwick, to explain the company’s growing concern about the global credit markets and the likelihood of a serious financial crisis. The union chief listened, but the Caterpillar experience was too fresh in Gettelfinger’s mind. The UAW was willing to accept a discount in each automaker’s contribution to its VEBA. The companies would not be required to fund these trusts at 100 percent of their actual liability. But Gettelfinger wanted all three to make their contributions in cash. The reason the UAW was willing to assume responsibility for their retirees’ health care in the first place was that the automakers were in serious financial trouble. That was taking its toll on the companies’ stock prices. There was no way of knowing how far they would fall, and the union was unwilling to bet its retirees’ futures on a rebound.

Ford’s labor team was sympathetic to the UAW’s position, but Don Leclair was more worried about the company’s own cash reserves. Ford needed the money it raised on Wall Street to fund Mulally’s revolution. Leclair also wanted to preserve as much of a cash cushion as possible to help the company ride out the economic storm he saw looming on the horizon. Still, as spring turned to summer, both Ford and the UAW felt good about the progress they were making on the VEBA and other issues.

The union was a big believer in pattern bargaining. It picked one company to negotiate with first, then used that contract as a template for the others. Gettelfinger hinted that Ford would be the target company once the formal talks began on July 23, 2007. That meant it
would be allowed to set the pattern according to its needs, and General Motors and Chrysler would have to accept more or less the same terms. At least that was how the game had been played for decades.
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However, as it became clear that Leclair was the one calling the shots on the VEBA funding, Gettelfinger began to grow impatient. They kept talking, but Leclair refused to budge on how much cash he was willing to put on the table. After the two had gone back and forth for a few hours, Gettelfinger simply slid his chair back, stood up, and left without saying a word.

Leclair was apoplectic. He rushed back to World Headquarters and told Mulally the union could not be trusted. Mulally’s secretary called Joe Laymon and asked him to come to the CEO’s office.

“That fucking guy walked out on me!” Leclair shouted at the HR chief when he walked in.

“He has a right to do that,” Laymon said with a shrug. He told Mulally not to worry; Gettelfinger would be back.

B
ut the UAW leader decided to deal with General Motors first.

It was a smart move on Gettelfinger’s part. GM had been the first of the Detroit Three to appreciate the potential of the VEBA. Its CFO, Frederick “Fritz” Henderson, understood the mechanics of it better than anyone. He would not give the UAW everything it wanted, but he was willing to come a lot closer than Ford was. GM was less concerned about its cash position than it was about its $51 billion unfunded liability for hourly-retiree health care.

Serious negotiations between General Motors and the UAW began on September 14 and continued with few pauses for the next ten days. There were whispers that a deal was imminent. Then, on September 24, Gettelfinger surprised everyone by calling a strike. Within hours, picket lines were up around all of GM’s factories in the United States. The company’s negotiators were dumbfounded. They thought they had a deal. They did. But Gettelfinger knew the concessionary
agreement he was about to announce would be a tough sell to his members, and he needed their votes to ratify it. The walkout was designed to demonstrate that he had gone to the mat for the workers and to convince them that the deal he negotiated with GM was the best one possible under the circumstances. Two days later, Gettelfinger sent them back to work and announced that the UAW had reached an agreement on a new contract with the automaker.

General Motors got its VEBA. It would have to pay only $35 billion into the union-run trust, and it got three years to do it. That represented
a discount of about 70 cents on the dollar. In addition, GM could cover more than $4 billion of its VEBA obligations with a convertible note that the union could cash in for stock. When the last cash payment was made, GM would no longer be responsible for providing health insurance to current or future UAW retirees. That would be the union’s problem.