TORONTO (CP) -- General Motors Canada says it could remove a substantial liability from its books if it is allowed to set up a U.S.-style union-run trust to manage its health benefits.
Members of the Canadian Auto Workers approved a new contract with GM earlier this week but the company remains in discussions with the union to further reduce its labour costs.
David Paterson, GM Canada's vice-president of corporate and environmental affairs, said the company is working to develop an agreement with the CAW similar to health-care trust funds set up by the Detroit Three automakers and the United Auto Workers in the U.S.
The funds, known as voluntary employee beneficiary associations or VEBAs, are being set up in the U.S. as part of a 2007 contract reached with the UAW. They will pay health-care bills for about 800,000 retired workers, spouses and dependents and move billions in liabilities off the companies' books.
GM said it expects to save about $3 billion a year through the agreement, while Ford said it will save $1 billion annually.
The cost of employee benefits is much lower in Canada because of its public health-care system. But while Paterson said it was too early to estimate the cost savings from such a trust, he described them as "significant."
"Such a trust or society... could be owned and managed by the CAW and its members and would grow to provide for benefits such as retiree health, drug and dental-care benefits not covered by the public system -- areas of very significant long-term cost in Canada," Paterson said.
The U.S. VEBAs are tax-exempt and, although Canada has different tax laws, GM has talked to the government about creating a "tax-efficient" vehicle of its own, he added.
"We are exploring the ways this coverage might be controlled, defined and determined by the members in a tax-efficient manner," Paterson said.
"It would have advantages for us in effectively taking that liability off our books in Canada," he added.
Similar to the VEBAs in the United States, the funds would be owned and controlled by the union and supported by an initial investment by the company.
Tony Faria, co-director of the automotive research centre at the University of Windsor, said retiree health-care costs are ballooning for GM Canada and will only get worse. The company has estimated its ratio of retired to active employees will grow to five to one once its previously announced plant closures are completed.
"Those costs are increasing at a significant pace and causing GM, Ford, Chrysler problems in Canada," Faria said.
"It's something that not only gets an ongoing expense out of the hands of the Detroit Three companies, but it is also a way of transferring debt off of their books."
He added that the trust could also help protect retired workers from losing their benefits if GM were to go bankrupt.
"That money is presumably always there and the interest off of that is paying for employee health care forever into the future, rather than possibly being lost if something happened to the company," he added.
In the U.S., GM has to pay roughly $20 billion into its VEBA and Chrysler must pay around $9.9 billion.
Under the terms of billions of dollars in U.S. government loans, Chrysler and GM must exchange half their cash payments to the trusts for equity in the companies. Money freed up by supporting the VEBA with equity would potentially pare down the amount of money GM and Chrysler would borrow from the government.