- The Washington Times - Saturday, July 7, 2007

TOLEDO, Ohio (AP) — Auto parts maker Dana Corp. took a huge step yesterday toward moving out of bankruptcy, striking a deal that will free it from paying for health care for retirees.

The company expects to save more than $100 million per year by shifting the responsibility of retiree health care 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 health care 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 formally begin later 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 yesterday that Centerbridge Capital Partners will invest $500 million in the company, giving the investment group up to 25 percent 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 Dana Chairman and Chief Executive Officer Michael Burns.

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 cheaper labor expenses.

The Detroit Three say they have a $30 per hour labor cost gap with Japanese competitors. 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-based Goodyear Tire & Rubber Co. and the United Steelworkers union with a similar health care trust fund.

Goodyear estimates it will 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 health care and long-term disability coverage for employees.

Despite the large one-time payments, Dana will save money over time, Dana spokesman Chuck Hartlage said. The company paid out $80 million to cover retiree health care in 2006, he said.

The settlements also include four-year extensions of Dana’s contracts with the two unions at its plants in the United States. They cover some 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.

The company intends to file a reorganization plan by September and emerge from bankruptcy before the end of the year, Mr. Burns said.

Sean Egan, managing director of Egan-Jones Ratings Co., said the deal gives Dana “a fighting chance to prosper in the future.”

Dana and other auto suppliers still will be challenged in the coming years because domestic automakers will face an onslaught of foreign imports, he said.

Dana sells brakes, axles and other parts to most major automakers, including General Motors Corp. and Ford Motor Co.

It filed for bankruptcy protection in March 2006 under pressure from big car makers to sell parts at lower prices. Dana has said its U.S. operations lost $2 billion over the past five years.

The company’s strategy now includes moving manufacturing capacity from the U.S. to lower-cost countries, such as Mexico. It is closing eight North American plants and selling several manufacturing units.