Ford Motor (F) has been exempted from making a cash payment to a retiree health care fund known as a Voluntary Employee Beneficiary Association (VEBA) by the Labor Department. The fund, created by Ford in contract with the United Automobile Workers (UAW) in 2007, is expected to help the company eliminate billions of dollars in liabilities. The company would use stock instead of cash to pay up to half of the $13.1 billion that it owes VEBA.
 
Ford owes an initial payment of $1.9 billion to the retiree fund at the end of the month, with up to $600 million of that amount payable in stock. With this, health care coverage for about 285,000 Ford retirees and their dependents, along with some active workers will shift on Jan 1, 2010 from Ford to the fund.
 
General Motors and Chrysler have also created retiree health care funds after their bankruptcies this year. About 17.5% of GM and 55% of Chrysler are owned by their respective VEBA funds.
 
Ford returned to profitability in the third quarter of the year by posting a net income of $873 million or 26 cents per share, easily clearing the Zacks Consensus Estimate loss of 15 cents per share as well as the year-ago loss of 6 cents per share.
 
This was, in fact, Ford’s first operating profit since the first quarter of 2008. The company, which was on the verge of bankruptcy in the middle of the year, accredited its rebound to an improved product line, effective structural cost reduction actions and improved results at Ford Credit.
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