Aug. 24 (Bloomberg) -- A split in the ranks of the three U.S. automakers may jeopardize efforts by General Motors Corp. and Ford Motor Co. to save $2.5 billion a year in health care costs.

For decades the United Auto Workers union has wrung almost identical agreements from GM, Ford and Chrysler as they added benefits or agreed to concessions.

Maybe not this year. GM and Ford want to cut costs by transferring retiree health benefits to a union-run fund. Chrysler LLC, now owned by Cerberus Capital Management LP, has different priorities, according to people with knowledge of the situation. The smallest of the three automakers needs to negotiate more immediate savings to raise cash for operations, said the people, who don't want to be named because the discussions aren't public.

The divided front may make it harder for carmakers to get the concessions they want from the UAW, which represents 180,681 workers, or about a third of the companies' global workforces.

GM and Ford, the biggest U.S. automakers, need to stanch losses and meet investors' expectations for successful talks that helped their shares gain more than 10 percent this year, before the recent global stock decline. By contrast, Chrysler is focusing on short-term cash flow.

`Wild Card'

``Chrysler is really the wild card because of private- equity ownership and the possibility they want to maximize short-term returns on a minimum investment,'' said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.

The UAW is in talks with Detroit-based GM, Dearborn, Michigan-based Ford and Auburn Hills, Michigan-based Chrysler to replace four-year contracts that expire Sept. 14. GM spokesman Dan Flores and Ford's Marcey Evans declined to comment on negotiating strategies.

Chrysler is ``clearly focused on cash'' in the talks, said Al Iacobelli, vice president of union relations at Chrysler Group, on July 20. ``That will be a centerpoint of our discussions.''

The companies have exchanged preliminary offers with the union, people familiar with the talks said, without providing details.

``The pressure at Chrysler is to cut costs quickly, and they do not have the same pressures as GM and Ford,'' said Bill Smith, president of Smith Asset Management in New York, which holds about 70,000 GM shares. A union contract with unique provisions for Chrysler ``could be dire consequences for both GM and Ford.''

Chrysler Strategy

Chrysler President Tom LaSorda and other executives declined to comment on their strategy for cutting union health- care costs earlier this month.

``We don't have one issue that is more important over the other,'' Chrysler spokesman Mike Aberlich said. ``We are not putting all our eggs in one basket. The general issue is health care, but we are looking at a variety ways of getting it done.''

GM shares rose 30 cents to $31.05 at 4:02 p.m. in New York Stock Exchange composite trading. Ford shares rose 15 cents to $7.90.

Retiree health-care liabilities totaled $64 billion at GM at the end of last year and $31 billion at Ford, according to company filings. The three U.S.-based automakers spent $12 billion last year on medical care for 2 million employees, retirees and dependents, GM Chief Executive Officer Rick Wagoner said in June.

Toyota's Edge

The benefits contribute to a labor-cost gap with Toyota Motor Corp., which has few retirees and a non-union workforce in the U.S. The U.S. automakers say they pay $25 to $30 per hour more than Toyota for American labor.

The gap helped Toyota, Nissan Motor Co. and Honda Motor Co. earn an average of $3,814 more in profit per vehicle last year than GM, Ford and Chrysler, analyst Laurie Harbour-Felax of Chicago-based Stout Risius Ross Inc. said earlier this month.

GM, Ford and Chrysler lost a combined $15 billion last year, while Toyota, poised to overtake GM as the world's largest automaker in 2007, made a profit of about $14 billion.

GM and Ford would benefit from shifting health-care costs to union-run funds because the obligations amount to negative net shareholder value under new accounting rules.

Shifting to a health-care fund would add as much as 73 cents a share to GM's earnings and 25 cents a share at Ford, while adding a combined $2.5 billion, net of the costs to pay for the funds, to the automakers' cash flow by 2010, JPMorgan & Chase & Co. analyst Himanshu Patel wrote in a June report from New York.

Saving Cost

Independent health-care funds could save the carmakers money even as they would have to spend cash to set them running. Bankrupt U.S. auto supplier Dana Corp. said a pair of union retiree funds approved in July are expected to help the company save $100 million a year and remove $1 billion in liabilities from the balance sheet, after it contributes $764 million to the funds.

Goodyear Tire & Rubber Co. also reached an agreement to fund its union health-care obligations at about 80 cents on the dollar.

Ford is discussing a plan with the union to pay about 70 cents on the dollar for a retiree fund, people familiar with those talks said.

Ford CEO Alan Mulally said this week in Detroit that he is optimistic the automaker can reach a new contract with the UAW on time because both sides ``know the seriousness'' of the talks.

Union Backing

The unions have backed the plans at the auto suppliers in part to protect benefits that could vanish if the companies collapsed. Retiree health care, unlike pensions, isn't insured by the U.S. government.

The UAW would also gain control of the health-care benefits of its retirees and the ability to decide where the funds would be invested, said Harley Shaiken, a labor-relations professor at the University of California at Berkeley.

GM said it had $27.2 billion in cash and other readily available assets at the end of June, and Ford has $37.4 billion which could be used in part for independent health-care funds. Chrysler doesn't disclose its cash.

Cerberus, the buyout firm led by former U.S. Treasury Secretary John Snow, completed its $7.4 billion purchase of 80.1 percent of Chrysler from DaimlerChrysler AG on Aug. 3. Three days later, the company appointed former Home Depot CEO Robert Nardelli to head Chrysler, demoting LaSorda to president.

Chrysler's Obligations

LaSorda, Chrysler's head negotiator John Franciosi and his team will likely take the lead on UAW talks that ``could be a landmark negotiating period not only for Chrysler but for the entire auto industry,'' Nardelli said Aug. 6.

Chrysler has about $19 billion in retiree health-care obligations. It also has about $10 billion in new debt after the Cerberus takeover. The automaker canceled plans to sell the loans after it failed to find investors. The banks underwriting the loans are holding the debt until investors can be lined up.

``Ford and GM have created the liquidity to do this,'' said Pete Hastings, an analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``Maybe that would be harder to justify at Chrysler.''

If Cerberus doesn't join the push for union-run health care funds, it reduces the chances for GM and Ford, as the UAW usually seeks similar contracts with all three companies under a practice called ``pattern bargaining.''

UAW President Ron Gettelfinger said July 23 he's ``absolutely'' seeking pattern agreements in the current talks.

Individual Agreements

That still may not rule out individual agreements on funds.

``They have allowed divergence in the past, when necessary,'' Shaiken said of the union's negotiators.

Cerberus's Snow said in an interview last month that Chrysler would be open to a retiree health-care fund if it makes financial sense. He said he has not personally done an analysis on the advantages or disadvantages.

``We are still encouraged'' about the chance of health-care funds, at least at GM, Patel wrote in an Aug. 7 report.

LaSorda, hours after employees learned he was no longer Chrysler's top boss, said the differences among the U.S. automakers are evident as he spends less time worrying about quarterly financial results and more about boosting cash flow.

``There is a big focus on cash and daily cash reporting,'' LaSorda said. ``It's not about the quarter. It's about cash.''

To contact the reporters on this story: Jeff Bennett in Southfield, Michigan, at jbennett17@bloomberg.net; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

Last Updated: August 24, 2007 16:19 EDT