Ford Motor Co has reached a tentative deal with the United Auto Workers union on changes to a retiree health care trust, becoming the first Detroit automaker to secure union concessions on the key issue.

Ford's shares were up 12 percent in mid-morning trading on the New York Stock Exchange following the news while shares of larger rival General Motors Corp were up almost 4 percent.

Ford, the No. 2 U.S.-based automaker, said the deal gives it the option to settle up to 50 percent of payments to the Voluntary Employees Beneficiary Association, or VEBA, in stock. Previously, all payments were due in cash.

We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value, Ford said in a statement.

All three Detroit automakers have been in negotiations with the UAW on changing the terms of their VEBA health care trusts, which is mandated under the $17.4 billion U.S. government bailout of GM and Chrysler LLC.

The terms of the bailout require both companies to make half of planned contributions to VEBA in company stock in lieu of cash.

GM said negotiations between the automaker and the UAW are continuing but it has nothing to announce relative to the VEBA. A Chrysler representative was not immediately available for comment.

Ford, which has not accepted any government loans, has said it expected the union to offer parity with any concessions granted to its U.S.-based rivals, including the key requirement on VEBA funding.

The Dearborn-based automaker, which posted a record $14.6 billion loss in 2008, has sought to distance itself from its U.S. rivals, which have requested an additional $22 billion to support turnarounds.


GM, Ford and Chrysler collectively have pledged about $48 billion to the VEBA fund through transfers of current trusts and future payments to cover a share of their estimated $80 billion health care liability.

But with GM and Chrysler running short of cash and Ford also battling to survive a brutal downturn in car sales, the UAW has come under intense pressure to accept concessions that would rewrite provisions for funding the VEBA even before it takes effect in 2010.

UAW President Ron Gettelfinger said in 2007 the creation of the VEBA trust would safeguard retiree health care for 80 years.

Ford said the VEBA agreement -- together with the deal reached on February 15 to modify the labor contract -- is subject to ratification by active UAW-Ford members and other conditions, including concessions from other stakeholders.

The proposed modifications were expected to be presented to the union's local Ford leadership at a council meeting early this week, according to the unions.

The modifications will protect jobs for UAW members by ensuring the long-term viability of the company, UAW President Ron Gettelfinger said in a statement.

The union also said the changes to the VEBA will require court approval.

The union's tentative agreement with the automaker on the labor contract includes changes to labor costs, benefits and operating practices.

Neither Ford nor the UAW provided further details on the contract changes.

(Editing by Maureen Bavdek and Brian Moss)