By Steve Schifferes Economics reporter, BBC News

Ford built a modern truck plant on the site of River Rouge,

The big US car manufacturers and the once-mighty United Auto Workers (UAW) are holding talks aimed at avoiding strike action that could cripple the US industry.

The stakes could not be higher for either the companies, GM, Ford and Chrysler, or the union as contracts covering 200,000 workers expire at midnight on 15 September.

The companies have to come out of this to be substantially profitable over the long term David Cole, Centre for Automotive Research.

The US car companies are desperate to shed costs, especially for health care and pensions, which they believe are crippling their attempts to compete with Japanese and Korean rivals like Toyota and Hyundai.

They have already shed thousands of jobs and closed dozens of plants years of losiong market share to their Asian rivals in the US car market.

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Now they are threatening to shift production - or, in the eyes of the union, to move jobs - abroad to China and other low-wage locations, unless they can get union agreement to further job cuts, and, crucially, to cut the cost of their pension and health care plans.

The companies have lost billions of dollars in US operations in recent years, and some analysts think that one of the big three could go bust if there is a strike.

"This contract is not just about traditional wages and benefits - it's about restructuring," says David Cole, head of the Centre for Automotive Research.

"The companies have to come out of this to be substantially profitable over the long term."

Union stakes

But for the UAW, these negotiations are proving very difficult.

The union fought bitter battles for recognition in the 1930s

The union has already lost half its membership as the Big Three carmakers have downsized, and as it has been unable to organise workers in factories built by companies like Toyota and Nissan in the non-union South.

So the union is eager not to put any of the US companies out of business.

But it is facing anger from many of its members, 70,000 of whom have already taken redundancy, and who have already agreed to cuts in pension and welfare benefits in previous negotiations.

Some rank-and-file members told the BBC earlier in the year that enough was enough, and they did not want to be "pushed around" by the companies any more.

Many say they, and their family members, depend on the health care benefits they receive before they are eligible for government-funded Medicare benefits.

And the retirees, although they do not vote in contract negotiations, vastly outnumber active UAW members, with 419,000 retired members, and 120,00 surviving spouses, receiving company benefits.

Health care plans

One possibility being floated by the companies is for the UAW to take over the running of the company benefit plans for their retirees.

Japanese rivals face lower health care costs

The companies say they would be prepared to create voluntary employee beneficiary associations, controlled by the UAW but funded by $60bn - $90bn (�30-45bn) from the companies, to offload their obligations.

The union would become one of the largest providers of health care in the US, with increased influence and relevance to its members, while the companies hope that with the health care costs off their balance sheets, their share prices would rise as investors would be able to focus on their productive capacity rather than on their hard-to-quantify liabilities.

But the deal would carry big risks for the union, as they would be assuming the risk of ensuring the future funding of these programmes, and would have to make cuts themselves if things went wrong.

However, some analysts say it is the best deal available.

"Pre-funding of retiree health care benefits makes all parties better off," says John Murphy of Merrill Lynch.

Company splits

However, one problem complicating the negotiations is the differing financial situation of the Big Three.

Ford is virtually bankrupt, having mortgaged most of its assets, and is now in the process of selling at least parts of its European luxury car division, which contains Jaguar, Land Rover and Volvo.

Chrysler is also heavily in debt, having been just taken over by a private equity firm after its former owners, the German car firm Daimler, decided to sell up.

GM, although still losing money most quarters on its North American car operations, is further along in its restructuring, so it could afford to make more concessions to the unions, on such issues as job security, in order to get a deal.

GM also has a more viable option of walking away from its North American operations and concentrating on its profitable business in Asia, Latin America, and Europe.

GM's generous deal with its former Delphi workers may have set the pattern. And a relatively generous settlement, particularly on job security, might pile on the pressure on its rivals who have less room for manoeuvre.