uaw

Supreme Court Temporarily Blocks Illegal Chrysler Giveaway to UAW

by Hans Bader on June 9, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Legal, Mobility, Politics as Usual, Regulation

Supreme Court Justice Ruth Bader Ginsburg yesterday granted a stay temporarily blocking the government’s plan for Chrysler, which would give effectively give most of the company to the UAW union, while paving the way for a dubious merger with Fiat. The stay was sought by pension funds that were (along with taxpayers) ripped off by the government’s plan.

The pension funds deserve to win, since the government has trampled on federal bankruptcy laws, the federal TARP bailout statute, and the Constitution in forcing its plan down the pension funds’ throat.

But there’s no telling how long the stay will last, or if the Supreme Court will reach the merits of the pension funds’ claims. The federal government says that even if it is acting illegally, the courts are powerless to do anything about it, since the pension funds challenging its actions have no legal standing to complain. A federal bankruptcy judge bought this argument. But it is false, as I explained yesterday, since the funds do indeed have standing, even if the government were right in its exaggerated claims about what will happen if its plan is blocked.

The bailouts have been economically destructive, politicizing auto industry decisions. The Washington Post today notes that as a result of being bailed out, General Motors is now even more subject to “political pressures,” and as a result plans to build a money-losing politically-correct car “even if it loses money, taxpayer money.” Obama recently pressured General Motors to keep its headquarters in high-tax, crime-ridden, racist, economically-collapsing Detroit.

General Motors and Chrysler would have been better off if they had filed for bankruptcy last year, rather than taking federal money, since the bailouts have come with costly political strings attached, such as dropping opposition to costly CAFE regulations and other federal mandates, and bowing to political meddling in fundamental corporate decisionmaking, and have left the automakers with higher labor costs than if they had just ripped up their collective bargaining agreements in a standard bankruptcy. That endangers their long-run competitiveness. Indeed, the politicized auto bailouts resemble the failed British auto bailouts of the 1970s. If the automakers had ripped up their collective bargaining agreements in a regular bankruptcy, they would now be in a position to recover without taxpayer funds, since it was rising gas prices last year that pummeled their ability to sell the big cars that are their profit center, and gas prices have fallen enormously since their peak last year.

The Obama and Bush Administrations used money from the $700 billion financial system bailout for an auto industry bailout. Legal scholars at the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts violates the bank-bailout statute.

The federal government is effectively giving Chrysler to the UAW union, while giving the shaft to other Chrysler stakeholders, like the Indiana state pension funds that invested in loans to Chrysler. As law professors like Todd Zywicki have noted, that violates federal bankruptcy laws.

Indiana Treasurer Richard Mourdock was right to challenge it in court. Mourdock correctly notes that the unfair plan for Chrysler pushed by the Administration violates the bankruptcy laws and rips off Indiana residents by leaving state employee pension funds and construction funds with a small fraction of what they are owed by Chrysler, far less than the UAW is getting, even though the pension funds are secured lenders and the UAW is not. By cheating Chrysler’s lenders, the government’s plan discourages lending, and sets a dangerous precedent that makes it harder for companies like Chrysler to raise money to create jobs in the future, as newspapers like USA Today have noted.

Union Keeps Special Privileges Through Taxpayer Bailout of General Motors

by Hans Bader on June 3, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Labor, Mobility, Politics as Usual, Regulation, Stimulus to Nowhere

The federal government is spending more than $50 billion to bail out General Motors, with no end in sight. But the UAW union refused to sacrifice its privileged position to save the company, demanding excessive wages and benefits that are much higher than most Americans get. The Obama Administration caved in to its demands, saddling GM with high labor costs that may doom the company in the long run.

As the Washington Post notes today, the “concessions” that Obama obtained from the UAW were merely cosmetic: “Union concessions were ‘painful’ only by the peculiar standards of Big Three labor relations: At a time when some American workers are facing stiff pay cuts, UAW workers gave up their customary paid holiday on Easter Monday and their right to overtime pay after less than 40 hours per week. They still get health benefits that are far better than those received by many American families upon whose tax money GM jobs now depend. Ditto for UAW hourly wages . . . . Cumbersome UAW work rules have only been tweaked.” Earlier, the Post lamented the “preferential treatment of the autoworkers’ union at the expense” of other company stakeholders and creditors, noting that “the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. Small wonder that even the liberal Post, which backed Obama’s bailout of GM in March, now has soured on it.

If GM had rejected a federal bailout, and filed for bankruptcy in December, it would be recovering right now, since it could have used bankruptcy proceedings to tear up the collective bargaining agreements with the United Auto Workers that saddle it with excessive wages and benefits and rigid work rules, and it would also be benefiting from the fall in gas prices from $4 last year to $2.50 now. By avoiding a federal takeover, it would also have greater freedom to oppose costly regulations proposed by the Obama Administration, such as CAFE and global warming regulations, which will destroy tens of thousands of autoworker jobs).

The bailout is neither necessary nor likely to be successful in the long run. In its auto bailout in the 1970s, England did the same things that Obama is doing now, like propping up high union wages and promoting the production of little “green” cars consumers may not want. Its bailout failed miserably, destroying the British auto industry’s chance of survival.

Even more wasteful than the GM bailout is Obama’s wasteful $800 billion stimulus package, which has destroyed tens of thousands of jobs.

Even as it engages in costly, unauthorized auto bailouts that have no legal basis, the Administration is abdicating core federal responsibilities like enforcing the voting-rights laws. Political appointees in the Obama Justice Department recently blocked action against a racist, anti-semitic hate group (whose members included an Obama poll-watcher and city democratic official) that used nightsticks and racial epithets to drive white voters away from a polling place in Philadelphia last year. The Obama Justice Department has also rubberstamped unconstitutional legislation, failed to protect the voting rights of American servicemen, and been deafeningly silent about a liberal black political boss in Mississippi who prevented voters from casting ballots and engaged in vote fraud.

Obama Panders to the UAW: $30 Billion More for Wasteful Auto Bailout

by Hans Bader on June 2, 2009

in Bailout Watch, Economy, Employment, Energy, Global Warming, International, Politics as Usual, Stimulus to Nowhere, Trade

The federal government is giving another $30 billion in taxpayer money to General Motors to allow it to operate without having to cut excessive union wages. The Obama Administration is “gambling” on its ability to turn around the company under government control.

The Obama Administration has said it will now interfere not just with the “selection of the company’s board of directors,” but also in “fundamental corporate decisions,” and “major corporate events and transactions.” For example, Obama recently pressured GM to keep its headquarters in crime-ridden, economically-collapsing Detroit.

The $30 billion is excessive even if the Administration’s wildest hopes come true. Even if federal money were the only way to keep GM afloat (which it isn’t — GM could be made competitive simply by cutting its excessively high employee wages to lower levels that still exceed average American wages), and even if the bailout saved not only GM jobs but also the jobs of “related suppliers and dealers,” “the price of the U.S. government bailout comes to about $125,000 per employee, including those working for related suppliers and dealers,” according to the Washington Post.

If GM had rejected a federal bailout and takeover, and simply filed for bankruptcy in December, it would be recovering on its own right now, since it could have used bankruptcy proceedings to tear up the collective bargaining agreements with the United Auto Workers that saddle it with excessive wage and benefits and rigid work rules, and it would also be benefiting from the recent collapse of oil prices. It was record-high gas prices that forced consumers to buy smaller cars last year, battering GM’s finances, which were based around selling big cars. But gas prices have fallen from over $4 a gallon last year to $2.50 now. So the bailout is saving no jobs, it’s just allowing GM to keep union wages high at taxpayer expense, while keeping it from becoming competitive in the long run. (The recent drop in gas prices will also mask the effects of incompetent management of GM by the Obama Administration. On the other hand, the Administration’s CAFE and global warming regulations, which GM opposed before it was taken over by the Administration, will destroy tens of thousands of autoworker jobs).

The bailout is neither necessary nor likely to be successful in the long run. In its failed auto bailout in the 1970s, Britain did the same things that Obama is doing, like propping up high union wages and promoting the production of little “green” cars consumers may not want. Its bailout failed miserably, destroying the British auto industry’s chance of survival.

“‘Countries . . . protect ailing auto companies on the theory that they need to protect jobs,’ said Maryann N. Keller, an independent auto analyst. ‘But it’s not clear that protecting companies leads to the revival of those companies.’ As for the jobs, Keller said ‘a lot of that is bunk’ because Americans would buy the same number of cars no matter who the maker is. ‘Somebody would still make the parts,’ she said. ‘They would just be made for a different customer.’”

Why is the Obama Administration doing something so wasteful? Politics. The UAW is one of the biggest sources of money and manpower for the Democratic Party and Obama, and the UAW is now calling the shots. (The UAW spent millions electing Obama).

While taxpayers have spent tens of billions of dollars bailing out the Detroit automakers, the UAW has made little in the way of sacrifices, refusing to accept cuts in pay that could keep the automakers able to compete with lower-cost competitors. As even the liberal Washington Post lamented, “the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. Meanwhile, the government has ripped off pension funds and bondholders who loaned the car companies money.

The bailouts aren’t the only outrageous waste of taxpayer money taking place right now. Even bigger is the wasteful $800 billion stimulus package, which is harming the economy, both by triggering foolish trade wars that have backfired and cost at least 40,000 jobs, and by driving up interest rates for businesses that need to borrow money to expand or create jobs. (The government is keeping down interest rates on its own debt by printing vast sums of money to buy its own bonds, in order to finance the exploding national debt, which will result in massively higher taxes).

Wasteful Obama Auto Bailouts Disturb Even Liberal Washington Post

by Hans Bader on May 30, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Labor, Politics as Usual, Regulation, Stimulus to Nowhere

Even the liberal Washington Post, which endorsed Obama and has not backed a Republican for president since 1952, is getting fed up with the Obama Administration’s wasteful and politicized bailouts of General Motors and Chrysler. Today, it laments the
“imminent transformation of General Motors into a government-owned company, infused with upward of $50 billion in federal money.” “It doesn’t take much imagination to forecast the political pressures that will buffet the government-as-auto-executive. We’ve seen one effect already in the preferential treatment of the autoworkers’ union at the expense of private creditors. . . . the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. And politics will now divert the company’s attention away from making cars consumers actually want. “Influential members of Congress will insist on jobs in their districts; environmentalists will want electric cars; overseas sourcing will be frowned upon. How such decisions affect profits could become secondary.”

That’s what happened in Britain in the 1970s. The government took over and attempted to bail out the country’s auto industry, and ruined it in the process, destroying whatever chance it had left to survive. The British auto industry ended up being run mainly to benefit the unions, and produced politically-correct cars drivers didn’t want.

Earlier the Post argued that Obama “should stop bullying the company’s bondholders”: “While the Obama administration has been playing hardball with bondholders, it has been more than happy to play nice with the United Auto Workers. How else to explain why a retiree health-care fund controlled by the UAW is slated to get a 39 percent equity stake in GM for its remaining $10 billion in claims while bondholders are being pressured to take a 10 percent stake for their $27 billion?” “If this were a typical bankruptcy, the company would be allowed by law to tear up its UAW collective bargaining agreement and negotiate for drastically reduced wages and benefits. That’s not going happen. Phrased another way: The government won’t let that happen.” Instead, the government is moving towards “financial engineering that ignores basic principles of fairness and economic realities to further political goals.”

The automakers would have been better off simply filing for bankruptcy last fall rather than seeking a taxpayer-funded bailout. The bailouts have cost taxpayers tens of billions, but made it harder to fix the root causes of the crisis facing the Detroit automakers, such as excessive labor costs.

The federal government poured billions of dollars into Chrysler, which then went bankrupt and now is in the process of merging with Fiat. But Chrysler may never revive, thanks to absurdly generous compensation for the company’s union employees. The Obama Administration has refused to cut union wages substantially, though it had no compunction about ripping off the pension funds and other lenders who loaned money to Chrysler to try to keep it afloat. Even union members seem surprised by how little they were asked to sacrifice. (The Administration is also seeking to rip off GM bondholders to benefit the union).

Moderate Democrat Mickey Kaus, who reluctantly voted for Obama, notes that the federal bailout may yet fail because of Obama’s failure to reduce excessive labor costs:

“Before the deal, Chrysler’s UAW workers made $28 an hour. After the deal, they’ll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler’s Belvidere, Illinois workers told TV station WIFR that ‘the plan is not nearly as drastic as they expected.’ …As for Chrysler’s ‘chance for long-term success,’ it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, ‘four of the six new vehicles from Fiat will enter the small-car segment,’ which is highly competitive but ‘covers only 14 percent of the entire U.S. light-vehicle market.’ . . . Pathetically, Chrysler hopes that even if they don’t save the company the new small cars will ‘[b]urnish the environmental image of Chrysler brands,’ says Automotive News. Unfortunately, the pipeline for those brands’ other, larger, products–burnished or not–is pretty much empty. If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a ‘chance for long term success’ through charging lower prices. But that wasn’t a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing).”

In addition to leaving General Motors and Chrysler saddled with excessive costs and union ownership, Obama harmed them by radically ratcheting up federal CAFE fuel-economy standards, which affect them more than their foreign competitors. 50,000 jobs could be lost. And his global-warming regulations will destroy countless jobs and cut “household purchasing power,” reducing auto sales and Chrysler’s chances of survival.

Chrysler Confronts Grim Future, Despite Billions in Taxpayer Subsidies

by Hans Bader on May 22, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Legal, Mobility, Politics as Usual, Regulation

The federal government poured billions of dollars into Chrysler, which then went bankrupt and merged with Fiat. But Chrysler may never revive, thanks to absurdly generous compensation for the company’s union employees. The Obama Administration has refused to cut union wages substantially, though it had no compunction about ripping off the pension funds and other lenders who loaned money to Chrysler to try to keep it afloat. Even union members seem surprised by how little they were asked to sacrifice.

Moderate Democrat Mickey Kaus, who reluctantly voted for Obama, notes that the federal bailout may yet fail:

“Before the deal, Chrysler’s UAW workers made $28 an hour. After the deal, they’ll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler’s Belvidere, Illinois workers told TV station WIFR that ‘the plan is not nearly as drastic as they expected.’ …

“As for Chrysler’s ‘chance for long-term success,’ it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, ‘four of the six new vehicles from Fiat will enter the small-car segment,’ which is highly competitive but ‘covers only 14 percent of the entire U.S. light-vehicle market.’ ‘The volumes need to be big for Chrysler to survive,’ [market analyst Tracy Handler] said. ‘Will they be? I have doubts about that.’

“See also this BBC article (“it’s madness”). Pathetically, Chrysler hopes that even if they don’t save the company the new small cars will ‘[b]urnish the environmental image of Chrysler brands,” says Automotive News. Unfortunately, the pipeline for those brands’ other, larger, products–burnished or not–is pretty much empty.

“If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a ‘chance for long term success’ through charging lower prices. But that wasn’t a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing).”

While saddling Chrysler with excessive compensation costs and union ownership, the Obama Administration has inflicted a body blow to its ability to sell its traditional lines of large vehicles by radically ratcheting up federal CAFE fuel-economy standards, which harm the Detroit automakers more than their foreign competitors. 50,000 jobs could be destroyed as a result. Meanwhile, the global-warming regulations backed by the Administration will destroy millions of jobs and “decrease average household purchasing power,” thus cutting auto sales and further hurting automakers like Chrysler.

One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

In the Depression, President Hoover imposed regressive excise taxes that burdened consumers. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

Retirees, Taxpayers Ripped Off to Subsidize UAW

by Hans Bader on May 21, 2009 · 17 comments

in Bailout Watch, Economy, Employment, Labor, Legal, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

Obama accused critics of his decision to give control of Chrysler to the United Auto Workers Union of being “speculators.” But it turns out that many of them are pension funds representing the interests of retirees, who are being fleeced to enrich the politically better-connected UAW.

“Indiana Treasurer Richard Mourdock revealed this week that his state’s police and teacher pension funds have lost millions of dollars in the Chrysler ‘restructuring.’ Indiana’s State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher’s Retirement Fund ‘suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government,’ reports Mr. Mourdock. Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy ‘secured’ status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy. ‘In the past, to be secured meant an investor was first in line in the event of a bankruptcy and ‘non-secured’ creditors would receive value after secured-creditors were paid,’ Mr. Mourdock says. ‘In the Chrysler bankruptcy, however, secured creditors received $.29 on the dollar even as non-secured creditors [the UAW] received higher values and ended up with a 55% ownership of the new company, which is fundamentally wrong and a dangerous precedent to the capital markets.’”

The government is now doing the same thing at General Motors, giving much of the company’s stock (plus $10 billion in taxpayer dollars) to the UAW while refusing to make good on GM bonds, which were purchased by some people to put their kids through college (and by some non-union employees to help fund their own retirement).

When public-employee pension funds suffer, as they did at Chrysler, taxpayers do, too. Public employee pensions are already underfunded by perhaps a trillion dollars, and taxpayers will likely end up being forced to pay for any additional shortfalls through increased taxes.

Jobs will disappear, too, as companies find it more difficult to raise money through bonds and loans. In response to Obama’s ripping off bondholders and lenders to enrich the UAW, hedge funds now say they may not lend to unionized companies, and Indiana’s treasurer says that he will not invest in manufacturing companies or insurers that are participating in the TARP program. Chrysler still faces a difficult future, burdened by excessive wages that even union members were surprised to see stay high.

Obama’s $800 billion stimulus package, which guts welfare reform and contains provisions that keep states from cutting the wages of overpaid public employees, is also harming the economy. The stimulus ignited trade wars with Mexico and Canada that destroyed over 40,000 jobs.

Ivan Osorio on the United Auto Workers and the Recession

by Richard Morrison on May 21, 2009

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=c8a0Il12824 285 234]

Government Bullies Retirees, Banks, Rips Off Taxpayers

by Hans Bader on May 15, 2009 · 2 comments

in Bailout Watch, Economy, Legal, Nanny State, Personal Liberty, Politics as Usual

The Obama Administration is now seeking to give the United Auto Workers Union a big chunk of General Motors, at the expense of taxpayers and bondholders (including non-union retirees). If Obama gets his way, the UAW will receive at least ten times as much value ($10 billion plus 39 percent of the company) as the bondholders (who get no money and 10 percent of the company) even though the bondholders are owed more ($27 billion vs. $20 billion). This is neither legal nor fair: under the bankruptcy laws, the UAW is not supposed to get preference over the bondholders; and it is the UAW, not the bondholders, which helped bring GM to its knees through its rigid work rules and excessive wages and benefits. The Administration will seek to get around the bankruptcy laws through a sham sale of GM’s assets to a shell company owned by the Administration and the UAW.

There are retirees — including white-collar, non-union, former GM employees — who depend on their holdings of GM bonds to pay for life’s necessities. Others bought GM bonds to put their kids through college.

The Obama Administration earlier engaged in similar tactics in the Chrysler bankruptcy, fleecing taxpayers, and the secured lenders who loaned the cash-strapped company money, in order to give the UAW union control of Chrysler. Veteran political commentator Michael Barone called it “gangster government.” Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

Earlier, the Treasury Department bullied perfectly-healthy banks into accepting bailout (TARP) money, and then sought to conceal the evidence that it did so, fighting Freedom of Information Act requests.

Among the officials who helped bully the banks was the FDIC’s Sheila Bair. Bair has used banks taken over by the FDIC to engage in politically-correct social engineering, modifying the mortgages of irresponsible borrowers to reduce their payments to just 31 percent of their income — less than many thifty, responsible homeowners currently pay, without difficulty, on their mortgages in high living-cost areas. Deadbeats have had their principal balances reduced, and had their interest rates cut to as low as 3 percent. For that gratuitous waste of taxpayers’ money, she recently received an award from the Leadership Conference on Civil Rights (an ironically-named organization that recently pushed federal legislation to circumvent constitutional protections against double-jeopardy, by allowing innocent people to be tried all over again in federal court).

“Gangster government gave Chrysler to the UAW”

by Hans Bader on May 8, 2009 · 11 comments

in Bailout Watch, Economy, Legal, Mobility, Politics as Usual

So reads the Washington Examiner’s editorial today about how Obama effectively gave ownership of Chrysler to the United Auto Workers Union (which spent millions electing Obama), rather than taxpayers (who have spent billions to bail out Chrysler) or the institutions that lent money to Chrysler based on the legal right and expectation that they would receive its assets before the UAW union would. Veteran political commentator Michael Barone also calls it “gangster government.” The UAW will also retain “lucrative” pension and health benefits, courtesy of the taxpayer.

The liberal USA Today put it more gently, but it, too, criticized the Obama Administration. Obama demonized the institutional creditors, like hedge funds, that helped Chrysler when it needed funds, and then were given the shaft in his sweetheart deal benefiting the UAW. He branded them as “speculators” when they objected to it, and then arranged a collusive sale of the company in all but name (giving up all its valuable assets) to circumvent their legal rights (a sale rubberstamped by a liberal bankruptcy judge). As a result of Obama’s attacks, these creditors have received death threats. Administration officials also threatened to smear the creditors in the press (which might violate the First Amendment).

But as USA Today notes, “those creditors have every right to balk. By doing so they are not only defending their own interests, they are standing up for the principles vital to functioning credit markets. Secured lenders get first dibs at recovering their losses if a company cannot meet its obligations. They will be less willing to lend if they fear they’ll be forced to surrender their position.”

While Chrysler’s lenders have lost almost all of their assets, the union has given up little. Indeed, USA Today notes, the UAW has “continued to press for retiree health benefits more generous than those available to taxpayers funding the bailout.” (Moderate Democrat Mickey Kaus describes UAW pension and health benefits under the deal as continuing to be “lucrative“).

As reporter and columnist Tim Carney notes, car czar (and Democratic fundraiser) Steven

“Rattner and Obama have decided that the United Auto Workers union should get 55 percent of Chrysler. At the same time, they’ve attacked many of Chrysler’s secured creditors — who, in a regular, nonpoliticized bankruptcy, would be repaid in full — for resisting this deal. In a federal complaint, these administration targets alleged: ‘The government exerted extreme pressure to coerce all of [Chrysler’s] constituencies into accepting a deal which is being done largely for the benefit of unsecured creditors at the expense of senior creditors.’

For the foreseeable future, Chrysler will be on the federal dole, both directly and indirectly. The Obama-Rattner plan puts UAW in charge of Chrysler, which is good news for the Democratic Party.

UAW’s political action committee spent $13.1 million last election cycle, a slow year for the union’s political arm. Of the PAC’s $2.3 million in direct contributions to candidates and candidate PACs, more than 99 percent went to Democrats. Of 42 Senate candidates to get UAW money, only one was Republican, and that was Arlen Specter.

The union’s PAC also reported $4.5 million in independent expenditures supporting Obama, plus an additional $423,000 opposing John McCain.

So, here’s the arrangement: You pay your taxes, the Obama administration funnels some of the money to Chrysler, whose profits enrich the UAW, which in turn funds Obama’s re-election.

Predictability, precedent and the rule of law have been replaced with the fiat of politicians. Chrysler could become a pass-through entity from taxpayers to the Democratic Party. And in charge of it all is a Democratic fundraiser. Boss Tweed would be proud.”

John McCain, by the way, opposed the auto bailout. I earlier explained why the auto bailout was illegal and economically destructive.

Detroit, D.C.

by Ivan Osorio on April 30, 2009

in Bailout Watch, Economy, Labor

Today’s Wall Street Journal further drives home the difficult position in which the United Auto Workers, Chrysler, and General Motors are likely to find themselves as a result of the UAW becoming part owner of GM and majority shareholder of Chrysler. First, the lead editorial notes the political risks inherent in the arrangement:

Some Treasury officials have told the media that 50% government ownership is important to ensure that taxpayers get repaid for the $16.2 billion in Treasury loans. But this is false logic. Taxpayer-shareholders are likely to be far better off with a smaller stake in a truly private company that is better insulated from political meddling. Private owners are more likely than the Treasury or the unions to try to run the company for profit, and so increase its equity value over time. Treasury says it would be a hands-off owner, but that hardly seems plausible and in any case that would merely leave the UAW in control. At the next labor contract bargaining session, the union would sit on both sides of the table.

And former Journal Detroit correspondent Paul Ingrassia points out the conflicting incentives that the UAW will have to control after it assumes such a huge stake in the two troubled automakers (which Holman Jenkins also mentioned this week) — as well as the irony of it all.

Having burdened the Detroit companies for decades with restrictive work rules, enormous health-care obligations and generous retiree benefits, the United Auto Workers union will now end up controlling two of them. Specifically, the UAW will own 55% of Chrysler and 39% of General Motors, where only the government will have a larger ownership interest.

Assuming that negotiations over the next few days or weeks don’t change things, it’s hard to know whether this outcome is perversity or poetic justice. The UAW finally will end up having a direct stake in the survival and prosperity of General Motors and Chrysler — even though the union’s shares in the companies will be held by special trust funds instead of by the UAW itself.

Whether the union’s rank and file will recognize its interest in the companies and act accordingly is another matter. Consider that one of the terms of Chrysler’s pending deal with the union is that workers won’t receive overtime pay until they work more than 40 hours in any given week.

One might well ask: Wasn’t it always that way? Well, no. Often enough, the union negotiated production quotas in local plant contracts that workers could fill in five or six hours a day — after which any work they did qualified for overtime pay. Now you understand one key reason why Detroit has arrived at this unhappy juncture.

That two of the major protagonists in this sorry history — the UAW and the federal government — are gaining more power over GM and Chrysler gives little reason for optimism about the companies’ future. More political manipulation is the last thing troubled companies need, and the  new  ownership structures now being finalized for GM and Chrysler are unlikely to avoid it. By seeking private financing, Ford may be about to dodge a bullet.

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