The United Auto Workers’ (UAW) loud complaining that they’re being asked to bear a disproportionate share of the costs of restructuring the Big Three begs the question: How much is their fair share to bear? As Holman Jenkins notes, in his Wall Street Journal column, the UAW may not like the answer.
The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)
The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three — though now the UAW would be sitting on both sides of the table.
Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the “M” word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was “threatening the UAW’s traditional monopoly on labor in the domestic auto industry.”
The erosion of the Big Three’s market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, “pattern bargaining,” which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.
In practice, monopoly bargaining generally leads to an adversarial relationship between a company’ s management and the union that represents its employees, so it will be interesting to see how the UAW “sitting on both sides of the table” affects this dynamic. On the one hand, its members would still expect the UAW to gain the highest pay and benefits possible. On the other, as a major partial owner, it would have very strong incentives to keep costs down to help increase profits.
In the public sector, two parties sharing the same goal is common, since government agency administrators and the unionized employees they supervise both want to justify getting more money from taxpayers, who can’t go elsewhere. Car buyers, however, can go take their business elsewhere.
Throughout the Detroit automakers’ bailout saga, the United Auto Workers’ leadership has claimed that the union has made enough major concessions to date, and that demands for it to make more, from company and government officials, are attempts “to make workers shoulder the lion’s share of the costs of any restructuring plan.”
If the UAW leadership is so concerned about the union’s rank-and-file bearing the costs of the Detroit automakers’ restructuring, there’s one item on which it could easily save millions for its members. Reports Foxnews.com:
Even as the industry struggles with massive losses, the UAW brass continue to own and operate a $33 million lakeside retreat in Michigan, complete with a $6.4 million designer golf course. And it’s costing them millions each year.
The UAW, known more for its strikes than its slices, hosts seminars and junkets at the Walter and May Reuther Family Education Center in Onaway, Mich., which is nestled on “1,000 heavily forested acres” on Michigan’s Black Lake, according to its Web site.
But the Black Lake club and retreat, which are among the union’s biggest fixed assets, have lost $23 million in the past five years alone, a heavy albatross around the union’s neck as it tries to manage a multibillion-dollar pension plan crisis.
Necessities, shmecessities….
The Bush administration’s outline of its automaker bailout package lists some seemingly sensible changes in labor practices that GM and Chrysler need to make. (Ford, to its credit, is seeking private financing instead.)
Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
- Reduce debts by 2/3 via a debt for equity exchange.
- Make one-half of VEBA payments in the form of stock.
- Eliminate the jobs bank.
- Work rules that are competitive with transplant auto manufacturers by 12/31/09.
- Wages that are competitive with those of transplant auto manufacturers by 12/31/09.
But…
These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.
Conditions with a loophole wide enough to drive a GMC truck through are hardly the stuff of which corporate transformations are made. To be fair, the Bush administration has recognized the biggest labor-related problems affecting these companies, so it is particularly unfortunate that it is being this timid.
The requirement to pay contributions to VEBAs (voluntary employee benefit associations) draws welcome attention to a looming problem. VEBAs are intended to serve as health care trusts that allow companies to pass their health insurance obligations on to another party, in this case a union. It makes sense for a company to want to shed those costs, and GM has already passed $35 million on to the United Auto Workers.
But, as Brian Johnson and Ryan Ellis of Americans for Tax Reform point out:
[T]he United Auto Workers has been given a free hand to define “health care” under the Treasury regulations—not coincidentally written by IRS officials of Presidents Lyndon Johnson and Jimmy Carter—which implement VEBAs.
Payments in the form of stock would at least help make VEBAs less liquid and thus prone to abuse — but even then, the requirement is only for half of payments, and is only a non-binding target for use of taxpayer money.
Finally, handing a large union a large wad of cash requires holding the union to a high standard of accountability, something for which President-elect Obama’s pick for Labor Secretary doesn’t provide confidence.
Last night, the Detroit Big Three bailout package crashed and burned for the best of reasons. To their credit, Senate Republicans refused to abide the United Auto Workers’ cavalier attitude toward further, drastic concessions. Reports The New York Times:
Late Thursday, the Senate did not take up an assistance measure passed by the House, after hours of negotiations between Senate Republicans with the auto companies and the U.A.W. The sticking point apparently was the union’s refusal to agree to lower wage and benefit rates as soon as next year.
Representatives for the union, which had already accepted a series of cuts in its current contract, sought instead to push any more concessions back to 2011, when the U.A.W.’s contract with Detroit auto companies expires.
And the UAW’s stated reason for wanting to take so long? The union put out a statement:
“Unfortunately, Senate Republicans insisted that this had to be accomplished by an arbitrary deadline. This arbitrary requirement was not imposed on any other stakeholder groups. Thus, the U.A.W. believed this was a blatant attempt to make workers shoulder the lion’s share of the costs of any restructuring plan,” the statement said.
Isn’t it inconvenient how an emergency can impose an “arbitrary deadline”? The UAW’s argument of “Make them do more!” cannot obscure the fact that the union itself still needs to make further concessions, no matter what.
If the Detroit auto makers’ situation were truly as dire as they and the union claim, they’d be renegotiating contracts now.
Mickey Kaus, a moderate Democrat, explains how the proposed auto bailout contains little leverage for the proposed “auto czar” to really cut the excessive labor costs that threaten the automakers’ survival, and how it is unlikely that the government will “get its money back,” contrary to what the bailout’s (mostly Democratic) supporters claim.
We earlier noted that auto workers at American-owned plants are paid $70 an hour in compensation, while workers at the U.S. factories owned by foreign car markers get paid less than $50 an hour. The U.S.-owned automakers will not be competitive until that disparity is reduced, but that is unlikely to happen, because any auto czar will be accountable to the Obama Administration and Congress, which are dominated by liberals supported by the United Auto Workers union. State dealer franchise laws in states like New Jersey, which fleece automakers to perpetuate underperforming auto dealerships, also need to be preempted by federal law to reduce the U.S. automakers’ costs.
Nobel Prize-winning economist Gary Becker explains why bankruptcy would be better for American consumers and taxpayers than a bailout, since filing for bankruptcy would allow the automakers to cut their inflated labor costs.
Failure to cut labor costs will make any bailout an exercise in futility, as the British government found when it foolishly spent billions of dollars in the 1970s in an abortive effort to bail out the failing British car industry. (Today, Europe’s largest auto plant is in England, but it’s owned by the Japanese automaker Nissan. So even if American automakers were to not only go bankrupt (like the airlines, which keep operating even in bankruptcy), but also stop producing cars, the cars still might be produced in the U.S. by a foreign car company).
In the Wall Street Journal, Holman Jenkins argues that even a multibillion dollar bailout will simply be wasted, without turning around the auto makers’ fortunes, if federal CAFE (fuel-economy) regulations are not repealed or reformed. He notes that a gas tax would be a less economically burdensome and more effective way of increasing cars’ gas mileage than CAFE standards, and would place American automakers at less of a disadvantage relative to their foreign competitors.
Manhattan financial analyst Eric T. Singer argues that the bailout and the proposed “Car Czar” will harm the auto industry by giving political priorities like “union jobs and green initiatives” priority over producing affordable cars motorists actually want, resulting in the auto industry limping along on “life support,” at a tab of billions of dollars a year in taxpayer subsidies.
In his CBSNews.com column today, CNet’s Declan McCullagh makes a good case against bailing out the Detroit Big Three. As he rightly points out, decades of extremely generous union contracts have yielded huge liabilities in what have become known as “legacy costs,” which include such things as pensions and retiree health insurance.
In recent years, these legacy costs have become an enormous burden on GM, Ford and Chrysler, who face increased competition from foreign automakers, most of whom have lower labor costs thanks to much lower levels of unionization. One particularly lavish benefit is the United Auto Workers’ employer-funded “Jobs Bank,” which pays laid-off auto workers get paid their full salary for not working. McCullagh writes:
A beneficiary of that program was someone named Jerry Mellon, who worked for GM until his division merged with another in 2000 and he was no longer needed. Except for a brief period in 2001, Mellon received his full salary for not working, which reached $64,500 a year by 2006. Include benefits, and the annual cost to GM exceeds $100,000.
Nice work — or lack thereof — if you can get it! McCullagh goes on:
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