Foundersfreedom Blog

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Which do you think is the more believable scenario for the UAW?

Posted by foundersfreedom on February 15, 2009

Talks have stalled between the automakers and the UAW.  That leads me to ask a very poignant question.  Which do they prefer,  bankruptcy wherein many more may be laid off, or sadly for America and capitalism, a government take-over?

I have to assume that the union members don’t want their employers out of business, though sometimes their actions make one rethink that.  The confidence with which they continue to balk at Big 3 offers means they must have a trump card to prevent their complete demise.  My thinking is that they know the federal government will not let them fail. 

The UAW leadership is in the tank with the Democrats, the contentious issue is the health care costs of retirees, and the new administration has designs on nationalizing the health care system.  This leads to two different scenarios that end up in the same place.

If the auto companies are allowed to file for bankruptcy, the Democrats, who run all 3 branches now, will likely put the health care burden on  the backs of the taxpayers rather than leave their base in the cold.  The other option is a government take-over the companies and the health care costs again will be covered by the taxpayers by default.  Either way, the unions have nothing to lose.  Why should they give anything back at this point?

I   

In this Reuters story

By Kevin Krolicki and Poornima Gupta

 

DETROIT (Reuters) – Talks between the United Auto Workers and General Motors Corp central to a turnaround plan for the struggling automaker have broken down over the issue of retiree healthcare costs, a person briefed on the talks said on Saturday.  A parallel set of talks between Chrysler LLC and the UAW over similar concessions were continuing over the weekend but little progress had been made, a person briefed on those negotiations said.  The breakdown of talks at GM and the stalled negotiations at Chrysler come with just three days remaining until both automakers must submit new restructuring plans to the U.S. government as a condition of the $17.4 billion in federal aid that has kept them both operating since the start of the year.

 “It doesn’t seem like the stakeholders are really prepared to give a whole lot,” said independent auto industry analyst Erich Merkle. “It’s a high-stakes game of poker right now.”

 If GM cannot win agreement from the UAW and creditors to reduce its debt, analysts say the Obama administration will face a politically tough choice: either pump billions of dollars more into the struggling automaker or steer it toward bankruptcy as some critics of the bailout have urged.
What about the take-over option?

 

UAW negotiators walked away from talks being held near GM’s Detroit headquarters on Friday night because of differences over how to pay the health care costs of retirees, the person familiar with the talks said.

 

Under Chief Executive Rick Wagoner, GM has resisted suggestions that it would be better able to restructure under a court-supervised bankruptcy.

[…]

The UAW is owed some $20 billion by GM, money pledged to a healthcare trust for retirees. The union faces demands that it surrender its claim to half of that amount in exchange for stock in a recapitalized GM under the terms of the federal bailout for the automaker.

[…]

GM and the UAW agreed to create the retiree health-care fund as part of a 2007 labor agreement the automaker hailed at the time as a way for it to shift a crippling liability from its balance sheet. But the steep slide in U.S. auto sales in late 2008 overwhelmed GM’s attempts to cut costs and raise cash on its own, leaving it unable to survive without federal loans and unable to fund its commitment to the union trust fund.
For his part, UAW President Ron Gettelfinger has balked at saddling retired workers with additional risk by taking devalued GM stock instead of cash.
So the unions, complicit in the financial hardship of the automakers, won’t help the Big 3 by accepting some stock in lieu of cash because the value of the stock has dropped due to said financial hardship the unions were complicit in.  Talk about your catch-22.

[…]

A bankruptcy filing would allow GM to rework its contracts with creditors, the UAW, dealers and its suppliers. But it would also mean even steeper job losses. GM, Chrysler and Ford Motor Co have cut 250,000 jobs since the start of the decade and are looking to cut more.

 A bankruptcy by one of the U.S. automakers could also trigger a wave of failures among parts suppliers. That industry is seeking $18.5 billion in federal aid and has warned that 1 million jobs could be lost if the industry collapses.
Thus, the government will likely not allow them to fail.  The ones with the most to lose are the taxpayers.

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One Response to “Which do you think is the more believable scenario for the UAW?”

  1. Alex Langley said

    You’re spot on in your two scenarios and in either case there is a clear cut loser – the taxpayer. These unions are more powerful than the government itself.

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