The Real Reason Automakers, UAW, Oppose Bush´s ´Orderly Bankruptcy´
North Star Writers Group
December 19, 2008
By Dan Calabrese
Even as many conservatives and critics of the Big Three automakers bemoan what they see as the Bush Administration´s capitulation on the bailout of the Big Three automakers, President Bush and Treasury Secretary Henry Paulson are talking about what may in fact be the best possible solution – an "orderly bankruptcy" for General Motors and Chrysler.
And that has the automakers and their union freaking out. It´s been clear from the beginning of this fiasco that those in the industry want to avoid bankruptcies at all costs. But few understand the real reason for this.
While executives of General Motors and Chrysler insist on a daily basis that "bankruptcy is not an option," United Auto Workers president Ron Gettelfinger usually sits nearby, nodding in agreement.
That´s because the automakers´ argument that no one will buy a car from a company in Chapter 11 is bogus, and he knows it. The real reason the automakers are resisting Chapter 11 is that they have every reason to believe the UAW will blow them up if they don´t.
If the automakers go into bankruptcy, the jig is up for the UAW.
The UAW has been anticipating for several years that GM and Chrysler could face bankruptcy, and the union knew full well that its own gold-plated wage and benefit package was the primary reason – especially the crushing costs of retiree health care.
If either GM or Chrysler were to go into bankruptcy, the UAW understands all too well that the first thing any bankruptcy judge would do is tear up the union contract and dramatically reduce the automakers´ obligations to retiree health care. There are currently three times as many GM retirees as there are active GM employees, and they all have union voting rights.
In an attempt to circumvent such an occurrence, the UAW in 2007 negotiated the creation of the Voluntary Employee Benefit Association. Hailed by journalists who didn´t understand the deal as a triumph for the automakers, it required GM to contribute $24.1 billion, and Chrysler to contribute $8.8 billion, by January 1, 2010.
Nearly two years ago, in communication to his members, Gettelfinger explained point-blank that the VEBA was an effort to keep retiree health benefits alive in the event of bankruptcy by GM or Chrysler.
Regarding GM, he wrote: "Even if GM were to someday file for bankruptcy or be taken over by another group of owners, the money in the VEBA would be secure."
Regarding Chrysler, he wrote the same thing: "Even if Chrysler were to someday file for bankruptcy or be taken over by another group of owners, the money in the VEBA would be secure."
He could see what was coming, and was trying to shield his retiree members from the consequences of it.
The VEBA came about as a result of a class-action suit filed by the UAW against the automakers. Gettelfinger was trying to run out the clock on an inevitable bankruptcy by getting the money upfront. GM also agreed to issue a convertible debenture to the VEBA with a face value of $4.3725 billion.
Gettelfinger´s gambit almost worked, but GM and Chrysler ran out of cash before they could bankroll the VEBA. Now bankruptcy looms, the VEBA remains unfunded, and GM and Chrysler retirees are at risk of losing their health care benefits.
That said, one might wonder why GM and Chrysler don´t embrace bankruptcy, since it would permit them to finally be free of these crushing obligations to the union. The problem is twofold.
First, GM and Chrysler desperately want access to federal money, not only for the "bridge loans" they say they need to survive, but for a whole host of other initiatives like factory re-tooling. They are also happy to have the benefit of protectionist trade policies, which they think help shield them from foreign competition.
Democrats run Washington, and they won´t do any of this for the Big Three unless the UAW nods. So the Big Three needs the UAW in its corner, and the price of the UAW´s support is an absolute refusal on the part of Big Three management to even consider bankruptcy.
Second, if GM or Chrysler go into bankruptcy, the UAW knows full well that retiree health benefits will be severely curtailed, if not ended entirely. And if that happens, the UAW will walk out on strike.
The UAW saw this coming before anyone, and tried to outrace it but couldn´t. The only reason bankruptcy is "not an option" for GM and Chrysler is that they know full well the UAW will respond with its own nuclear option – and that´s the one thing they fear even more.
2008 North Star Writers Group. May not be republished without permission.
Even as many conservatives and critics of the Big Three automakers bemoan what they see as the Bush Administration´s capitulation on the bailout of the Big Three automakers, President Bush and Treasury Secretary Henry Paulson are talking about what may in fact be the best possible solution – an "orderly bankruptcy" for General Motors and Chrysler.
And that has the automakers and their union freaking out. It´s been clear from the beginning of this fiasco that those in the industry want to avoid bankruptcies at all costs. But few understand the real reason for this.
While executives of General Motors and Chrysler insist on a daily basis that "bankruptcy is not an option," United Auto Workers president Ron Gettelfinger usually sits nearby, nodding in agreement.
That´s because the automakers´ argument that no one will buy a car from a company in Chapter 11 is bogus, and he knows it. The real reason the automakers are resisting Chapter 11 is that they have every reason to believe the UAW will blow them up if they don´t.
If the automakers go into bankruptcy, the jig is up for the UAW.
The UAW has been anticipating for several years that GM and Chrysler could face bankruptcy, and the union knew full well that its own gold-plated wage and benefit package was the primary reason – especially the crushing costs of retiree health care.
If either GM or Chrysler were to go into bankruptcy, the UAW understands all too well that the first thing any bankruptcy judge would do is tear up the union contract and dramatically reduce the automakers´ obligations to retiree health care. There are currently three times as many GM retirees as there are active GM employees, and they all have union voting rights.
In an attempt to circumvent such an occurrence, the UAW in 2007 negotiated the creation of the Voluntary Employee Benefit Association. Hailed by journalists who didn´t understand the deal as a triumph for the automakers, it required GM to contribute $24.1 billion, and Chrysler to contribute $8.8 billion, by January 1, 2010.
Nearly two years ago, in communication to his members, Gettelfinger explained point-blank that the VEBA was an effort to keep retiree health benefits alive in the event of bankruptcy by GM or Chrysler.
Regarding GM, he wrote: "Even if GM were to someday file for bankruptcy or be taken over by another group of owners, the money in the VEBA would be secure."
Regarding Chrysler, he wrote the same thing: "Even if Chrysler were to someday file for bankruptcy or be taken over by another group of owners, the money in the VEBA would be secure."
He could see what was coming, and was trying to shield his retiree members from the consequences of it.
The VEBA came about as a result of a class-action suit filed by the UAW against the automakers. Gettelfinger was trying to run out the clock on an inevitable bankruptcy by getting the money upfront. GM also agreed to issue a convertible debenture to the VEBA with a face value of $4.3725 billion.
Gettelfinger´s gambit almost worked, but GM and Chrysler ran out of cash before they could bankroll the VEBA. Now bankruptcy looms, the VEBA remains unfunded, and GM and Chrysler retirees are at risk of losing their health care benefits.
That said, one might wonder why GM and Chrysler don´t embrace bankruptcy, since it would permit them to finally be free of these crushing obligations to the union. The problem is twofold.
First, GM and Chrysler desperately want access to federal money, not only for the "bridge loans" they say they need to survive, but for a whole host of other initiatives like factory re-tooling. They are also happy to have the benefit of protectionist trade policies, which they think help shield them from foreign competition.
Democrats run Washington, and they won´t do any of this for the Big Three unless the UAW nods. So the Big Three needs the UAW in its corner, and the price of the UAW´s support is an absolute refusal on the part of Big Three management to even consider bankruptcy.
Second, if GM or Chrysler go into bankruptcy, the UAW knows full well that retiree health benefits will be severely curtailed, if not ended entirely. And if that happens, the UAW will walk out on strike.
The UAW saw this coming before anyone, and tried to outrace it but couldn´t. The only reason bankruptcy is "not an option" for GM and Chrysler is that they know full well the UAW will respond with its own nuclear option – and that´s the one thing they fear even more.
2008 North Star Writers Group. May not be republished without permission.
Print
Email
