Don't Bail Out the UAW

Congressional Democrats don’t want to bail out GM, Ford and Chrysler: they want to bail out the United Auto Workers union. Speaker Pelosi spoke for all the Democrats when she rejects the idea of reorganization of the companies under bankruptcy protections. Why? Because bankruptcy is the only legal mechanism which can free the industry from its giveaway deals with the UAW.

No matter how much money is thrown at the automakers, no matter how many times they are bailed out, the only possibility of saving them in the long run is the same thing that gives the major airlines the ability to continue flying: protection under the bankruptcy laws that enabled them to void their industry-killing labor agreements.

This is anathema to the Democrats and the UAW. They are interested in saving the union’s power over the industry regardless of the cost to the automakers and the taxpayers.

Three points suffice to prove that point.

First, UAW President Ron Gettelfinger, writing in the Washington Post a week ago, said “…more than a million retirees and dependents receive pension and health-care benefits from Chrysler, Ford and GM. If these companies are unable to meet their obligations, the human toll on retirees and their families will be devastating. It’s also possible that the failure of these companies could impose severe costs on the federal pension guaranty program and public health-care programs.”

Second, in May 2005 United Airlines – operating under bankruptcy court protections – got court permission to throw off the burden of its union pension plans. It did trigger a default that was taken over by the federal Pension Benefit Guarantee Corporation. It was a one-time default that enabled the company to continue in business. Had United not done this, it would have either gone out of business or become dependent on never-ending government bailouts.

Third, in the November 21 letter sent to the Big 3 CEOs by Speaker Pelosi and Senate Majority Leader Harry Reid, they told the automakers that the plan they must submit shall, “Include proposals to address the payment of health care and pension obligations.” The letter demanding a recovery plan makes no mention of bankruptcy reorganization – the only legal mechanism for the companies to escape the labor contracts that doom them.

That soon-to-be drafted plan is the result of last week’s hearings on the bailout of the car companies that the automakers say is the only alternative to them going out of business. The CEO’s of the Big 3 automakers – Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler – were chastised after coming to Washington. Not for allowing their companies to march merrily toward a financial cliff, but for arriving on their company jets. It’s not unseemly to fail or to beg, but it is for beggars to travel in style.

But at least the three CEOs had the good taste to reject reorganization under the bankruptcy laws. The automakers have been playing along with the UAW for so long, they cannot imagine changing that cozy relationship regardless of the fact that their companies cannot survive unless they do. Congress didn’t buy the idea of a straight bailout and told the CEOs to come back by December 2 with a plan on which legislation could be based to bail their companies out.

Their plan will not include reorganization in bankruptcy. They will ask for Gettelfinger’s solution. It will be a bailout to save the UAW’s insupportably generous wages and benefits.

There will be talk of the 3 to 5 million jobs that would be lost if the car companies were to go out of business. (Bankruptcy protections would preserve most of those jobs.) The “solutions” will include incentives to build more “green” cars, as if the unmet demand for them were the principal problem. (Americans will buy GM Suburbans, mightily-powered Ford Mustangs and cool-looking Dodge Ram pickups as long as gas prices permit. The fact that a gallon of gasoline costs about half as much as it did only six months ago puts the coming Chevy plug-in “Volt” in the category of toys to be admired but not bought).

Another inconvenient truth is that the economic crisis delays the purchase of cars and trucks by many companies and families that would otherwise be buying this year.

Congressional conservatives need to shock the auto executives with a recitation of the realities both face. The biggest reality is that the automakers cannot survive unless they are relieved – by Chapter 11 reorganization – of their enormous labor costs.

This problem is not new. In January 2007, Fortune magazine reported that the big reason for Ford’s $12.7 billion loss in 2006 was labor costs. It said GM pays $1635 per vehicle on health costs alone for active and retired workers. Toyota paid nothing for retired workers (it had none at the time) and only $215 per vehicle for active workers.

The magnitude of the problem is explained in the Heritage Foundation’s November 19 report. It shows that UAW members earn an average of $75/hour in wages and benefits, “…almost triple the earnings of the average private sector worker.”

Because those benefits are commercially unjustifiable they must not be taxpayer-subsidized.

For example, UAW members and their families enjoy a gold-plated health care system that not only provides for hospitalization but also dental care and Lasik eyesight-improvement surgery. They pay only $10/month for individuals and $21/month for families. According to Heritage, “As a result, UAW workers and retirees have some of the most comprehensive and least expensive health care in America.”

The cost of similar health care for small businesses and the self-employed are over $1000/month per person or family.

UAW members get seven weeks’ vacation every year, three weeks more than the average private sector worker with similar seniority. And then there’s the UAW “jobs bank.”

Most companies can lay off workers and close plants without having to continue paying their workers. That is, of course, one of the reasons to lay people off or close unprofitable plants.

But carmakers, under their UAW agreements, continue to pay workers about 95% of their wages – and all of their benefits – (for up to two years in GM’s contract) because they are put in a “jobs bank” which employers continue to pay for just as if the workers were still working.

Free market capitalism enables companies to pay and workers to receive whatever they may agree on so long as the company can remain profitable. But these gold-plated labor contracts preclude profitability now, and will continue to do so regardless of any bailout. To ask taxpayers to subsidize these labor contracts – as Congressional Democrats and the auto companies are doing – is a request that conservatives must reject utterly.

The UAW, GM, Ford and Chrysler must be told that the federal treasury is not their common heritage. The only responsible course is for the automakers to follow the airlines into reorganization, and shed the labor costs they cannot sustain. If they refuse, Congress should reject any plan they propose for a taxpayer-funded UAW bailout.