In an exclusive interview Thursday, Sen. Bob Corker (R-Tenn.) told HUMAN EVENTS Editor Jed Babbin that the White House bailout of the Big 3 carmakers should be modeled on the plan Corker offered.
JB: Senator, there’s been an awful lot of Chicken Little rhetoric going around. People are saying the only choices to deal with the automakers’ problems are either to bail these guys out with whatever they need or they’re going to go into bankruptcy and liquidation, meaning two and a half million jobs disappear.
Corker: No, there were actually a couple more offered. I tried to come up with another solution and that was, “Look, if we’re going to be involved, let’s force these companies and all involved in these companies to do the things they would do in the Chapter 11 process but do it outside of Chapter 11 so that that stigma of bankruptcy is not attached but yet the structuring necessary to these companies to go ahead in a healthy way has occurred.
And so we crafted something that focused on the bondholders. GM today has $62 billion in debt. And you know putting money on top of a debt structure that GM can’t pay back even in good times is like throwing money in a mud puddle. It’s just a total waste of taxpayers’ money. It’s a total waste of anyone’s money. That’s why they cannot get financing today. So you know the first step, of course, was to cause the bondholders to have to do what’s called a bond exchange, where they would have to write down the face amount of their debt by 70 cents on the dollar, and they do that by exchanging equity in some cases and in others just writing down their debt to 30 cents on the dollar. The overall goal was to get the company’s debt down by two thirds.
So that was step 1, and that had to be done by March 15 per the plan I offered. And if that wasn’t done, then the company had to file for Chapter 11. It was that pressure on the bondholders that would, in a crisis mode, would have made that happen. We actually talked, by the way, with bondholders and with groups that represented bondholders to ensure that this was something that could be done. And in essence, they said yes. I mean, putting in place, drawing a line in the sand, saying that March 15, had this not occurred, then the companies had to file for bankruptcy would force bondholders to come to the table and force those who had debt that wasn’t going to be paid back anyway if they filed Chapt. 11 to come to the table….
JB: If you can give us kind of the other maybe bullet points…
Corker: There are two other bullet points. There’s another component called a VEBA account. It’s a voluntary employee benefits account, and each of these three companies have entered into negotiations with the UAW, and basically what they’re doing is to take care of some of their health benefits and retiree costs they’re paying into this accounts.
It’s in a trust that the UAW will draw monies out of to pay for the members’ retirement.
Well obviously, if the companies go bankrupt, there will be no VEBA payments. In the case of GM, GM owes about $21 billion dollars to this VEBA account. And you know the union and everyone else knows there’s no way they can pay it back. So to solve that problem, what we did was create a mechanism where GM would pay half of their obligations in GM stock and half of it in cash. Obviously, the VEBA account needs cash to actually pay those benefits. But know that the stock that the VEBA would be taking is stock that would be post after the bond cram down, so my point is, it would actually be worth something.
And if you take those two instances that I just laid out, let’s say the bond exchange and point one, the bond holders own a huge, huge portion of the company. Right now, General Motors’ market cap is $2 billion. So if you look at taking $20 or $25 billion in bonds and exchanging them for equity, you can see the existing share holders are hugely diluted.
And with this VEBA portion that I’m talking about now, you can see that the UAW owns a huge part of GM, more than the existing shareholders, but they own it at a time when the company’s actually worth something because you’ve had this capital structure change where you basically have crammed down the debt or done a bond exchange.
And the third point was that if this was done, and I really did this in listening to testimony by Mr. Gettelfinger, who’s the president of the UAW. He said twice in testimony in our hearings that they would come to the table and make the changes they needed to make to make these companies competitive if the bondholders — if the bondholders — would do the same.
I basically set in place a mechanism for our proposal that the bond exchange had to occur by March 15 and then by March 30, the UAW would agree to be competitive and they would agree with the companies putting in place a contract that causes them to be competitive with BMW, Nissan, Honda and Toyota. Those were the four companies they wanted to be compared with. They did not want KIA in the mix because apparently their wages are much lower.
And they had to agree to that by March 31. That’s what my offer was. And then within a finite time, some point during 2009, they actually had to become competitive.
Let me just add one last thing. We focused only on active employees. In other words, we know the retiree benefits. These people have worked there for years, they’ve counted on those benefits. We only focused on the active employees, and we could not get them to agree. Points one and two were agreed to, unfortunately this is what called the deal to fall apart.
And let me say this: I truly believe with every cell in my body, had they agreed to that, this would have passed by 90 votes in the Senate, overwhelmingly in the House, and this would have been over with.
JB: You weren’t asking, or you weren’t demanding, pay parity with Nissan, etc. were you? You were just saying be competitive, and there’s a profound difference there, isn’t there?
Corker: There is. Yes, that’s correct. The competitiveness — under my plan — would have been certified by the Secretary of Labor, which was gonna be an Obama secretary of Labor, not someone that I think is gonna to be out, if you will, to get the UAW. My guess is they’ll be friendly.
JB: There is a lot of misinformation out there right now about the UAW having their new contract, the 2007 contract, and saying that that is going to make them competitive. My understanding is the 2007 contract is only prospective, reducing pay for new hires, and that it does not bring pay competitiveness in for anyone who’s currently working or was working when that contract was signed.
Corker: That’s correct. Here’s what they’re doing. They have employees that are working at two different tiers. You have the old contract where people are making what they were with inflation increases and then you have the new hires that are coming in at basically half that wage. And as new employees come in, the average gets down where it’s competitive.
The problem is the industry’s not growing, okay. Last year, they sold 17 million cars in our country. Next year, it’s projected we’re going to sell 11 million cars, so the new employees are coming in on a slow basis only with retirements, and so the UAW knows there’s no way that they’re really gonna reach competitiveness.
But let me just say this, the other thing that argues is, that if you have new employees that are coming in at half the wage working right beside the folks making twice the wage, doing exactly the same job, what that argues to me is that the folks under the old contract must be making too much money if others come in and do that job at half the amount.
JB: So basically what they need to do, and this whole 2007 contract issue is a smoke screen, they need to bring things down to competitive levels for all the workers.
Corker: And I would actually argue, potentially bring the new hires up. Meaning, that it appears to me, that what’s really happening is they’re not going to change anything for the UAW folks that have been there for years, and by the way, are not necessarily old, they’ve just been there for awhile. What in essence is happening: the whole brunt of this is being placed on new employees, which are, you know, rare because of the economic times. But the point is, maybe they should actually bring them up, if you will. But certainly the older employees have not been willing to become competitive, and that ended up being obviously the sticking point in this whole deal.
JB: We hear that Mr. Paulson, the president, the whole economic team is working on something, they may be planning on putting something out in the next couple of days. Have you been talking with them and making some suggestions that they come around to some of your plan?
Corker: Well, I am. I talked to Secretary Paulson the day before yesterday. I talked yesterday afternoon with his chief of staff. I talk to Secretary Paulson often, but I try not to do it every day. I did talk with the chief of staff yesterday, who’s his closest confidant within treasury, and said, "Look it really would be a travesty, if after all of this which, you know, I think even Democrat senators think is a very fair proposal, it would be a travesty if the administration put something in place that did not embrace these concepts." Again, anyway, I was just on the phone earlier — a lengthy phone call about health care — with a Democratic senator from the West, and they believe that what has been offered is actually very, very fair and very disappointed the UAW acted the way they did.
JB: Many thanks for your time. Would you like to add anything as we close?
Corker: I do want to say this. We’re sort of in the trailing period now, and so now there’s all kind of op-eds and everything been written, and I think there’s, you know, a lot of mischaracterizations.
To me, this was never about union busting. I mean, look, as you know, I mean, we’ve got a GM plant in our state. We’ve got a lot of workers who work there. I’ve visited them, I’ve met with UAW officials. As a young man, I was a card carrying union member.
You know, I was a laborer in the beginning of my career and had a company that I started when I was 25 with $8,000 and ended up having lost of union employees in various parts of the country, especially my home town, and sat on a pension board to make sure they got benefits we had paid in for. What it was about was shared sacrifice. And that was, look, if it was about the company going ahead in a manner that actually allowed them for the first time in three decades to have a balance sheet that was appropriate and to have pay scales that were appropriate, it was about a shared sacrifice.
The focus on the UAW really only came into play when their actions at the negotiation table kept the deal from happening. So, you know, if you understand what I’m saying, this was about the bondholders. The management already had huge stipulations about what was going to happen with them. This was about solving a problem.
The focus on the UAW came when they were unwilling to do the things that they said they would do in testimony, meaning, “Yes, we will make the changes necessary to make this company successful.”
There’s two big things here: the capital structure, meaning the debt the companies have, they cannot go forward successfully. Taxpayer money on top of that is a total waste. We need to fix that first. Secondly, every car that comes out of a GM factory, GM has a built in disadvantage because of labor costs, so let’s solve that. Let’s do it all simultaneously. If we do that, we’ve in essence done the things that you’re talking about through Chapter 11, we’ve avoided the stigma, and yet we solve something for the long term, not throwing taxpayers’ money into a mud puddle.
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