Is Bailout Possible Without UAW Concessions?

The UAW and automakers want a loan, but union doesn't want to give up too much.

November 17, 2008, 6:36 PM

Nov. 18, 2008— -- The Union of Automobile Workers and Detroit's Big Three want the same thing -- speedy congressional action to bail out the U.S. auto industry.

UAW President Ron Gettelfinger appears before Congress today, along with the leaders of GM, Ford, and Chrysler to ask for $25 billion in new loans.

But before Congress hands over billions of dollars to prop up a failing industry that some members believe should be left to die, lawmakers are going to want to know they're making an investment in companies that will use taxpayer funds prudently.

As the union joins GM, Ford and Chrysler in seeking emergency funds, it is also fighting to preserve jobs, wages and benefits for its members -- a position some observers say is untenable, given the industry's dire situation.

"Whatever they say, the union already knows everything is going to have to be different," said Aaron Bragman, an auto industry analyst at Global Insight in Detroit. "The big question is: What are job cuts going to look like? Everything is going to have to shrink."

It is imperative for the union that the automakers are propped up rather than allowed to declare bankruptcy, a move that would abrogate their contract, putting them in an even worse situation than having to make concessions.

"We're not just talking about GM going bankrupt," said a UAW official not authorized to speak on the record. "We're talking about the implosion of one of the largest industries in America, on which much of the economy is based. These companies can't simply be left to fail."

Union membership has been cut in half, to 140,000 over the past three years. Gettelfinger sold his members on a new contract in 2007, in which the union says they already made many concessions.

Impact on Auto Workers

"We already made huge concessions in 2005 and 2007," said Alan Reuther, director of the UAW's Washington, D.C. office. "Workers have already made significant sacrifices and we've seen nothing of the sort from management. We've stepped forward already, but the companies haven't."

In the last contract the union took over paying pensions to retired workers and agreed to reduced health care benefits and lower wages beginning in 2010.

Gettelfinger and others in the union blame the slumping economy, not the cost of labor for the companies' decline. Under the current contract, workers earn $27 an hour, not including benefits.

"GM has already done what companies do when they're in bankruptcy," said the UAW source. "Their income has been cut in half and it nothing to do with the cost of labor. Arrested car sales have nothing to do with the problems in the industry people have been talking about for years –- quality, fuel efficiency. They have to do with a sluggish economy."

Bankruptcy would only make a bad situation worse, this person said. "No one is in the market to buy a car right now and they're not going to change their mind if the companies actually declare bankruptcy. Who would buy a car from a company in bankruptcy? People would say, 'Will I be able to get parts? Will I be able to get service?'"

But that argument is gaining little traction, especially among Republicans.

Sunday, on ABC's "This Week," Gov. Arnold Schwarzenegger, R-Calif., told George Stephanopoulos that workers pay and benefits were "maybe too high."

"I think it's very important to not just put money in, but let's go and see if they have been fiscally responsible, and if they're really operating the right way. Because right now ... the auto workers ... the benefits and all of those things, are maybe too high. Right now, if you compare it to Germany and to Japan and to other countries, they can build cars cheaper, and they don't have that overhead with the amount of what they pay to the workers, the benefits they provide," he said.

"In America, you sell a car, and $2,000 of each car just goes to benefits," he said.

Union officials say the 2007 contract put workers pay and benefits in line with Japanese and European employees, but American manufacturers have been criticized for not using their workers as productively as foreign firms.

As the economy craters and car sales decline, workers at plants owned by the Big Three are sent home when work slows. Facing similar conditions, American workers at Toyota plants in the U.S., however, use that time to learn new ways to maximize efficiency.

Future of the Auto Industry

Sen. Richard Shelby, R- Ala., on NBC's "Meet the Press" Sunday, said that investing in the auto companies was "money wasted" if they don't fundamentally change the way they do business. "It's throwing money down the drain and it won't work. It's postponing the inevitable," he said.

Also on "Meet the Press," Sen. Carl Levin, D-Mich., countered Shelby's and Schwarzenegger's arguments, saying the government made money when it bailed out Chrysler in the 1970s, that the European Union was offering similar support to European manufacturers.

"Well, this is a national problem. First of all, without any question, we've got at least 3 million jobs dependent upon this industry surviving ... This is a Main Street problem. We've got 10,000 or more dealers; they cover the country and every town of this country. The auto industry touches millions and millions of lives. One out of 10 jobs in this country is auto-related. Twenty percent of our retail sales are auto-related or automobiles," he said.

"We've done this before. We supported Chrysler when it was in this kind of difficulty. People said, 'Oh, my God, that's corporate welfare.' We made money actually by supporting Chrysler," he said.

President-elect Barack Obama supports the bailout and has called on the industry to revamp, particularly in his call for 1 million hybrid cars on the road in the next 10 years.

The UAW was pivotal to Obama's Election Day victories, particularly in Michigan and Ohio, and if Congress stalls on the bailout, Obama might have to choose between the most prudent deal for taxpayers and standing by the union.

"Obama has been talking about bailing out Detroit, but he would likely rather have Bush do it, so he won't have to choose between the taxpayers and the union," said Barry Ritholz, CEO of Fusion IQ and author of "Bailout Nation."

Obama and Auto Workers Union

"If the government is going to make this investment, it had better do it wisely," he said. "You can't successfully bail out out the companies without cutting pensions, health care and wages for the union. They should also fire the management. They need to reboot with a different structure including the unions.

"Obama's relationship with the union is complicated and will further complicate things if this drags out to January. That's why he's punting to Bush. He doesn't want this on his plate."

The UAW believes it has a friend in Obama, but would rather have the money secured now than have to wait for his inauguration.

"President-elect Obama has been very supportive and forthright in calling the industry the backbone of our economy. He has made it clear that he wants to move forward on fuel economy and hybrids," said Reuther.

"But, the big issue right now is whether Congress is going to require the Treasury Department to provide a bridge loan now. GM and Chrysler might not make it to an Obama administration. The companies can't wait for a President Obama, we need action now."

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