Autoworkers get the stick

April 6, 2009

Eric Ruder looks at the background to the Obama administration's ultimatum to auto giants General Motors and Chrysler.

WITH THE threat of bankruptcy hanging over General Motors and Chrysler like a sword, the federal government is giving the United Auto Workers (UAW) a choice: Do you want to cut off your own legs, or would you like us to do it for you?

Last week, President Barack Obama announced that his administration had rejected restructuring plans drawn up by the two auto companies and was demanding further concessions as a condition of getting additional help from the government.

The White House forced GM Chair and CEO Rick Wagoner to resign and essentially instructed Chrysler to reach a merger deal with the Italian automaker Fiat. But beyond these requirements, both GM and Chrysler are under orders to get company "stakeholders" to make further financial concessions before the government makes more bailout funds available.

The alternative, which administration officials told the media they thought was the best course in the end, would be for GM and Chrysler to declare bankruptcy and carry out restructuring that way.

UAW president Ron Gettelfinger, former GM CEO Rick Wagoner, and Chrysler CEO Robert Nardelli during a recent congressional hearing
UAW president Ron Gettelfinger, former GM CEO Rick Wagoner, and Chrysler CEO Robert Nardelli during a recent congressional hearing

The talk about "stakeholder obligations" is code for the government's real message--after decades of retreats already, members of the UAW need to accept even deeper cuts and concessions.

Of course, the U.S. government has lavished hundreds of billions of dollars on bailing out the banking sector with almost no strings attached. Under the Wall Street bailout, nationalized insurance giant AIG was allowed to pay out $165 million in bonuses to executives who wrecked the company, because they were "contractually obligated."

But somehow, autoworker contracts aren't so sacrosanct. So while the financial sector gets the carrot, the auto industry gets the stick.

Some 7,500 UAW members at GM signed up for buyouts in late March, bringing to 60,500 the total number of jobs that GM has eliminated in three rounds of buyouts since 2005.

As a matter of government policy, this seems irrational. The same government demanding buyouts and layoffs to "rescue" the auto industry is carrying out a stimulus plan to create jobs throughout the economy. Meanwhile, Wagoner will get $23 million in pension and other benefits to walk away from GM--on top of the $63.3 million he made during his career.

The rational kernel in all this, however, is the drive to get workers to pay for the deepest economic crisis since the Great Depression of the 1930s.

In his speech announcing the administration's orders to the auto companies, Obama had this to say to autoworkers:

I will fight for you. You're the reason I'm here today. I got my start fighting for working families in the shadows of a shuttered steel plant. I wake up every single day asking myself what can I do to give you and working people all across this country a fair shot at the American Dream.

But no one was under any illusion about what's being demanded of autoworkers. Concessions agreed to by the UAW at Ford in early March will serve as a template for GM's demands. The Ford contract includes givebacks on overtime pay, bonuses, supplemental unemployment benefits, a slew of work rules governing shop-floor conditions, and new and drastic cuts in funding for retiree health care.

To get some idea of the scale of the assault, consider GM's own forecasts of what it expects to gain from negotiating new cuts from the UAW.

In a regulatory filing with the Treasury Department in early April, GM said it expected the deal it agreed to with the UAW in February would lower labor costs by up to $1.1 billion.

But those "savings" haven't been realized yet, because GM and the UAW have yet to agree on a plan to reduce GM's obligation to pay $20.4 billion into a Voluntary Employee Beneficiary Association (VEBA), a landmark concession by the union that removes the company's responsibility to provide health care for retirees and transfers it to the VEBA trust fund to be controlled by the UAW.

GM expects to lower its hourly employee costs from $7.6 billion in 2008 to $6.5 billion in 2009 and $5.4 billion in 2010. But hidden in these numbers is the slashing of benefits paid to retirees in the form of pension and health care payments--known as "legacy costs."

In 2003, GM had $18.4 billion in hourly employee costs, including $5.7 billion in legacy costs. By 2010, GM expects that its legacy costs will be less than $1 billion, and by 2014 as little as $100 million.

So in scarcely more than a decade, GM hopes to eliminate 98 percent of the benefits it pays to 1 million UAW retirees and their families, who expected that for 30 or more years of back-breaking labor, they would receive a livable pension and health care coverage after retiring.

UAW leaders, however, have done little to stand up to the GM plan. Even before the current stage of the crisis, they had already accepted the general framework of what the government is demanding today, including a two-tier wage scale that pays new hires half the wage of the workers they replace.

BEYOND USING government money and clout to wring concessions from workers, the Obama administration has little to offer in helping the auto industry.

Obama did promise that the government would back manufacturer warranties on new cars in the event that GM or Chrysler declare bankruptcy--to reassure consumers wondering whether U.S. automakers will be around to honor warranties on new vehicles. Obama also repeated his support for legislation, given the nickname "cash for clunkers," that would offer cash vouchers of $2,500 to $5,000 to consumers who trade in older cars for new ones that are more fuel efficient.

But government spending on such half measures is precisely what is prolonging the misery for U.S. autoworkers.

Instead of using its billions to help auto executives push through attacks on workers or to create small surges in demand, the Obama administration could use its leverage as the auto industry's creditor of last resort to implement a comprehensive plan that includes taking over the auto industry.

A government takeover of the auto industry carried out in the interests of working people could transform shuttered car factories into the cornerstone of a retooled manufacturing sector in line with Obama's stated objectives of promoting green technology.

Another aspect of such a progressive nationalization would be the overhaul of the for-profit health care sector. The high costs of sustaining the profits of private insurance companies have crippled the U.S. auto industry in particular. Private insurers could be replaced by a government-run, Medicare-style single-payer health care system of the sort enjoyed by practically every other industrialized nation in the world.

Instead of implementing such pro-worker policies, however, the Obama administration is compelling automakers to carry out even more attacks on workers and their unions--workers who are already bearing the brunt of the crisis.

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