Auto-Bail Out For the People?

December 12, 2008

CEOs of the Big Three automakers on Capitol Hill this week, from the NYT

CEOs of the "Big Three" automakers on Capitol Hill this week, from the NYT

Recession, and possibly depression, keeps throwing up surprises. The latest twist is that Congress has rejected a bail-out plan for the “big three” American car-makers – Chrysler, General Motors and Ford. As the AP reports, this means that “automakers are depending upon a reluctant White House to quickly provide a multibillion lifeline to help them avoid imminent collapse” after the Senate rejected a $14 billion plan to inject Federal money into the firms.

After the failure of the bail-out, Senate leaders pointed the firms to the White House, and its $700 billion (plus) pot of money which is earmarked for “stabilising” Wall Street. Yet the Bush administration has so far refused to budge on diverting funds from that fund towards distressed companies.

Under the failed deal, automakers would have qualified for substantial (yet still, perhaps, insufficient) “aid” to use in restructuring their operations, before reporting back to Congress in mid-2009. All of this would have been carried out under the auspices of a “Car Czar,” who was appointed earlier in the week, which is a shame for him.

Yet as Lemos Stein, an analyst with credit raters (sic) Standard and Poor’s told CNNMoney today, “If anything, the automotive market has worsened since GM and Chrysler first said they may not have enough liquidity to make it into next year” – so maybe the collapse of the deal isn’t such a calamity for the firms themselves.

A better solution may yet be for the huge corporations to declare Chapter 11 bankruptcy, and restructure with the close assistance of the government. Unfortunately, as the BBC suggests, this is not a popular solution. Although if they declare bankruptcy, the firms will “be given time to renegotiate labour contracts and reorganise their businesses” apparently “GM fears that people will stop buying its cars while the company is reorganising, which will further undermine its business model.”

Given that the firm is hardly selling a ball bearing, has drastically failed to anticipate changing consumer preferences in the past few years, has made risky financial bets, serially overpays its executives and has already adopted a wave of crisis measures to revolutionise that “model” – this does rather ring false. But it is certainly true that the shareholders at GM don’t want the government raking through their dealings, and don’t really want to be broken up into more viable units, which could well happen.

The truth is that GM, Chrysler and Ford either have or will soon run out of cash, having overproduced a range of shoddy goods and been outfoxed by leaner competitors. However, this is not the proximate reason for the firms’ collapse. While the firms are running low on cash, this is not really new. GM has been in crisis for years, but at every stage it has been able to defray its costs and defer real restructuring. This has not been done by honestly looking at the firm’s “business model” or radically changing production lines.

It has been done by cracking down on workers’ wages and benefits. The story today is that GM has run into a brick wall, and the generally supine UAW (Union of Auto Workers) has refused to back the bail out.

As a statement released by the Union describes, “the UAW was prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants.” By foreign transplants, the UAW means factories in the U.S. operated by Japanese firms such as Toyota, which pay comparable wage rates, yet with fewer benefits, and also sell cars better suited to recession and higher oil prices.

The Union continues, complaining that “Unfortunately, Senate Republicans insisted that this had to be accomplished by an arbitrary deadline. This arbitrary requirement was not imposed on any other stakeholder groups.”

The Guardian puts this better (with far less corporatised jargon), summarising that: “Republicans in the US Senate refused to support a bill endorsed by the White House and congressional Democrats. Republican demands for union wage cuts derailed a last-ditch effort to revive the emergency aid for US carmakers before the end of the year…Republicans refused to back federal aid for Detroit’s beleaguered Big Three – GM, Chrysler and Ford – without a guarantee that the United Auto Workers agree to steep cuts in pay and benefits to bring their salaries into line with Japanese carmakers by the end of next year. The UAW refused to do so before its current contract with the carmakers expires in 2011.”

So, due to the intransigence of Republican free marketeers, the UAW has been seen to stiffen its spine, however momentarily.

The car firms must be rather surprised. Just last week the UAW had agreed to severe concessions in exchange for a board seat with GM. As Reuters reported, “the union said it would allow GM and its Detroit rivals to postpone contributions to a trust fund scheduled to take over $85 billion in liabilities for retiree health care from 2010” while it “also said it would scrap a controversial provision of its contract that puts idled GM workers into a “Jobs Bank” where they collect almost full wages and benefits.”

The auto firms sent a troubleshooter, Steve Girsky (“a banker with a deep background in the auto industry” according to Reuters) and the Union listened sympathetically to his tales of woe from the boardroom.

Last year, the UAW struck a deal with the big three, to slash $50 billion off the firms’ debit sheets – money which constituted “the healthcare and pension costs of hundreds of thousands of former workers” according to the BBC. At the same time, in the past three years, the automakers have shed some 150,000 UAW-represented jobs and deals with the Union coming into operation in 2009 will allow the firms to take on new hires at far lower wage rates than had previously been the case.

This represents a long-term strategic victory for capital at the expense of labour, and won’t simply be reversed after the recession/depression. Like Corus in Britain and Holland, the automakers have a plan to force through unpalatable measures, using “crisis” as a legitimising tool.

The UAW has been assisted in its spinal surgery by general public antipathy towards the automakers, which are widely seen as both wasteful, bloated and corrupt.

As Forbes reports, Chrysler’s campaign for Federal funds is being headed by John Snow – the ex-Treasury Secretary under Bush, and now a big cheese with Cerberus, the private equity firm which owns Chrysler.

As Dan Gertstein relates, Snow has requested “$7 billion from the auto industry bailout package Congress is working on now and another $8.5 billion in loans from the Energy Department that have already been authorized.”

Meanwhile, “GM is broke, can’t get a loan and is actually facing an emergency. Via Cerberus, on the other hand, Chrysler has access to loads of capital, and the only thing collapsing is its credibility.”

Not unlike Corus then.

The UAW, however, is in a difficult position. It has failed to organize workers in plants operated by Toyota and other foreign firms, while it has slavishly followed the diktats of American firms. Effectively, organized labour in the American auto-sector has been crushed by a pincer movement, with Japanese firms on one side and Americans on the other. Of course, ownership isn’t so simple, and capital doesn’t really obey nationality as clearly as that.

The bigger picture is that investors and executives have been scoring victory after victory over the work-force. That holds even if GM collapses and investors pick up the pieces. Vultures like Cerberus are always on hand to take the juiciest morsels.

This failed bail-out could become the greatest victory of all, if the firms secure aid – be it from the White House or the Federal Reserve. Aid from those sources may not include strictures that would have been placed upon the companies by Congress – such as protections for labour, or environmental requirements.

Or, the failure could be an opening for organized labour to demand and push the expansion of unionism across the entire industry. The UAW needs to demand a commitment from Barack Obama to support unionization and to protect benefits – while dramatically penalising executives and investors. After all, it is not the risky or incompetent decisions of factory workers that have brought GM so low.

Nationalization has to be introduced by the Unions as a threat and, perhaps, a central demand. Nationalization that is, under democratic authority, with union representation on the boards. At the same time, restructuring can go ahead under public ownership, obviating the need to bail out hapless investors.

Unfortunately, that doesn’t seem very likely.

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