[A-List] labor and the auto companies

Charles Brown charlesb at cncl.ci.detroit.mi.us
Mon Nov 24 09:52:57 MST 2008

labor and the auto companies

From: raghu 

David B. Shemano

> Why bail out anybody?  In a bankruptcy, the assets of GM can be sold to buyer who takes free of the debts and can operate a car company with a profitable cost structure.  The creditors can fight over the proceeds.

That's a bum deal for UAW. You are suggesting that they should be
stuck with an insolvent company and the difficult choice of whether to
screw your creditors or your retirees. One way or another, these
companies need a bailout. The choice is: who's in charge of the
company after the bailout? Do you or do you not support the workers
being in charge of the company?

> Understand, the bailout is a bailout of creditors and not shareholders.  The equity shares are worthless and the bailout isn't going to change that.  A bailout is a bailout of the distressed investors who are buying GM bonds for 50 cents on the dollar.  If there is a bailout, GM can presumably continue to pay its creditors (including its union and retirement obligations) until the bailout money runs out.  This is the same with AIG -- the bailout money is going to AIG's creditors, not its shareholders.

Yes, but I don't see why AIG's or GM's creditors are any more
deserving of a taxpayer bailout than the shareholders.

> GM's hands rest in the UAW, which can make GM profitable essentially overnight by renegotiating the labor and retirement contracts.  Like the mortgage brokers, financiers and investors who made a lot of money the past ten years before losing it all, the UAW was focused on the moment and not on sustainability.  Just as there was a real estate bubble, there was a UAW contract bubble.  The people who negotiated the contracts for management and UAW were happy because they could pat each other on the back on how great the contract was, but those same negotiators would be long gone when the obligations and reality actually kicked in.

I agree with you. The UAW and the management are guilty of negotiating
in bad faith to some extent. Question is what to do now?

Seeing is deceiving. It's eating that's believing.

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