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Topics: Labor Unions

The Bush and Obama bailouts 'save' the UAW

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Sean Higgins,Labor unions,Labor,Detroit,Federal Bailouts,Analysis,Michigan labor special series,UAW

Fourth installment of a five-part series, "Working Man's Blues: Michigan's journey from Big Labor fortress to right-to-work state." See the entire series, with previous installments and multimedia, at this link.

It quickly became clear to the Big Three Detroit auto moguls - Ford's Alan Mulally, Chrysler's Robert Nardelli and General Motors' Richard Wagoner - on Nov. 19, 2008, that their joint appearance before a House committee was not going well.

They were begging for $25 billion in federal aid to avoid bankruptcy. A "bridge loan" for GM and Chrysler was needed to ride out the recession, they said. (Ford needed no help, but supported its rivals' request.)

Word leaked out that the three had flown to D.C. in separate private jets. Lawmakers seethed over what they viewed as arrogance. Senate Majority Leader Harry Reid, D-Nev., canceled a test vote when it became clear aiding Detroit would fail. Things were no better three weeks later when senators rejected the proposal 52-35.

Lame-duck President George W. Bush then acted unilaterally, giving $25 billion from the Troubled Asset Relief Program to the automakers. This set the stage for President Obama's subsequent "bailout" - actually highly unorthodox bankruptcies for GM and Chrysler.

This was a boon for one person who supported the CEOs' loan-begging - then-United Auto Workers President Ron Gettelfinger. Everyone took some kind of loss from the bankruptcies, but the UAW got a special deal.

The Big Three had been fairly stable in the decade leading up to the 2008 meltdown thanks to high demand for light trucks. This obscured deep structural problems: massive debt, a cumbersome dealer network and bloated labor costs.

By 2007, UAW had secured salary and benefit packages including health care that worked out to $70.51 an hour at GM and $75.86 an hour at Chrysler. By comparison, labor costs were just $47.6 at Toyota and $41.97 at Nissan, both non-union.

Working Man's Blues: Michigan's journey from Big Labor fortress to right-to-work state
A five-part special series by the Washington Examiner
 
Monday: Big Labor and one-party government drove Detroit into the ditch
Tuesday: Even Detroit's boom years had to end
Wednesday: Detroit downsizes as Japan builds plants in the right-to-work South
Thursday: The Bush and Obama bailouts "save" the UAW
Friday: How the UAW made Michigan a right-to-work state
 
See the complete series, along with video and related media, at this link.

UAW was also a major creditor for GM and Chrysler, since the two collectively owed almost $29 billion to the union's retirement health funds. This was unsecured debt, meaning that legally the company's other creditors came first.

Obama's deal ignored that fact and put the UAW first. The union recovered 100 percent of its Chrysler investment, while the secured creditors got just 29 cents on the dollar. At GM, the UAW recovered $18 billion of a $20 billion investment. Under normal bankruptcy dealings, the union's recovery would have been just $6 billion.

The union's main concession was the expanding the use of the "tier two" payscale under which new hires would earn only about half of what was paid to older "tier one" workers.

Existing UAW members' benefits were left virtually untouched. Steven Rattner, the president's "car czar," later conceded: "We should have asked the UAW to do a bit more. We did not ask any UAW member to take a cut in their pay."

The UAW was not totally unscathed. GM closed 13 of its 47 assembly plants. About 280,000 automaker jobs were lost by 2010 (estimates vary widely, though).

UAW lost 55,000 members between 2008 and 2010, according to the Labor Department. It is now at 382,000, still down from its pre-recession high of 431,000.

Taxpayers were hit hard, too. Obama had promised the bailout would not cost taxpayers "one dime," but even under the best-case scenario, the government will lose about $5 billion. The Heritage Foundation estimated that UAW favoritism boosted the bailout's cost by $26 billion.

Obama and the UAW have defended the bailouts as a success but they left a sour taste for many in Michigan who weren't "tier one" workers. When the UAW pushed a state constitutional amendment last year intended to prevent Michigan from ever going right-to-work, it was overwhelmingly defeated and - even worse for the labor bosses - the campaign energized efforts to pass a right-to-work law that could permanently end union dominance in the UAW's home state.

COMING FRIDAY: How the UAW made Michigan a right-to-work state.

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