April 30, 2009
New GM: UAW To Bargain With Themselves
The Wall Street Journal editorializes:
President Obama insisted at his press conference last night that he doesn't want to nationalize the auto industry (or the banks, or the mortgage market, or . . .). But if that's true, why has he proposed a restructuring plan for General Motors that leaves the government with a majority stake in the car maker?Yeah, and what a deal for private investors!
According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday's offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.While the WSJ seems to not like the idea that "At the next labor contract bargaining session, the union would sit on both sides of the table," Mickey Kaus points out:The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt -- as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.
In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.
Let the UAW, as new owner of GM, pay the price for the overgrown work rules of its locals. Let the UAW demand above-market raises from itself. Let the UAW try to raise money from new lenders after the previous round of lenders has been royally screwed (thanks, in part, to the UAW). And then let the UAW try to sell the cars that result.Wish I could be sure about that last bit...but as for the rest, it would certainly change the worker/management relationship.The most efficient way to balance competing interests, as Michael Kinsley noted years ago, isn't an adverserial system where various singleminded interests duke it out--either in court or on picket lines--but in the head of a decisionmaker who will feel the relevant consequences. As long as the government steps out of the financing picture, the UAW will feel the consequences of its own excesses. Just don't bail them out again!
Changing the worker/management relationship is the idea.
Mickey Kaus
OTL Kaus OTL Kaus Let the UAW try to raise money from new lenders after the previous round of lenders has been royally screwed (thanks, in part, to the UAW). And then let the UAW try to sell the cars that result.OTLOldTimeLefty
Posted by: OldTimeLefty at April 30, 2009 8:14 PM
The Brits have been down this road before. Remember British Leyland? See any new MG's or Triumph's driving around?
The UAW sucked the dollars out of the private sector until GM and Chrysler were no longer viable. Now they're sucking dollars from taxpayers, via Democrats paying back the unions for campaign cash (think the bought and paid for RI General Assembly, but on a national scale).
So like British Leyland GM and Chrysler will suck dollars from taxpayers for years to come, not based on merit, but on politics. As with unionized products and services, the quality will continue to decline even as the price goes up.
Don't buy a vehicle from a UAW controlled company (crap quality aside) - now the UAW is already taking money from your paycheck every week, so why give them more? Support the union free automakers building higher quality vehicles and doing so without taking money from your paycheck!
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