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.
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.

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:

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.
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!

Wish I could be sure about that last bit…but as for the rest, it would certainly change the worker/management relationship.

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OldTimeLefty
12 years ago

Changing the worker/management relationship is the idea.
Mickey Kaus

Let the UAW, as new owner of GM, pay the price for the overgrown work rules of its locals.

OTL

Labor will have direct input into workrules. People of Mr. Kaus obvious bent would tend to see this as detrimental, but there are more people outside Wall Street than inside it, even if we add a population such as writes in this blog. The numbers are not there for you. Change is about to happen. Take a deep breath, relax. Obama will save capitalism, and in so doing will alter its face, much the same as FDR saved capitalism in 1936 and altered its face. .

Kaus

Let the UAW demand above-market raises from itself. .

OTL

The UAW has an invested interest in the company, it is part of management. It has input in the board room. Why would anyone think that it would want to kill itself?

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.OTL

The Company, UAW included, will have enough financial suitors to raise money sufficient for its needs. Workers going back to secure jobs will be buying cars again, that’ll be a start. It’s great to contemplate marrying Italian design to American craftsmanship.

OldTimeLefty

Ragin' Rhode Islander
Ragin' Rhode Islander
12 years ago

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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