Obama Support for Auto Bailout Characterized as Payoff to United Auto Workers

UAW logoPeter Flaherty, President of the National Legal and Policy Center (NLPC), today criticized proposals to bailout GM, Chrysler and Ford, arguing that the plans are actually intended to bailout the United Auto Workers (UAW). Flaherty said:

The $700-billion Wall Street bailout was not meant to be a prize for special interest groups that were on the winning side of the election. It is a mistake to use TARP to reward high-tax, non-right to work states like Michigan. It was argued that failure of financial firms posed systemic risk; no such risk exists with the automakers.

The automaker bailout is actually a UAW bailout. The union will not allow companies to deploy capital in ways that the market would dictate such as closing plants and layoffs. That’s why UAW opposed the GM/Chrysler merger and a government role in it.

UAW wants to instead enrich health and retirement plans they control, like the $35 billion GM VEBA (Voluntary Employee Beneficial Association). GM is scheduled to make a $7 billion payment in 2010. These entities will survive the collapse of the companies. Union boss control of all this money will not protect worker benefits, but will only guarantee another generation of union corruption and political power.

Obama has a dilemma. It he provides a short-term fix now on the UAW’s terms, these companies are doomed. Later, he will face requests for even more taxpayer money. A so-called bridge loan would be more like a bridge to nowhere loan.

The automakers’ biggest problem is union contracts. The price of equity shares go down when overvalued, but contracts stay the same. To subsidize these contracts is unfair to other automakers operating in the United States. Yes, they are foreign companies but they have assembly plants here.

It was foreign companies that brought hybrids to market. Nancy Pelosi and Harry Reid cannot design cars any better than they can run Congress. The loan program for retooling is nothing more than industrial policy, a discredited remnant of the 20th century.

If the purpose is to save jobs, then automakers are nothing more than jobs programs. There are more efficient ways to create jobs, like cutting taxes. END STATEMENT

NLPC promotes ethics in public life and sponsors the Organized Labor Accountability Project. Since 1997, NLPC has published a newsletter titled Union Corruption Update twice a month.