UAW Makes Out (Again) on GM Bankruptcy

autoworkerThe New York Times reports that the auto industry “overhaul” (AKA General Motors’ bankruptcy) is about to “pay off handsomely” for UAW workers at GM. GM, along with Ford, is expected to announce profit-sharing checks for hourly workers this month. UAW president, Bob King, states that workers expect to get a piece of GM’s profits.

There was a time when publicly traded companies were expected to deliver profits to shareholders in the form of dividends or increased share price. This model seems to have been subordinated at General Motors where the desires of politically favored union members seem to take precedence over other stakeholders. In a particularly egregious example of the wealth redistribution scheme at GM, Old GM bondholders have yet to receive their equity distribution as laid out in the  bankruptcy proceeding. It is likely that additional stock offerings will dilute the bondholders’ share while their equity is held in trust at Motors Liquidation Company (Old GM). The sacrifices made by the old GM bondholders and shareholders are seldom mentioned compared to the frequent references to UAW “sacrifices.”

It is debatable that the UAW has made significant sacrifices in the General Motors’ bankruptcy. When discussing the lowered labor costs at GM, it is important to note that the majority of the labor cost reductions are a result of an agreement reached with the UAW in 2007 relating to the transference of health care liability costs to the UAW. I remain unimpressed with the claims that the UAW has sacrificed much, particularly when compared to other stakeholders (including taxpayers), as a result of the GM bankruptcy.

Another of the so-called sacrifices is the lowered rate at which new workers are paid.  Considering that GM recently announced that they were offering $60,000 each to thousands of existing workers to retire early with full benefits, it does not seem highly likely that there will be a glut of new workers hired as GM tries to reduce its US workforce. More investments are being made to capitalize on manufacturing outside of the US, especially in China. Many GM models are already manufactured in Mexico and Canada.

Sharing in profits at domestic automakers is not enough to please the UAW as they target foreign owned competitors that employ workers in the US. It is a telling statistic that UAW membership has fallen from 1.5 million in 1979 to the current approximate 350,000 members. Regarding the push, Bob King stated that the UAW will play tough with Toyota, Honda, BMW, Hyundai and others if they don’t agree to secret balloting when voting to unionize operations. King went so far as to say that companies that do not cooperate will be branded as “human rights violators.”

It is widely recognized that the high costs of UAW obligations played a large part in the near-collapse of the US auto industry. It is beyond debate that it was a major cause of the General Motors’ bankruptcy. Domestic automakers, as well as their foreign owned counterparts, should bear in mind the past results when considering if the GM/UAW model is the most promising partnership template for the future. I would go a step further to argue that a more successful partnership should be based on fair treatment of all involved stakeholders as established in over 200 years of free-market capitalism and contract law.  This partnership should ensure fair treatment of taxpayers, shareholders, creditors and yes, the workers. This fair treatment should not be contingent upon the party’s political clout.