Who's Losing the U.S. Car Business?
After Chairman Mao’s revolution about 60 years ago, people in the U.S. played the blame game by asking, “Who lost China?” Well, following the breakdown of an arduous seven-hour Senate negotiating session on Thursday night, many are asking, “Who lost the U.S. car business?” Right after the UAW vetoed a compromise, bankruptcy-lite, Detroit-little-three rescue plan put together by Tennessee Republican Bob Corker, UAW president Ron Gettelfinger played the blame game by blasting Corker and the Republican party for “singling out” union workers to shoulder the burden of reviving the U.S. car business.
In truth, the UAW is to blame.
If Sen. Corker’s plan had prevailed, with UAW support, many believe it would have had 90 votes in the Senate. GM could have gone forward with a clean-as-a-whistle balance sheet under a three-part restructuring plan that included a $60 billion bond-refinancing cram-down, a renegotiation of the $30 billion VEBA health-care trust, and a pay-restructuring plan that would put Detroit compensation levels in line with those of foreign transplants Honda, Toyota, Nissan, and BMW.
Average compensation for the Detroit little three is $72.31. Toyota’s average wage is $47.60, Honda’s is $42.05, and Nissan’s is $41.97, for an average of $44.20. So Corker’s idea was to bring that $72 a lot closer to that $44. (Corker notably knocked out Korean carmaker Kia, which has super-low wages.)
Corker’s plan also was constructed in true compromise fashion. Among the negotiators were reps from GM, Chrysler, and Ford, and bondholders like fixed-income giant PIMCO. Critically, UAW representatives also were in the negotiating room, with an open line to Gettelfinger back home.
During the negotiations Corker tried to be as compromising as possible on the tough question of wages, benefits, and overall compensation. He asked the union to be competitive, but he never specified parity or complete equality with the foreign transplants. And Corker provided that the comp-package would be certified next year by the secretary of Labor -- an Obama selection. In addition, the Senate governing the package would be made up of 58 Democrats, rather than today’s 50.
All Corker asked was a 2009 date for union pay restructuring. Sen. Corker never specified his date. He asked the UAW to name its date for a new pay package. But it had to be in 2009. In return, union members would get a lot of stock in this deal -- up to $10.5 billion of new equity as GM’s heavy debt burden would be converted into common shares.
But the UAW refused to make concessions. Instead, it insisted it would only renegotiate its current contract when it ends in 2011. That was the sticking point that killed the deal.
You have to ask this question: If the Detroit carmakers are in dire straits, going broke in two weeks, right now in late 2008, how can the UAW wait until 2011 to make its concessions? The financial problem is today, not two years from today. The threat of liquidation, with perhaps a few million autoworker, supplier, and car-dealer jobs lost, is today’s threat, not a 2011 threat. So what’s the UAW waiting for?
That’s easy. Gettelfinger is waiting for President Obama and a Senate with 58 Democrats. He also was playing a game of bluff with President George W. Bush. He knew Bush had $15 billion of TARP money ready to go, meaning the TARP was Gettelfinger’s trump card. The tough-minded union leader never believed the White House would let GM sink and possibly force millions of job losses in the middle of a recession.
So while Sen. Corker was negotiating in good faith (even with the support of Democratic big-wig Chris Dodd), Gettelfinger doomed the deal, knowing full well that the Democratic Senate conference would never walk away from the UAW.
What happens now is anybody’s guess. The White House has suggested that TARP may be called into play, although the Treasury is in no rush to make a decision. The Treasury is going to kick the tires to see if a TARP bailout for Detroit really works. However, a TARP auto bailout may require new legislation. And ironically, a Treasury TARP loan may carry the very same conditions proposed by Sen. Corker, including a “car tsar” to supervise the whole operation.
Whatever the outcome, Bob Corker has emerged as a Senate star. As a former businessman who ran his own construction company and built shopping centers, and a former chief operating officer for the state of Tennessee, Corker knows finance and the economy. He even was a long-time union member -- beginning as a 19-year-old bricklayer -- and a trustee of the carpenter’s union fund in his home state.
So while Mr. Corker may have lost this battle, he will be heard from again.