Detroit Doesn’t Understand Why The Automaker Bailout Must Not Happen

The bailout for the Big Three Automakers is still being dicussed in Congress even though the bill itself is on life-support. This isn’t because it’s a good idea (it isn’t), rather it is because the Democrats have to pay back the support they got from the United Auto Workers and they want Main Street America to pony up the money.

Running alongside this argument is a spotlight that illuminates what is going on in Detroit and why the Big Three Automakers are in trouble. Unfortunately for the UAW, these revelations don’t make them look good.

From Dan Calabrese of the North Star Writers Group:

To survive in business, you have to make a profit. Period. Nothing else matters. General Motors, Ford and Chrysler don’t do that, so they deserve to die.

But if you want to understand why they don’t make a profit, all you need to do is look at two schemes concocted along with the United Auto Workers – the Voluntary Employee Beneficiary Association (VEBA) and the UAW Jobs Bank. The two entities work in different ways, but they have one devastating fact in common. Both require the automakers to pay billions to people who don’t do any work for them.

The VEBA, which is actually being hailed by Detroit media and civic leadership as a positive measure, is in reality a way for the UAW to protect its retirees from losing their health benefits in the event of an automaker bankruptcy. Negotiated by GM in 2007, it requires the UAW to administer retiree health benefits beginning in January 2010. That’s the part the industry’s defenders keep pointing to – the notion that it offloads retiree benefits onto the union, as if the union was going to pay these benefits out of its own pocket.

In fact, GM is required to continue spending $1.8 billion a year through the end of 2009 on retiree health benefits, while also bankrolling the VEBA to the tune of an astounding $24.1 billion so the funds are ready for the UAW to begin administering on January 1, 2010.

And that’s not all. GM will be required to make up to 20 additional annual payments of $165 million apiece in order to guarantee that retiree health benefits for UAW members are not reduced at all for 25 years. This is what the Big Three would have us believe amounts to legacy cost relief.

But even that is not as outrageous as the Jobs Bank. Established in 1984, the original purpose of the Jobs Bank was to keep workers available during temporary layoffs when the emerging technology of the time was causing short-term displacement of workers. A worker would receive 95 percent of his or her wage for up to two years – again, through a fund administered by the UAW but funded by the Big Three – until a new job opened up.

As long as the Big Three are throwing money away on these outrageous expenditures on the unions, they will not be able to make money and therefore will not be able to remain competitive in the market. The Big Three need to go into Chapter 11 to break these wasteful contracts.

But, what of the union leadership?

Read on:

UAW President Ron Gettelfinger, who is predictably coming under fire from all quarters for clinging to these perks, held an astounding news conference late last week in which he insisted that none of this has caused the problem. Again citing the struggling economy and the consumer credit crunch, Gettelfinger began howling, “It’s not our fault! It’s not our fault!

It was an eye-opening scene, and surely illustrative for anyone who is just now getting introduced to economic thinking, Detroit-style. If my eight-year-old talked like that, I would send him to his room. In Detroit, this passes for community leadership.

Gettelfinger knows where the groceries are coming from and he knows who is paying for them. As long as he and his union management cronies are making bank off of these deals, they want to keep them in place, even if it means having Joe and Jane Average American pay for it with higher taxes.

You can access the complete column on-line here:

No, Detroit, It’s You Who Doesn’t Understand
Dan Calabrese
North Star Writers Group
November 24, 2008

Another Reason For Opposing A Bailout Of The Big Three Automakers

Jobs bank programs. I doubt anyone can give one good reason why we should pay people not to work. But that is what is happening up in Detroit and one of the many reasons why the American automakers are failing.

The following excerpt comes from a story first published by the Detroit News back in 2005. It should have been a clear warning sign to anyone who read it.

Ken Pool is making good money. On weekdays, he shows up at 7 a.m. at Ford Motor Co.’s Michigan Truck Plant in Wayne, signs in, and then starts working — on a crossword puzzle. Pool hates the monotony, but the pay is good: more than $31 an hour, plus benefits.

“We just go in and play crossword puzzles, watch videos that someone brings in or read the newspaper,” he says. “Otherwise, I’ve just sat.”

Pool is one of more than 12,000 American autoworkers who, instead of installing windshields or bending sheet metal, spend their days counting the hours in a jobs bank set up by Detroit automakers and Delphi Corp. as part of an extraordinary job security agreement with the United Auto Workers union.

“Extraordinary” doesn’t even begin to cover it. I doubt that other workers in the United States get such a sweetheart of a deal. But, it is the rest of the United States that pays for this program in the form of higher priced cars.

More:

Detroit automakers declined to discuss the programs in detail or say exactly how much they are spending, but the four-year labor contracts they signed with the UAW in 2003 established contribution caps that give a good idea of the size of the expense.

According to those documents, GM agreed to contribute up to $2.1 billion over four years. DaimlerChrysler set aside $451 million for its program, along with another $50 million for salaried employees covered under the contract. Ford, which also maintained responsibility for Visteon Corp.’s UAW employees, agreed to contribute $944 million.

Delphi pledged to contribute $630 million. In August, however, Delphi Chairman and Chief Executive Officer Robert S. “Steve” Miller said the company spent more than $100 million on its jobs bank program in the second quarter alone.

“Can we keep losing $400 million a year paying for workers in the jobs bank and $400 million a year on operations? No, we cannot deal with that indefinitely,” Miller said in a recent interview with The Detroit News. “We can’t wait until 2007.”

Steve Miller got it right. Has Detroit learned any lessons from this? Maybe some small ones. The jobs bank was cut in 2007 under a collective bargaining agreement with GM, but it was not done away with.

Given that the Big Three are going to the Feds begging for a bailout, it was obviously too little, too late.

You can access the complete article on-line here:

Jobs Bank Programs — 12,000 Paid Not To Work
Bryce G. Hoffman
The Detroit News
October 17, 2005

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