Monthly Archives: December 2008

GM in bankruptcy

This overview of the impact of a GM bankruptcy gives some insight into the complexity that all parties will face.
Left unclear is where the UAW negotiated VEBA debt stands. The VEBA was supposed to be bankruptcy remote but instead it is becoming an ATM for GM to help increase its leverage against creditors.
Of course, the UAW and GM failed to provide UAW workers any disclosure of the risk that bankruptcy entailed for the VEBA when GM workers needed that information – during the contract ratification vote.

GM in bankruptcy (The Deal Newsweekly)

Forget Madoff, SEC Ignored GM/UAW Bailout Risk


Earlier this year, I filed a complaint with the Securities and Exchange Commission on behalf of autoworkers pointing out that GM and the UAW had failed utterly to warn GM employees of the risk of bankruptcy and its impact on the proposed VEBA health care plan.

The VEBA was supposed to be “bankruptcy remote” – secure against bankruptcy risk but it turns out that it is being used to help GM survive bankruptcy.

The SEC complaint was based on my research note, Proposed GM/UAW VEBA: House of Cards.

Sure enough GM is now, in essence, in bankruptcy.
And GM workers and retirees still do not know what will happen to their jobs, their pensions or their health insurance.
That is what the SEC exists for – to protect investors and GM sold the UAW a $4.5 billion convertible note without disclosing the risk of bankruptcy. If the UAW had understood what I laid out in the research note, they likely would have taken a different approach to bargaining last year.
Senator Corker, from Nissan, is proposing now that the cash flows into the VEBA be turned into even more worthless paper, GM stock. Of course, no evidence exists that existing GM bondholders will agree to this. In any case, the auto workers have ALREADY taken a huge hit – the convertible bond is now worth far less than its original face value.
Bankruptcy, whether prepackaged or not, whether or not with a bridge loan from the U.S. Government, is not the way to go. As I proposed in A Way Out for the Auto Industry the way forward is creation a new Public Trust Company that could issue long term low interest bonds to purchase the assets of the Big Three and manage them in the public interest.

Asian Auto Companies Lead Race to Bottom

The Senate Republicans favorite Auto companies are leading the race to the bottom – not in their Asian sweatshops but right here in the United States.  See this important article in the Detroit Free Press.
I warned about the impact of the takeover of GM’s Fremont plant by Toyota back in 1985 in a letter that appeared in the New York Times:
A Dark Day for U.S. Workers Is Dawning at Toyota-G.M. Plant 

To the Editor:

A. H. Raskin heralds the opening of a new era in labor-management relations in the start-up of production at the Fremont, Calif., auto plant jointly managed by Toyota and General Motors (”An Industrial Breakthrough,” Op-Ed, July 23).

But those familiar with both Toyota and G.M. as trade unionists have a different view. Is the price of cooperation the permanent loss of jobs to speedup and automation? Of the original 6,000 workers employed at the plant, the new company, New United Motor Manufacturing Inc., will hire only 2,500. And those only after careful screening of attendance records, disciplinary incidents and attitudes toward labor-management relations. Nummi has pledged only that a majority plus one of these 2,500 will come from the old union shop.

A company rule book promises dismissal of any worker guilty of poor housekeeping, immoral conduct or indecency. Defining those concepts is to be left up to management.

The new arrangement is, in large part, the result of the United Auto Workers international going hat in hand to Toyota and General Motors. The union was willing to dissolve the original Fremont local with its long tradition of democratic activity. Old union activists must run a gantlet to return to their old jobs, and they have given up much of their former input in the new contract. The local no longer has the right to strike over work standards, there is no guarantee of time off for shop stewards for plant-floor representation, and everyone must participate in a work-group structure imported by Toyota from Japan.

If the labor record of Toyota in Japan is any indication, management will be able to take every advantage of the new labor structure. Despite persistent rumors on this side of the Pacific, job security is the privilege of a few who work at final assembly plants. Those who work for the thousands of subcontractors that provide up to 70 percent of an assembly line’s inventory are subject to brutal working conditions, irregular work and no effective union representation. Even the lifetime jobs have forced overtime, a pace that results in high illness and injury rates, and company housing compounds reminiscent of those in South Africa.

The teamwork system serves not to widen the skills of auto workers but to absorb from them as much information and loyalty as possible. The result for management is valuable: a constant hold over the work force 8 to 10 hours a day.

It was once thought by many of those who proudly defended the traditions of the trade-union movement that an independent and democratic organization was the single guarantee that workers’ interests would be protected. It was this principle that influenced the original Wagner Act and has motivated the American trade-union movement for a century or more. Now we are to toss blithely aside this tradition of democratic dissent, for cooperation, consensus and joint participation. These ideas seem more like Stalinist emulation campaigns than the principles of Eugene V. Debs and Samuel Gompers.

Archives: Toyota sweats U.S. labor costs | Freep.com | Detroit Free Press

D.C. to Detroit: "Drop Dead"

For Wall Street, $7 trillion, no questions asked. For Main Street, bupkus. 
Believe it or not this suggests to me that private capital still pins its hopes on globalization: the major source of opposition to the rescue came from southern Republicans like Bob Corker of Tennessee. 
These are politicians with foreign transplants in their home districts who stand to benefit from more problems in Detroit.
But in an odd way the Big Three win, too. Now they have all the excuse they need to shut down high wage good benefits jobs in Detroit and shift production to China and Mexico where police goons keep the unions at bay.
The world is flat, indeed.

Rescue Bid for Detroit Collapses in Senate – WSJ.com

The Death of the Auto Industry?

Snake oil salesman, um, I mean Nobel Prize economist Paul Krugman is once again doing what economists seem incapable of not doing: making a prediction.
This time he says the US auto industry is doomed. Presumably he means the Big Three, not the transplants from Asia and Europe. Though, if the Big Three are gone, at least from the US, then presumably the political pressure on Toyota or Daimler to locate plants here is reduced and they can all retreat to their slave labor camps in Mexico and China.
Of course, that is what Krugman really means. GM has long been trying to shed its dead capital invested here in the US. They know their capital is no longer worth a penny relative to what they can put in place in greenfield plants like those they are opening in Poland, China and Mexico. Of course, that same plant and equipment could be used to produce all sorts of useful products but such a transition would require some thoughtful planning, which is not the job of today’s socially irresponsible corporations.
Combine those new plants overseas with friendly police willing to kill union activists and the financial metrics are pretty darn attractive. 
So, listen to Krugman and you too can buy cars with blood on them.  Maybe Leonardo DiCaprio can make a movie about the new global auto industry.

Krugman: US Auto Industry Will Likely Disappear 

The Way We’ll Watch

An interesting look at the impact of new technologies on the film business.

The Way We’ll Watch – WSJ.com

A Way Out for the Auto Industry


It’s not about competition – it’s about our standard of living

Opponents of the government loans to the Big Three Auto companies contend that if American companies cannot compete they should be allowed to go bankrupt. Thus, the Big Three executives received a cold shoulder when they showed up in Washington, D.C., this week, even after giving up their private jets.

But this misstates the problem. The real problem is not figuring out how to “compete” with organized labor’s brothers and sisters in Asia and Europe.

Instead, it is about all workers – here in the United States and around the world – fighting to maintain their basic standard of living in the midst of catastrophic financial crisis.

This crisis is about all workers not just autoworkers.

Big Three Management has failed its social responsibility

The key to defending and improving workers’ standard of living is the availability of good jobs for all producing socially useful products for all.

The current management of the Big Three has failed that basic social responsibility. And the leadership of the United Auto Workers has been unwilling to challenge the Big Three for their failure, choosing instead to “go along in order to get along.”

Instead, the UAW should draw on its finest traditions as more than just a narrow bread and butter labor union – when, for example during the civil rights era, it backed a broader concept of the public good.  

It should argue now for a restructured transportation industry. If the union does not step forward now, bankruptcy and union busting, much like that underway at Delphi, the auto parts supplier, will consume the entire auto industry. 

Time for a new transportation industry

The valuable physical plant and skilled workforce of current workers and recent retirees of the Big Three can be the basis of a new transportation industry that manufactures a wide range of products for both mass and individual transportation that are environmentally responsible. This new industry can be the basis for a revival of economic growth.

But such a solution cannot be entrusted to the titans of Wall Street, of hedge funds and private equity funds. The collapse this year of major investment banks makes clear that Wall Street no longer knows how to manage workers savings responsibly.

From the Big Three to a Public Trust Company

A new public trust company, or PTC, should be established immediately. The PTC will be managed transparently by trustees who will be elected by autoworkers and members of the communities in which the auto plants are located.

The PTC should be provided a government guarantee to issue long-term bonds at low interest rates that would be held by major pension funds and mutual funds. The cash raised should then be used to purchase the assets of the Big Three auto companies that will then be folded into the PTC.

The PTC will create a new national transportation plan that will be part of an effort to revitalize our cities and move to an environmentally and socially responsible economy managed democratically and transparently in the public interest.

Auto Rescue: Enough Rope to Support a Hanging Man

A deal appears to be in the works to keep the Big Three on life support.

Bloomberg.com:
Worldwide

UAW Chief Doesn’t Get It

Looking for something more to take out of the hides of workers to satisfy Wall Street, Republican Senator Corker demanded that the UAW take a haircut in the value of VEBA assets to match the write down taken by bondholders.

Unsecured debt of GM is now trading at a significant discount to its face value. Would the UAW be willing to write down the value of its VEBA assets in a similar fashion? Corker wanted to know. 

Gettelfinger seemed caught off guard by the question and said he couldn’t reply until he consulted with HIS Wall Street friends, Lazard Freres, the investment bank advising the UAW. 

The reality, of course, is that a huge chunk of the assets held by the GM VEBA is in the form of a $4 billion convertible note that is already far less valuable than the day it was issued. It is no stronger a financial instrument than the unsecured debt held by Corker’s Wall Street friends. 

So the right answer – which Brother Gettelfinger should have known – is that the UAW retirees are already suffering, right alongside those bondholders, from the travails of GM and the other two auto giants. In fact, that is precisely why the Big Three set up the VEBA’s the way they did – they hardly wanted fixed obligations knowing full well they would need “flexibility” to work through this period of trouble. 

It seems that only the UAW leadership is unaware that they too have been caught in the financial collapse in value impacting their industry.

Skeptics Remain as Automakers Return to Capitol Hill – NYTimes.com

Is UAW Violating Rights Owed to Retirees?

The UAW continues its descent into obsolescence today with an announcement that it will offer more concessions to help the Big Three bosses secure a safe and happy retirement. 
At the heart of the latest offer, however, appears to be a violation of the fiduciary obligations owed to retired auto workers. 
Last year, the UAW allowed the Big Three to shift retiree health care off its balance sheets into a new entity called a Voluntary Employee Beneficiary Association, or VEBA. The companies were obligated to fund the VEBA’s with billions in cash, securities and other obligations. Some of the money made it in before the current crisis. 
But now the New York Times is reporting that the UAW, without any right to do so, is offering to allow the Big Three to delay the much needed future financial flows to the VEBA’s. These are the same VEBA’s that were sold as “secure for 80 years” by the UAW when it wanted rank and file ratification of the most recent collective bargaining agreements.
In theory, the VEBA’s are independent trusts, controlled by a board of trustees that owes a fiduciary duty to the beneficiaries of the trust, current and future UAW retirees. 
The fiduciary obligations of a trustee are the strongest known in American law. In the landmark case of Meinhard v. Salmon in 1928, then Judge Cardozo described this solemn obligation thus:
“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate.”
There is no evidence that the trustees of the Big Three VEBA’s have met this long established obligation in the unilateral decision by UAW President Gettelfinger to announce delays of funding to the VEBA’s. Current and future retirees should be outraged.
If this is the way in which the private sector deals with retiree health care at our most important corporations, what chance is there for a genuine national solution to the health care crisis?

Auto Union Says It Would Consider Reopening Contract – NYTimes.com