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The UAW’s Demands Would Kill GM

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The UAW’s Demands Would Kill GM

New York Post September 19, 2019

“G.M. Workers Say They Sacrificed, and Now They Want Their Due,” a headline in The New York Times declares. Another explains, “For G.M. Workers, U.A.W. Strike Is Chance for Overdue Payback.” The gist of both is that workers suffered enormously during the General Motors bailout and subsequent bankruptcy, and now they want to be made whole. As the United Auto Workers said about the strike against GM, which began Monday, the union is looking for “fair wages, affordable health care, our share of profits.”

The union must be hoping that everyone forgets recent history. After all, Washington’s 2008 bailout saved not only tens of thousands of jobs but also rescued employee pensions. Workers currently pay far less for health care than the average private sector employee. Production workers have received billions of dollars of profit sharing.

Now, the company is negotiating with the UAW to remain flexible in the face of a weakening auto market, while the UAW is looking for a contract that reflects the old days — when GM’s fixed personnel costs provided benefits for workers to cherish but gave the automaker little room to maneuver. It’s a battle of the old unionized industrial economy versus a new one that’s trying to emerge. Saving industrial jobs in the US probably requires that the newer model succeed.

General Motors lost a combined $70 billion in 2007 and 2008. Counting salaries, benefits and so-called legacy costs (the pension and health care obligations), GM’s labor costs were 45% higher than those of its foreign competition.

Among other perks, the company paid production workers 95% of their salaries when they were temporarily laid off. With arrangements like that, GM had little chance back in 2008 of cutting costs fast enough to cope with a decline in sales.

The federal government was unwilling to let GM fail, given its size, and stepped in with rescue operations that proved expensive, though not sufficient to save the company from bankruptcy. In exchange for billions, GM trimmed its workforce and reduced costs.

The UAW agreed that new workers would start at $15 an hour, about half of what current employees were earning, with the prospect of raising their pay over eight years to $29.

Current workers kept their defined-benefit pensions, but new employees got 401(k)s resembling those of most private worker retirement plans.

Crucially, workers retained an attractive health care package, paying on average of just 3% to 4% of total costs.

Shareholders and bondholders took it on the chin. When the company filed for bankruptcy in 2009, stockholders were wiped out. Bondholders took a “haircut.”

Though GM did pay back the government’s loans, the company wound up with an $11 billion taxpayer bailout.

That money was crucial to the subsequent success of the new company, which has earned $35 billion over the last three years, sharing a chunk of that with workers. Since 2010, according to Automotive News, General Motors’ hourly workers have earned $80,500 each in bonuses.

But the economy is cyclical. The company’s earnings fell by 9% in the second quarter this year, and the slump is expected to continue through 2020. GM has begun working to cut costs by idling several plants.

Those cutbacks, amounting to 2,800 production jobs, have earned the ire of not only the union but also President Trump. By contrast, investment banker Steven Rattner, who helped negotiate the government deal with GM, called the cutbacks “a rational response to many worrisome factors.”

GM’s negotiations with the UAW are an effort to cut costs further. It wants union members to contribute up to 15% of the cost of health insurance, still only about half of what the average private sector worker pays.

The union is resisting. It wants GM to increase pay for workers hired after the bankruptcy to bring them up to par with older workers and reopen at least one of the shut-down plants.

Essentially, the union believes the concessions it made during the bankruptcy were temporary, and that the contract negotiations are a chance to reclaim lost ground. They’ve been buoyed somewhat by Trump, who has visited industrial sites around the country, urging manufacturers to keep jobs here.

But the question remains: Keep them here at what cost?

This piece originally appeared at the New York Post


Steven Malanga is the George M. Yeager Fellow at the Manhattan Institute and a senior editor at City Journal.  This piece was adapted from City Journal.

Photo: Bill Pugliano/Getty Images