Victims of the “Rescue”

Political leaders in Washington are vowing to get tough on the Big Three auto company executives in return for proposed emergency loans to save the automakers from bankruptcy.

But it’s autoworkers, not management, who will take the worst beating under the “rescue” that Congress is engineering.

With the Big Three joining the array of banks and businesses saved by the government, the question “Where’s the bailout for the rest of us?” takes on a particularly sharp form in this case: Why should the government hand over $15 billion in loans to incompetent executives when it could take over the auto companies outright for roughly the same amount of money–and put the workers who know them from the bottom up in charge of transforming the U.S. car industry?

Democratic congressional leaders announced December 8 that they had finalized a proposal to grant $15 billion in bridge loans to the carmakers.

In contrast to the all-but-no-strings-attached rescues for big Wall Street banks, General Motors, Ford and Chrysler would have to accept strict government oversight to get the loans, with a board of Cabinet secretaries led by a so-called “car czar” to hold the companies accountable for their business strategies and major financial transactions.

According to reports, the congressional Democrats’ proposal stops short of measures put forward by the Bush White House that would have amounted to what the New York Times called an “out-of-court bankruptcy proceeding.”

Still, this would be a dramatic government intervention in the auto industry–underlining both the scale of the crisis for the car companies and the importance of the industry to the U.S. economy as a whole.

The three companies went to Washington for help in the summer, as gas prices peaked at over $4 a gallon. Congress came up with $25 billion in loan guarantees, to be used specifically to help car companies retool fast to produce smaller, fuel-efficient vehicles.

Now, gas prices are back below $2 a gallon, but the car companies are doing even worse. For November, sales were down 37 percent at Ford, 41 percent at GM and 47 percent at Chrysler over the year before.

GM is in the worst financial position of the three. When CEO Rick Wagoner testified before Congress earlier this month, the company revealed that its balance sheet showed a “$60 billion negative net worth position at September 30, 2008.”

For GM especially, the bridge loans Congress is proposing are a stopgap measure that will tide it over for only a few months. Nevertheless, in return for the money–or, in Ford’s case, the promise of loans in the future if its sales deteriorate further–the companies are vowing to limit executive pay, shake up product lines and, above all, slash production jobs and close factories.

At GM, the reorganization plan presented to Congress calls for shedding 30,000 jobs–at a company that has already downsized from 466,000 hourly workers in 1978 to 112,000 in 2006.

United Auto Workers (UAW) President Ron Gettelfinger accused Congress of making union members bear the brunt of the punishment with its bailout plan. Nevertheless, the UAW announced it would make major concessions on contracts negotiated last year, including suspending a “job bank” program for laid-off workers and allowing companies to put off payments into a new fund for retiree health care benefits.

In other words, for autoworkers, Congress’ “rescue” won’t look much different from the alternative.

“Detroit automakers can achieve the boon of bankruptcy–wage and benefit cuts–without all the financial disruption,” wrote recently retired autoworker and UAW dissident Gregg Shotwell. “Congress will demand ‘shared sacrifice,’ which translates into deferred compensation for shareholders and executives, and unrecoverable losses for workers and retirees.”

Even with these conditions extracted from the UAW and the Big Three, the Democrats’ proposal isn’t a done deal. The Bush administration is said to be close to an agreement on the proposal, but congressional Republicans are threatening to block the legislation with a Senate filibuster.

Their alternative is to let the car companies go to the wall. Thus, former Republican presidential contender Mitt Romney wrote a New York Times op-ed article titled “Let Detroit Go Bankrupt.” Back during the primaries, when Romney was desperate to win votes in Michigan to save his failing campaign, he spouted populist talk about helping out American workers. Now, apparently, he sees a political advantage in talking out of the other side of his mouth.

If the Republican right got its way, the effect of the failure of the auto industry would be immense.

According to the nonprofit Center for Automotive Research, a complete collapse of the Big Three would cost about 1.3 million jobs directly at the car companies and their suppliers, and another 1.7 million jobs from the overall effect. States like Michigan, already devastated by deindustrialization, would suffer an immense blow, and the federal government would lose $60 billion in tax revenues and other costs in the first year alone, according Robert Weissman of Multinational Monitor.

Fifty-five years ago, the president of GM sat in a congressional hearing room and announced that “what’s good for General Motors is good for the country.”

Now, the former crown jewel of American capitalism has been reduced to going before Congress to ask for money on any terms that lawmakers care to set.

The contrast with the bailout of Wall Street is stark. The recent Citigroup rescue, for example, involved the U.S. government taking $20 billion in preferred shares on top of $25 billion in stock acquired earlier in October–that is, three times more than the Big Three together would get in bridge loans. Plus, the Bush administration put taxpayers on the hook for more than $300 billion in potentially bad debt, and the top management and board of directors were left intact.

But if auto company executives are feeling the insult, the injury to autoworkers is worse–not least, the claim, rampant in the media, that inflated wages and overly generous benefits are at the source of the auto crisis.

For example, as the watchdog group Fairness and Accuracy in Reporting (FAIR) pointed out, mainstream media outlets regularly report that “Ford, Chrysler and GM pay union workers more than $73 an hour in wages and benefits,” whereas Japanese automakers with plants in the U.S. “shell out just over $44,” according to ABC News.

But that’s a statistical sleight of hand, created by adding in the cost of benefits for the large number of retired workers for the Big Three. When current employees are compared, labor costs are roughly the same at the U.S. and Japanese auto plants in the U.S.

Plus, the Big Three have wrung huge concessions from the UAW, including a second-tier wage in the 2007 contract, under which new hires start at as low as $14 an hour, well below pay at the nonunion, foreign-owned “transplants.”

The sad fact is that wages and benefits at the Big Three have been pushed down so far–and demands for sped-up production ratcheted up so high–that labor costs amount to less than the companies pay for hubcaps and fenders, according to Labor Notes’ Mark Brenner and Jane Slaughter.

The problem isn’t overpaid autoworkers, but overpaid and incompetent auto executives. Thus, the same bunch that wants money today to retool for building fuel-efficient vehicles was congratulating itself a decade ago, in an era of low gas prices, for its focus on the gas-guzzling SUV market–and resisting every call for higher fuel-efficiency standards and anti-pollution measures.

All of which begs the question: Why has Congress produced a “rescue” plan for the auto industry that depends on auto company executives and their version of “restructuring”? Why not a proposal that gets rid of the bunglers at the top who caused the crisis and sets new priorities for a revitalized industry?

Nationalizing the auto industry hardly seems radical given the scale of the crisis. At current stock prices, General Motors could be bought out for $2.8 billion. The market value for Ford is $6.1 billion. Why not save the $15 billion in loans, with many times that sure to come, and take over the Big Three?

As Jerry Tucker, a former UAW official and leading voice of the union reform movement, said in an interview with radio host Aimee Allison:

It’s not the management who can actually change the direction; perhaps the government ought to look at the role of ownership of the companies and move it towards the concept of being a production center for new transportation ideas in this country. We’ve never had transportation policy, and we’ve never had energy policy, both of which we need sorely.

That really would be “a bailout for the rest of us”–and it wouldn’t stop with the auto industry. For example, it is true that GM, Ford and Chrysler face a disadvantage because they pay at least part of the cost of health care and retirement benefits for workers, while foreign competitors can rely on a national health and pension system in their home countries.

“That burden could be lifted, to the benefit of 47 million uninsured Americans, by adopting a Medicare-style program for everyone,” Mark Brenner and Jane Slaughter wrote in an op-ed article. “It would save the nation as much as $350 billion per year now spent for insurance companies to shuffle paper and deny claims.”

Congress’ bailout proposal for the auto industry is really for the auto executives, just like the rescue of Wall Street was about saving wealthy bankers and investors. To change that will take organizing and struggle.

Alan Maass writes for Socialist Worker where this article first appeared. Read other articles by Alan, or visit Alan's website.

5 comments on this article so far ...

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  1. Deadbeat said on December 11th, 2008 at 10:34am #

    I wonder if Antonia Juhasz will write the book The Tyranny of BANKING The World’s Most Powerful Industry–and What We Must Do to Stop It

  2. Ramsefall said on December 11th, 2008 at 1:48pm #

    Has anyone out there identified the obvious disparity between the price of oil per barrel and prices at the pump? What a scam this has been. Even though they’re making significantly less per barrel, they’re making more at the pump now than when a barrel went for this current lull of sub $40/barrel.

    As most of you remember, in late June a barrel of oil rose to $147 while prices at the pump skyrocketed along with that to a little over four dollars per gallon. In the past six months that same barrel has plummeted by nearly 70%, but at the pump it’s only dropped by about 50%. It doesn’t take a math guru to notice that 20% is unaccounted for. The petroleum industry has managed to fleece that additional 20% from the public, but not much if anything is being said about it. I understand that the public must be feeling some relief, but the point is they should be feeling more relief at about $1.50/gallon. By the time it reaches $35/barrel, the price at the pump should correspond at about a buck/gallon, and downward as it continues along its present decline.

    Boycott the petroleum industry in any way possible; if you can’t afford a hybrid, then carpool, bike or walk whenever possible. These cartels need to have a strong message sent insisting that the people will not accept being robbed any longer.

    Best to all.

  3. Andres Kargar said on December 11th, 2008 at 11:53pm #

    This is class war at its clearest. The Congress bails out members of its own class and ruthlessly crushes the working people, i.e. the majority of the population that are losing their jobs, their homes, their pensions, and their livelihood.

    The only way to win this war would be through persistent and organized protests and demonstrations, not by turning the other cheek or appeasing corporate CEOs or crooked Democratic (or Republican) politicians.

    The banks, insurance companies, and other anti-worker, corporate structures are failing? Let them fail. Weren’t they the ones saying free market should determine who should survive?

  4. john andrews said on December 12th, 2008 at 12:24am #

    You guys think you’re getting fleeced by having to pay aout $2 a gallon for fuel. Here in the UK it’s about $7.50. How do you reckon that considering it’s exactly the same stuff, coming from exactly the same place?

  5. David said on December 12th, 2008 at 10:02am #

    Mr. Maass:

    Thank you for a well written article.

    The real war for what remains of this nation’s (and the world’s) wealth will be fought among competing networks and social cadres of the elite. It is these groups that believe they are entitled to everything that is and will, if they see fit, leave Marie Antoinette’s cake for the rest of us.

    We may take some comfort in the fact that the very people who will suffer the most from this abuse are also the most heavily armed, many of them with military experience. How considerate of the Republicans to have so supported the right to fill a gun cabinet in the basement with everything from slingshots to machine guns. Perhaps we will see the day soon when UAW stands for Army of Auto Workers.